XL Insurance Co SE v BNY Trust Company of Australia Limited

XL Insurance Co SE (the appellant) appealed from a decision of Schmidt J in the Supreme Court of New South Wales concerning the construction of a professional indemnity insurance policy. The dispute arose from the appellant's denial of indemnity and refusal to pay defence costs to BNY Trust Company of Australia Limited (the respondent), who was the insured under the policy. The policy was a professional indemnity policy issued to a property valuer, and the denial of indemnity related to valuations undertaken for a specified category of lenders, as set out in an endorsement to the policy.

The primary legal issues before the Court of Appeal were: (1) the proper construction of the insurance contract, particularly an exclusion clause contained in an endorsement; (2) whether an ambiguity arose from the requisite causal nexus between the subject matter of the exclusion clause and the loss suffered; and (3) whether the insurer was entitled to deny indemnity and refuse to pay defence costs. The court also considered the utility and form of a declaration as to the insurer's liability in the absence of a determination of the insured's liability to a claimant.

The Court of Appeal held that the primary judge erred in attaching significance to a concession made by the appellant regarding causation of loss when deciding the construction of the contract. The court applied a business commonsense approach to the construction of the insurance contract, which comprised standard policy wording, a schedule, and endorsements. It found that the exclusion clause in the endorsement was to be interpreted according to its natural and ordinary meaning, and that the absence of ambiguity precluded recourse to the contra proferentem rule. The court determined that the exclusion clause did not apply to the valuations in question, and therefore the insurer was not entitled to deny indemnity.

Consequently, the appeal was allowed, and the orders of the primary judge were set aside. The Court of Appeal answered the separate questions posed by Davies J in favour of the respondent, dismissing the cross-claims and ordering the cross-claimants to pay the cross-defendant's costs. The respondents were also ordered to pay the appellant's costs in the Court of Appeal.