Chang v Lumley General Insurance (NZ) Ltd HC Auckland CIV 2009-404-7820

[2010] NZHC 1588

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-7820

BETWEEN  ALEXANDER RUSSELL CHANG AND ANDRINA CHANG

Plaintiffs

ANDLUMLEY GENERAL INSURANCE (NZ) LIMITED

Intended First Defencant

ANDANGELA DEVANEY Second Defendant

ANDDEVANEY PRACTICE LIMITED Third Defendant

Hearing:         26 May 2010

Appearances: D H McLellan and J N Burton for Plaintiffs

M G Ring QC and H Twomey for Intended First Defendant
No appearance for Second and Third Defendants

Judgment:      23 August 2010

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on

23 August 2010 at 3.30 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Izard Weston, PO Box 5348, Wellington

Shieff Angland, PO Box 2180, Auckland

Copy to:
D H McLellan, PO Box 4338, Shortland Street, Auckland 1140

M G Ring QC, PO Box 105521, Auckland 1143

CHANG V LUMLEY GENERAL INSURANCE (NZ) LIMITED AND ORS HC AK CIV-2009-404-7820  23

August 2010

Introduction

[1]      The plaintiffs have made an application under s 9(4) of the Law Reform Act

1936 (“the Act”) in which they seek leave to commence a proceeding against the intended first defendant (“Lumley”).  They assert that they have an arguable claim against The Wealthcare Group Ltd (In Liquidation) (“Wealthcare”).  They also claim that it is arguable that Lumley is liable to indemnify Wealthcare for any liability that it has  to the  plaintiffs  under  a  professional  indemnity policy by which  Lumley insured Wealthcare in respect of legal liability for claims arising out of Wealthcare’s business activities.

[2]      Wealthcare was in the business of providing financial planning services to medical  professionals.    The  second  defendant,  Ms Devaney,  was  a  director  of Wealthcare between approximately 4 June 2002 and 2 July 2007.

Background

[3]      Between 1993 and 2009 the plaintiffs, Dr Alexander Chang and his wife, Andrina Chang lived overseas, while Dr Chang pursued an academic career.

[4]      Because  Wealthcare  is  insolvent  and  in  liquidation,  the  plaintiffs’  only prospect of recovering their losses (apart from claims against the second and third defendants)  is  by succeeding  in  a  claim  against  Lumley under  the  professional indemnity policy.

[5]      In  1993  the  plaintiffs  engaged  the  Medical  Assurance  Society  in  New Zealand to provide financial planning services.  Ms Devaney was then the manager of   the   Medical   Assurance   Society’s   financial   planning   division.      In   2000

Ms Devaney left the Medical Assurance Society and commenced providing financial planning services on her own account, trading as Devaney Practice.   Later, she incorporated the third defendant, Devaney Practice Ltd.  Then, from October 2002, she provided financial planning services to the plaintiffs as a director of Wealthcare.

[6]      By  a  letter  dated  13 September  2007,  the  plaintiffs  complained  that

Ms Devaney had acted negligently.  In the statement of claim they allege that in June

2002 they entered into a contract with Wealthcare pursuant to which Wealthcare agreed to provide financial planning services to them.   Thereafter they forwarded money to Wealthcare’s trust account with the intention that the money would be invested on their behalf.   They allege that their contract with Wealthcare had an implied term that Wealthcare would provide financial planning services through its agent and director, Ms Devaney, in accordance with the professional care and skill that would be exercised by a reasonably competent and diligent financial planning consultant.

[7]      The plaintiffs allege in paragraph 30 of the statement of claim that:

30.      In providing financial planning services to the plaintiffs, Wealthcare

Group, through its director and agent Devaney, breached that implied term.

Particulars

30.1     In failing to give effect to or implement the plaintiffs’ instructions, including by:

30.1.1 Failing to structure a financial plan which was suitable for the future financial planning purposes of the plaintiffs and which recognised their particular circumstances and their medium risk  profile.    Further  particulars  are  provided  in paragraph 30.2 below.

30.1.2Failing to structure a financial plan which recognised the plaintiffs’ need for security in relation to sums of money which were known by both the plaintiffs and Devaney to be for the purpose of the plaintiffs’ buying a retirement home when they eventually returned to New Zealand.  These funds were expressly referred to by the plaintiffs and Devaney in their communications as “the house account” or “house money”.  Further particulars are provided in paragraph 30.2 below.

