American Home Assurance Company v James Stewart Kirby

American Home Assurance Company (American) appealed to the New South Wales Court of Appeal against a decision of the District Court concerning a professional indemnity insurance policy. The dispute centred on whether American was obliged to indemnify its insured, BDO, for costs incurred in defending certain claims and cross-claims.

The primary legal issue before the Court of Appeal was the interpretation of the "claims" definition within the professional indemnity policy. Specifically, the court had to determine whether the costs BDO incurred in defending and pursuing cross-claims fell within the scope of indemnity provided by the policy, particularly in light of any substantial alterations to the nature of the original claims. A further issue was whether section 40(3) of the *Insurance Contracts Act 1984* (Cth) extended the policy's coverage in this instance.

The Court of Appeal found that the policy's definition of "claims" did not extend to substantial alterations in the nature of the claims defended, nor to cross-claims arising from such alterations. The court reasoned that the costs associated with the cross-claims were not costs arising in the defence of a professional negligence claim against the policyholder, as required by the policy. Consequently, the statutory extension under section 40(3) of the *Insurance Contracts Act 1984* was not applicable on these facts.

The appeal was upheld, and the decision of the District Court was set aside. The matter was remitted to the District Court for further determination, with BDO ordered to pay American's costs of the cross-claim and the appeal, subject to a potential certificate under the *Suitors Fund Act 1951*.