Silbermann v CGU Insurance Ltd

In *Silbermann v CGU Insurance Ltd*, the New South Wales Court of Appeal considered a dispute between an insured, Mr Silbermann, and his liability insurer, CGU Insurance Ltd. The core of the disagreement concerned whether the insurer could avoid its obligation to indemnify the insured based on an exclusion clause in the policy, specifically relating to dishonesty and fraud, before a final judgment or adjudication had been made against the insured.

The Court of Appeal was required to determine the proper interpretation of the exclusion clause and, in particular, whether the insurer's liability to indemnify could be resisted on the grounds of the insured's alleged dishonesty or fraud prior to a definitive finding of such conduct by a court. This involved considering the temporal scope of the exclusion and the conditions precedent to its invocation by the insurer.

The Court held that the exclusion clause, which stipulated that the policy would not cover loss arising from dishonest or fraudulent acts, required a judgment or final adjudication establishing such conduct before the insurer could rely on it to deny indemnity. The Court reasoned that to allow the insurer to unilaterally determine the insured's dishonesty and refuse indemnity prior to a judicial determination would undermine the purpose of liability insurance and the insured's expectation of cover. The legal principle applied was that exclusionary clauses in insurance policies are to be construed strictly against the insurer, and their operation must be clearly and unequivocally established.

In each of the matters before the Court, leave to appeal was granted, but the appeals were ultimately dismissed with costs.