30.2Wealthcare’s and Devaney’s failures to give effect to or implement the plaintiffs’ instructions as set out above resulted in Wealthcare investing substantial sums of money remitted to Wealthcare in investments which were unsuitable for the plaintiffs’ financial planning requirements set out in paragraphs 30.1 including:

30.2.1Between 19 November 2002 and 21 August 2007 sums totalling   $491,526.02   were   invested   on   behalf   of   the plaintiffs in debenture stock issued by Bridgecorp Limited.

30.2.2Between 19 November 2002 and 21 August 2007 sums totalling   $686,753.16   were   invested   on   behalf   of   the plaintiffs in debenture stock issued by Bridgecorp Limited. These   sums   were   recognised   by   Wealthcare   and   the plaintiffs to be the so-called “house money”.

30.2.3 Between  28  August  2005  and  26  February  2007  sums totalling $85,481.98 were invested on behalf of the plaintiffs in debenture stock issued by Capital+Merchant Finance.

30.2.4  Between 30 May 2005 and  30 May 2007 sums  totalling

$58,748.72  were  invested  on  behalf  of  the  plaintiffs  in debenture stock issued by Capital+Merchant Finance.

30.2.5  Between  4  July  2005  and  4  July  2007  sums  totalling

$133,397 were invested on behalf of the plaintiffs in secured debenture stock issued by St Laurence Ltd.

[8]      As can be seen the claim has as its backdrop the collapse of Bridgecorp Ltd and Capital+Merchant Finance Ltd and the inability of St Laurence Group to repay secured debenture holders such as the plaintiffs.   Wealthcare had invested the plaintiffs’ money in those three companies.   It is claimed that, as a result of Wealthcare’s  breach  of  its  contract  of  retainer,  Ms Devaney  and  Wealthcare implemented a financial plan which included investments that were unsuitable for the plaintiffs’ needs and resulted in the loss of over $1,468,000.

The Law Reform Act 1936, section 9

[9]      Section 9(1) of the Law Reform Act 1936 provides that where a contract of insurance provides cover for the liability of an insured person to pay damages, the amount of the insured’s liability shall be a charge on all insurance money that is or may become payable in respect of that liability.  The charge arises on the happening of the event giving rise to the claim for damages, notwithstanding that the amount of the liability may not then have been determined.

[10]     Under s 9(2) if, on the happening of the event giving rise to the claim for damages the insured is insolvent or, in the case of a corporation, is being wound up, the  provisions  of  s 9(1)  apply  notwithstanding  the  winding  up.     Where  this subsection applies a proceeding may be commenced against the corporation’s insurer as of right.  Where a winding up arises after the event that has given rise to the cause

of action then, as in every other case where it is sought to make a claim under the section, the leave of the Court is required.  This follows from the proviso to s 9(4) which is set out below.

[11]     Under s 9(3) every charge created by the section has priority over all other charges affecting the insurance money.

[12]     Section 9(4) provides:

(4)       Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same Court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the Court shall have the same powers, as if the action were against the insured:

Provided that, except where the provisions of subsection (2) of this section apply, no such action shall be commenced in any Court except with the leave of that Court.

[13]     The plaintiffs acknowledge that leave is required in the present case, and have made the present application accordingly.

[14]     Lumley opposes the application for leave.   It accepts that to succeed in its opposition it must show that there would be no realistic prospect that a claim brought against it by Wealthcare and/or Ms Devaney,[1] for indemnity in respect of the liability alleged against them by the plaintiffs, could succeed.   That would have the consequence that there would be no charge which the plaintiffs could enforce against Lumley.

Further background

[1] Generally referred to collectively as Wealthcare, since nothing turns on a distinction between them for present purposes.

[15]     Over the period relevant to the plaintiffs’ claim Lumley insured Wealthcare under  successive  professional  indemnity policies.    Under  each  of  them  Lumley indemnified the insured “for any Civil Liability”.  “Civil Liability” was defined as

meaning “legal liability arising from any claim for compensation arising out of the Professional  Business”.    The  latter  term  was  also  defined,  by  reference  to  the business of the insured specified in the schedule to the policy, namely “Financial planning services to medical professionals”.  There is no dispute that Wealthcare’s advice to the plaintiffs constituted the provision of financial planning services.

[16]     However, s 2 of the policy was headed “Insuring agreement” and its relevant terms were:

In consideration of payment of the premium, Lumley agrees to indemnify the Insured for Valid Claims in accordance with, and subject to, all of the terms and conditions of this Policy.

