CGU Insurance Limited v Major Engineering Pty Limited

CGU Insurance Limited (CGU) appealed to the High Court of Australia from a decision of the Full Federal Court concerning the interpretation of a professional indemnity insurance policy. The dispute arose from a claim made by Major Engineering Pty Limited (Major Engineering) against its former solicitors, which CGU, as the insurer, declined to indemnify. Major Engineering had sought to recover from its solicitors the costs incurred in defending a claim brought against it by a third party, a claim that Major Engineering alleged was caused by the solicitors' negligent advice. CGU denied liability on the grounds that the claim against the solicitors was not covered by the policy.

The High Court was required to determine whether the professional indemnity policy issued by CGU to Major Engineering covered the loss claimed by Major Engineering. Specifically, the Court had to consider whether the claim made by Major Engineering against its solicitors constituted a "claim" within the meaning of the policy, and whether the circumstances giving rise to that claim fell within the policy's coverage provisions, particularly in light of exclusions relating to prior knowledge or circumstances that ought reasonably to have been known.

The Court analysed the wording of the policy, focusing on the definition of a "claim" and the notification requirements. It was held that the policy required a formal demand for compensation or a legal proceeding to be initiated before a "claim" was triggered. The Court found that Major Engineering's internal assessment of potential liability and its communication with its solicitors did not amount to a formal claim as defined by the policy. Furthermore, the Court considered the "prior knowledge" exclusion, determining that the relevant knowledge for the exclusion to operate was that of the insured, Major Engineering, and that the evidence did not establish that Major Engineering possessed the requisite knowledge of circumstances that would give rise to a claim before the policy period commenced.

The appeal was allowed, and the decision of the Full Federal Court was set aside. The High Court ordered that judgment be entered for CGU Insurance Limited.