Permanent Trustee Aust Ltd & Anor v FAI General Insurance (In Liq)

Permanent Trustee Australia Ltd and another (the appellants) appealed to the High Court of Australia against a decision of the Full Federal Court concerning the interpretation of a directors and officers liability insurance policy issued by FAI General Insurance Co Ltd (in liquidation) (the respondent). The dispute arose from claims made against the directors and officers of a company, which FAI refused to indemnify under the policy, leading to litigation.

The central legal issue before the High Court was whether the policy's exclusion clause, which excluded liability for claims arising from "dishonest acts" or "deliberate acts" committed by the insured directors and officers, operated to deny indemnity for the claims made against them. The appellants contended that the exclusion clause should be interpreted narrowly and did not apply to the conduct in question, while FAI argued for a broader interpretation that encompassed the alleged actions.

The High Court, in allowing the appeal, reasoned that the exclusion clause required a deliberate intention to cause harm or loss, not merely a deliberate act that might foreseeably lead to such harm. Gleeson CJ and Gummow J held that the words "dishonest" and "deliberate" in the exclusion clause referred to the state of mind of the insured, requiring proof of an intention to act dishonestly or deliberately to cause harm. They found that the conduct alleged against the directors and officers, while potentially negligent or reckless, did not meet the high threshold of deliberate wrongdoing required to engage the exclusion. The court applied principles of contractual interpretation, emphasizing that exclusionary clauses are to be construed strictly against the insurer and that ambiguity should be resolved in favour of the insured.

The High Court ordered that the appeal be allowed, setting aside the judgment of the Full Federal Court and remitting the matter to the Federal Court for determination of the quantum of indemnity.