2.1      Civil Liability

Lumley shall indemnify the Insured for any Civil Liability.

[17]     Lumley claims that, even if Wealthcare were liable to the plaintiffs, because its negligence caused the plaintiffs to lose the value of their investments in the failed finance companies, it could not claim to be covered under the insurance policies because  each  of  them  contained  an  endorsement  (“the  endorsement”)  which provided, so far as is relevant:

Investment Advisers Endorsement.

It is noted and agreed that Lumley shall not Indemnify the Insured for any Claim alleging, arising out of, based upon or attributable to, or in any way involving, directly or indirectly:

1.        the  sale  and/or  promotion  of  any  investments  other  than  an investment offered pursuant to a prospectus compliant with all statutory requirements, or

2.        the   sale   and/or   promotion   of   any   contributory   mortgage   or contributory scheme as these terms are defined by the Securities Act 1978, or

3.        diminution in value of money, securities, property, or any other item of value, unless such diminution in value is caused by an act, error or omission of the Insured in the execution or implementation of investment advice or investment decisions.

4.        the  promotion  of  reverse  annuity  mortgage  products  where  the

Insured has not insisted that their clients obtain independent legal advice.

[18]     Lumley asserts that a claim by Wealthcare for indemnity under the policy would be excluded by clause 3 of the endorsement.   Insurance money would not therefore be payable in respect of any liability that Wealthcare might have to the plaintiffs.  As a result, the plaintiffs can not assert and seek to enforce a charge under s 9(4), and the present application should be dismissed.

The issue

[19]     The principal issue is whether Lumley is correct in its arguments about the meaning and effect of the endorsement.  The essential question is what is embraced by the words  “execution  or  implementation  of  investment  advice  or  investment decisions”?

Approach

[20]     Before dealing with the rival contentions of the parties about the meaning of the endorsement it is appropriate to set out the approach that must be taken to applications for leave under the proviso to s 9(4) of the Act.

[21]     There was no dispute about this.  Mr McLellan referred to State Insurance General  Manager  v  Maaka[2]   in  which  the  Court  of  Appeal,  having  set  out  s 9 observed at 76,163:

It is clear from the wording of sec. 9(1) that before the respondent can have any rights by way of charge against the insurer he must establish that insurance money “is or may become payable in respect of” the liability to him of the owner or driver to pay damages.  If the insurer can establish at this stage that it cannot be liable to indemnify the latter under the policy, then it is accepted that leave should not be granted.

[2] State Insurance General Manager v Maaka (1989) 5 ANZ Ins Cases 76,161 (CA).

[22]     In  Registered  Securities  Ltd  v  Brockett[3]Barker J  referred  to  an  intended defendant establishing a “cast-iron defence”.[4]   And in Clark’s Pacific Ltd v Trucks &

[3] Registered Securities Ltd v Brockett HC Christchurch CP293/87, 17 October 1991.

[4] See also Hatea Motors Ltd v Foote [1993] 1 NZLR 629, at 639.

Trailers Ltd & Anor[5]Associate Judge Faire drew an analogy[6]  to applications to strike out a claim because there is no cause of action, or where it is said that a limitation defence applies.  Thus facts pleaded against an intended defendant should be  taken  as  correct,  and  the  claim  should  not  be  rejected  unless  it  is  clearly untenable,[7] or frivolous, vexatious and an abuse of process.[8]

The rival arguments-in summary

[5] Clark’s Pacific Ltd v Trucks & Trailers Ltd HC Auckland CIV 2006-404-3033, 20 April 2007.

[6] Ibid, at [19] – [21].

[7] Attorney-General v Prince and Gardner [1998] 1 NZLR 262 at 267.

[8] Matai Industries Ltd v Jensen [1989] 1 NZLR 525 at 535. See now Murray v Morel & Co Ltd [2007] 3 NZLR 721.

[23]     The  first  contention  advanced  by the  plaintiffs  rests  on  the  qualification within clause 3 of the endorsement, and in particular the words “execution or implementation of investment advice or investment decisions”.   The plaintiffs say that these words should be construed (if necessary, contra proferentem) to mean or extend to the provision or implementation of advice or decisions.  If so, there would be  cover  for  the  provision  or  implementation  of  advice  or  decisions  and  the plaintiffs’ claim would be covered.

