CGU Insurance Ltd. v Porthouse

CGU Insurance Ltd. appealed a decision of the primary judge concerning a claim for indemnity under a professional indemnity policy. The dispute arose from a claim brought by Mr. Bahmad, who was injured while undertaking community service. Mr. Bahmad's legal representative, the respondent barrister, was found to have been negligent in commencing proceedings after amendments to relevant legislation came into effect, which ultimately defeated Mr. Bahmad's claim. The primary judge found the barrister negligent but held that the claim for indemnity against CGU was not excluded by the policy's "known circumstances" clause.

The Court of Appeal was required to determine whether the primary judge erred in finding that a reasonable person in the barrister's professional position would not have thought, as at the policy commencement date, that a situation existed which might result in an allegation of negligence against him. This involved construing the "known circumstances" exclusion clause within the professional indemnity policy, specifically the meaning of "a reasonable person in the Insured's professional position," "would have thought," and "might result in someone making an allegation against an Insured in respect of a liability that might be covered by this Policy."

By majority, the Court of Appeal dismissed CGU's appeal. The majority found that the primary judge's assessment of the barrister's state of mind was open to her. The primary judge had found that while the barrister understood there were legal difficulties with Mr. Bahmad's case, he believed he had taken all reasonable steps and that Mr. Bahmad had good prospects of success on appeal. Crucially, the primary judge found that it had not occurred to the barrister that the issues concerning the late filing of the statement of claim or the failure to find relevant legislation could give rise to a claim against him, and that the possibility of such a claim only became apparent after the Court of Appeal hearing. The majority upheld the primary judge's conclusion that the exclusion clause was not engaged.