Switzerland Insurance Australia Limited v McCann

Switzerland Insurance Australia Limited (the insurer) appealed a decision concerning a professional indemnity policy issued to McCann, a firm of solicitors. The dispute arose from the misappropriation of client funds by a partner in the firm, who engaged in dishonest and fraudulent conduct by operating an unauthorised bank account to obtain secret profits and commissions from dealings in the prime bank instrument market. This conduct resulted in a liability for the firm.

The Court of Appeal was required to determine whether the insurer was liable to indemnify the firm under the professional indemnity policy. Specifically, the court had to consider two exclusion clauses: one excluding liability arising from a contract other than a contract to provide services within the definition of the practice, and another excluding liability "brought about" by a dishonest or fraudulent act or omission of an assured, including any partner. The court also considered whether the phrase "brought about" necessitated a proximate cause inquiry and whether the insurer was excluded from indemnity due to the assured's knowledge of prior known circumstances.

The Court of Appeal found that the partner's conduct constituted a breach of fiduciary duty owed to the client and involved dishonest and fraudulent conduct. The court interpreted the exclusion clause relating to dishonest or fraudulent acts to mean that the liability must be a direct consequence of such acts, requiring a proximate cause analysis. The court concluded that the partner's fraudulent conduct was the proximate cause of the firm's liability, and therefore, the exclusion applied. The court also found that the other exclusion clauses were not applicable in this instance.

Consequently, the Court of Appeal set aside the orders made by the Commercial Division and dismissed the summons. Judgment was entered for the first appellant (Switzerland Insurance Australia Limited) on the cross-claim for $2,067,819.92 plus daily interest, and for the second appellant for $2,104,611.18 plus daily interest. The respondents were ordered to pay the appellants' costs of the proceedings in both the Commercial Division and the Court of Appeal.