[24]     Secondly,   the   plaintiffs   argue   that,   however   the   qualification   to  the endorsement is interpreted, the plaintiffs’ claim can not be excluded.  This is because the claim involves loss resulting from alleged acts, errors or omissions either in the execution of investment advice or investment decisions, or in the implementation of advice or decisions.  In this respect, the plaintiffs argue that Ms Devaney failed to put together a “financial planning portfolio” which gave effect:

a)       To the plaintiffs’ instructions or decisions (e.g. that a medium risk profile was appropriate for them);

b)To  Ms  Devaney’s  advice  or  the  decision  of  the  plaintiffs  and/or Devaney (e.g. that a diversified portfolio was appropriate for the plaintiffs’ financial planning portfolio).

[25]     Thirdly, Mr McLellan submitted that the actual advice given by Ms Devaney, the decisions or instructions that were made or given throughout the period of the relationship and the causal relationship between the advice given and decisions made on the one hand, and the loss on the other, are matters that can only be determined at trial.

[26]     In  the  circumstances  the  only  proper  course  is  to  grant  the  plaintiffs’

application and allow the claim to proceed.

[27]     For Lumley, Mr Ring QC, submitted that the substance of the plaintiffs’ claim is that they suffered loss because they relied on Wealthcare’s negligent investment advice and invested in the failed finance companies through Wealthcare. This was, in the language of the endorsement, a “claim alleging, arising out of, based upon or attributable to” or “involving”, “directly or indirectly … diminution in value

… of securities”.  The qualification in clause 3 of the endorsement (“...unless such diminution in value etc”) did not apply, because the diminution in the value of the securities was not caused by any act, error or omission of Wealthcare of the relevant nature, that is by an act, error or omission “in the execution or implementation of investment advice or investment decisions”.  The plaintiffs’ loss was not caused by any  act,  error  or  omission,  after  the  impugned  advice  had  been  given,  in  the execution or implementation of the advice.

Discussion

[28]     There  is  no  doubt  that  the  plaintiffs’  claims  are  claims  that  would  be indemnified under the policy, leaving on one side the effect of the endorsement.  The purpose of the endorsement however is clearly to reduce the ambit of the cover available under the policy.

[29]     It is also clear that the plaintiffs’ claim is one that alleges a diminution in value of securities.   The question is whether the diminution in value alleged was caused   by   an   act,   error   or   omission   by   Wealthcare   in   the   execution   of implementation of investment advice or investment decisions.

[30]     The  plaintiffs’  first  argument,  that  the  loss  alleged  was  of  that  nature, depends  on  reading  the  word  “execution”  as  equivalent  to  or  as  including “provision”.  Mr McLellan referred to meanings given for “execution” in the New Shorter Oxford English Dictionary:[9]

[9] The New Shorter Oxford English Dictionary (Oxford University Press, 1993).

The action or an act executing a plan, purpose, command, law, etc. Action, operation.  Efficiency or excellence in action.

The  carrying  out  of  a  planned  or  skilled  operation  or  movement,  the production of a work of art of skill.

The fulfilment or discharge of a function or office.

[31]     He also relied on definitions given in the same dictionary for the verb “to execute”:

Carry out, perform, etc.

Carry out, put into effect, (a plan, purpose, command, sentence, law, will, etc).

[32]     Mr McLellan  submitted that in their ordinary meaning in the context of clause 3 the words “execution … of investment advice” are synonymous with providing advice.  He argued that “execution” could not be restricted to the concept of “putting investment advice into effect” since this would create an obvious tautology, involving statement of the same idea twice:   “… in the carrying out or carrying  out  of  investment  advice  or  investment  decisions”.     Consequently, Mr McLellan submitted that the parties must have intended there to be a difference between  execution  and  implementation,  and  the  only  sensible  distinction  was between the action of giving investment advice or making investment decisions (equivalent to “execution”) and putting the advice or decisions into effect (“implementation”).

[33]     On this approach, clause 3 should be construed as if it read:

Lumley shall not indemnify for any claim involving diminution in value of money, securities etc unless such diminution in value is caused by the insured’s negligence in giving or putting into effect investment advice or investment decisions.

[34]     Mr  McLellan  claimed  that  a  contextual  analysis  of  clause  3  of  the endorsement was required, taking account of the fact that the policy was designed to provide cover in respect of, amongst other things, the negligent provision of financial planning services.  To read clause 3 as excluding cover for negligent advice would constitute a “comprehensive contradiction of the insuring clause”, and in fact avoid cover for the central aspect of the provision of financial services, the giving of investment advice.

[35]     Mr Ring’s essential response was that the plain meaning of the wording of the endorsement would not support the plaintiffs’ argument.  He submitted that the inclusion of the words “execution or implementation” must result in the qualification being more restrictive than if it had simply applied to wrongful conduct in relation to investment  advice  or  investment  decisions.    While  he  conceded  some  overlap between “execution” and “implementation”, Mr Ring submitted that the intention of the drafting was to distinguish between conduct occurring before and after the giving of advice or the making of investment decisions.  The acts or omissions for which there was to be cover were those that occurred subsequently.  Mr Ring rejected the plaintiffs’ contention that “execution” could be construed, whether literally or in context, as extending to the provision of advice.

[36]     It will be helpful at this point to refer to some principles that generally apply to the interpretation of contracts.  In Vector Gas Ltd v Bay of Plenty Energy Ltd[10]

Tipping J confirmed at [19] that in construing a contract the objective is to establish the meaning the parties intended their words to bear.   At [20] he referred to “an objective inquiry into the meaning of a document which is generally designed to be the sole record of the final agreement”, and at [22] he acknowledged the importance of construing the words in context:

… because a meaning that may appear to the court to be plain and unambiguous, devoid of external context, may not ultimately, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean.   An example of that situation is when plain words, read contextually, lead to a result which does not make sense, whether commercially or otherwise:  a meaning that flouts business commonsense must yield to one that accords with business commonsense.

[10] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5.

[37]     This  reflected  the  well  known  statement  of  Lord  Diplock  in  Antaios Compania Naviera SA v Salen Rederierna AB, The Antaios.[11]   Subsequently, at [23] Tipping  J  said  that  context  is  always  a  necessary  ingredient  of  the  task  of ascertaining meaning.  But he added this important qualification:

Subject to the private dictionary and estoppel exceptions to be mentioned below, it is fundamental that words can never be construed as having a meaning they cannot reasonably bear.  This is an important control on the raising of implausible interpretation arguments.  Furthermore, the plainer the words, the more improbable it is that the parties intended them to be understood in any sense other than what they plainly say.

[11] Antaios Compania Naviera SA v Salen Rederierna AB, The Antaios [1985] AC 191 at 201.

[38]     The interpretation of insurance contracts is to be approached in the same way as the interpretation of contracts generally.[12]   Further, since the endorsement has the role of an exclusion clause, it should be narrowly construed, without adopting a strained interpretation, and on the basis that the overall objective is to ascertain the presumed  mutual  intention  of  the  parties.[13]      I do  not  consider  that  any  further elaboration of the relevant principles to be applied is necessary in this case.

[12] D A Constable Syndicate 386 v Auckland District Law Society Inc [2010] NZCA 237 at [23].

[13] Lumley General Insurance (NZ) Limited v Body Corporate No. 205963 [2010] NZCA 316 at [27].

[39]     I turn then to the relevant words used in clause 3 of the endorsement.  The key phrase is “the execution or implementation of investment advice or investment decisions.”   Looking first at the individual words employed, I cannot accept that execution can have the meaning, “provision”, which Mr McLellan sought to ascribe to it.   Although he quoted from the New Shorter Oxford Dictionary, none of the definitions on which he relied appears to support his proposition.   In terms of the relevant definitions the “action or act of executing a plan” is not the same as the creation or provision of a plan;   and “action” or “operation” are not the natural equivalent of “provision”.  Nor does the definition intend to convey the idea that “the carrying out of a planned or skilled operation” is the same as the skilled operation itself;   rather, a skilled operation is given as an instance of something that can be executed.    The  balance  of  the  definition  of  “execution”  does  not  appear  to  be relevant  and  nothing  is  added  by  the  definitions  of  “to  execute”  on  which Mr McLellan also relied.

[40]     As  with  the  dictionary  definitions  to  which  Mr  McLellan  referred,  it  is necessary to construe the words in clause 3 of the endorsement as they are used in the phrase or sentence of which they are part.  Here, looking at the relevant phrase as a whole, I consider there is an obvious distinction made by the drafting between execution  and  implementation,  on  the  one  hand,  and  the  things  that  are  to  be executed or implemented on the other, namely the investment advice and decisions. Giving effect to that distinction leads readily to the conclusion that the things which are  to  be  implemented  or  executed  must  be  things  that  already  exist,  and  the execution or implementation of those things cannot be treated as the equivalent of the things themselves.  This points to a conclusion that the words in clause 3 of the endorsement should be construed so as to exclude cover for the diminution in value of securities where it is sought to rely on negligent investment advice or investment decisions,  as  opposed  to  the  execution  or  implementation  of  such  advice  or decisions.   I consider that this conclusion is in accordance with the natural and ordinary  meaning  of  the  words  used,  and  should  be  taken  as  what  the  parties intended.

[41]     I do not consider that there is anything in the wider context which suggests to the contrary.  Mr McLellan emphasised that clause 3 must be construed as a whole, and must also be read in the context of the policy as a whole.  That is undoubtedly the case, but does not in my view lead to any different conclusion.   Mr McLellan submitted that the words “unless such diminution value is caused by an act, error or omission”  imply that  the first  part  of  the  clause was  not  concerned  to  exclude liability arising from acts, errors or omissions, collectively acts of negligence.  He submitted that what was intended was the exclusion of claims involving the simple loss in value of, for example, securities.   However, that submission effectively assumes that “execution” is to be read as the equivalent of or as including the idea of “provision” of investment advice.   Rather than being a contextual argument, it is really just the same proposition about what “execution” means.

[42]     Nor do I do think it would be right, as Mr McLellan contended, to treat the words “in the execution or implementation of investment advice or investment decisions” as being simply a general description of the activities expected of an insurance adviser, with the result that negligent advice would be covered because the

giving of advice is something that investment advisers typically do.  That does not seem to me a legitimate approach to interpretation;   it involves putting the words used on one side in favour of some generalised concept based on the relationship of the parties.   The parties must be assumed to have fully understood what their relationship was.  Knowing that, they used particular words to describe what actions or omissions would be covered and which would not.   I consider it plain that by referring  to   “the   execution   or   implementation   of   advice”   the   parties   were intentionally agreeing on words whose effect was to limit the acts or omissions for which there would be cover.

[43]     Nor do I consider that there is anything of significance in Mr McLellan’s tautology point.  I accept that there is a very substantial overlap between “execution” and “implementation”, but I do not understand how that can have the effect of giving the word “execution” a meaning equivalent to “provision”.  Putting that another way, even if it could be argued that the use of the two words might imply an intended difference between them, it would not follow from that proposition that “execution” must mean “provision”.  It is useful here I think to remember Tipping J’s warning in

Vector Gas v Bay of Plenty Energy Ltd[14]  that words should not be construed as

having a meaning they cannot reasonable bear.  I note that Mr McLellan was not in a position to refer to any authority in which “execution” had been construed in this way and I have already dealt with the dictionary definitions on which he relied.

[14] Vector Gas Ltd, above n 10

[44]     It is not unusual for two words to be used in documents (including documents intended to define legal rights or obligations) which have the same or similar meanings.   In wills, at least historically, there was almost invariably use of both “give” and “bequeath” without any intended difference in meaning.  Mr Ring also submitted that insurance policies were “notorious” for this feature, noting as an

example the words used in the present contact “arising out of, based upon or attributable to...directly or indirectly”.  Unless the context otherwise requires, plain words commonly understood should be given their common meaning and the fact that two such words generally have the same meaning should not lead to a different

outcome.   There is no reason here to assign any significance to the use of both

“execution” and “implementation”.

[45]     It cannot be said that the interpretation for which Lumley has argued leads to a result that does not make sense or that it flouts business commonsense.  It simply means that the extent of cover is less broad than would have been the case but for the wording of the endorsement.   As I see it, the endorsement must be seen as intentionally excluding cover except for acts, errors or omissions in executing and implementing advice and decisions.   There would no doubt still be value in such cover, and it would no doubt come at a much cheaper premium than indemnity for negligent advice.   But it cannot be said that there is no point in the more limited cover that in fact was provided.

[46]     Mr McLellan asserted that since the policy wording envisaged cover for legal liability arising from claims for compensation arising out of the insured’s business (as noted above, described in the policy as “financial planning services to medical professionals”) it would be a surprising outcome if the potentially broad reach of the cover were to be so dramatically confined by the endorsement.  However, if that is the result of  a proper interpretation of the endorsement the description of it as surprising is not apt.

[47]     In construing contracts of insurance it can sometimes be appropriate to rely on the contra proferentem rule, and Mr McLellan submitted that if necessary that approach should be taken here.   However as the Court of Appeal has recently reiterated in D A Constable Syndicate 386,[15] the rule can only properly be applied to resolve cases of genuine ambiguity.  At [69] the Court observed:

[15] D A Constable Syndicate 386, above n 12

[69]     The commentators are agreed that the contra proferentem rule for resolving ambiguity has a place in the interpretation of insurance contracts, as it does in the construction of other contracts.  There is some debate about the exact application  of the  principle.  For example,  some  commentators suggest the rule has application only once other means of resolving the ambiguity have been exhausted, whilst others refer to a trend in insurance law to adopt a liberal interpretation in favour of the insured and to resort more readily to the contra proferentem rule.  What is clear is that in the case of genuine ambiguity, a court will resolve the ambiguity against the party

who proffered the phrase, here, D A Constable.  Enright & Jess express the principle in this way.

If a work or phrase in an insurance contract after application of [the ordinary meaning and context] principles remains, on an objective view,  genuinely  ambiguous,  a  court  will  resolve  the  ambiguity against the party which offered the word or phrase … .[16]

McGillivray stated that it is only where the court is “unable to decide by ordinary principles of interpretation which of the two meaning is the right one” that the rule applies.

[16] Footnotes omitted.

[48]     On the view I take, there is no ambiguity which requires resort to the rule in this case.

[49]     For these reasons I reject the plaintiffs’ contentions as to the meaning of the endorsement.

[50]     As noted above, the plaintiffs advanced a second argument that, however the qualification to clause 3 of the endorsement is interpreted, their claim can fall within it.  The proposition is that they would have cover in respect of failures by Wealthcare to put together a financial planning portfolio that, first, gave effect to the plaintiffs’ instructions or decisions (for example that a medium risk profile was appropriate for them), and second, to Ms Devaney’s own advice or decision or their own decision that a diversified portfolio was appropriate.

[51]     Turning to the first of these propositions, it apparently relies on treating the words “investment decisions” appearing at the end of clause 3 of the endorsement as extending to investment decisions made by the plaintiffs themselves.  Wealthcare’s liability would flow from its failure to implement their decisions.   The example given is of a decision to invest in medium risk profile investments.   It would not matter that their decision was the result of advice given by Ms Devaney;  the claim would be based on the subsequent decision made by the plaintiffs that they would invest in medium risk investments.

[52]     To accept that argument would be effectively to provide cover under the policy for the very kind of claim that I have rejected in dealing with the plaintiffs’

first argument, namely for negligent advice.  It would also be to treat an investment decision made by the plaintiffs as one that could become the subject of a claim under the policy, if the decision were not properly implemented, and that cannot be right. Cover under the policy only extends to legal liability arising from claims for compensation arising out of Wealthcare’s professional business, the provision of financial  planning services  to  medical  professionals.    Implementing the  medical professional’s own decisions would not in my view be the provision of financial planning services.  Negligence in that field would therefore be outside the scope of the policy.   If on the other hand, the substance of the claim is that Ms Devaney’s advice leading to the investments was wrong, clause 3 of the endorsement applies and for the reasons already discussed there is no cover.

[53]     The plaintiffs’ second proposition cannot succeed essentially for the same reasons.   As to Ms Devaney, the argument that she failed to implement her own advice or decision that a diversified portfolio was appropriate can only properly be characterised as an allegation that she gave bad advice, something for which cover is excluded for the reasons I have already given.  Again, cover for decisions made by the plaintiffs themselves was not intended to be provided under the policy.   This argument too must fail.

[54]     The third argument advanced by Mr McLellan was that the actual advice given by Ms Devaney and the decisions that were made or given over the relevant period are matters that can only be determined at the trial, and the same applies in the case of the causal relationship between the advice given and the decisions made on the one hand and the loss that eventuated on the other.  Those might be relevant points to make if the claim as pleaded was one for which there could be cover under the policy.  However, for the reasons I have given I do not consider that there was cover for the claim.

Result

[55]     I consider that there is no basis on which Lumley would have been liable to indemnify Wealthcare under the policy in respect of the claims advanced by the

plaintiffs.   It follows that there can be no charge on insurance moneys that the plaintiffs are able to enforce against Lumley.

[56]     The plaintiffs’ application is dismissed.

[57]     Lumley  is  entitled  to  costs.    If  costs  cannot  be  agreed  I  will  receive memoranda from counsel for Lumley filed within ten working days.  The plaintiffs may have ten working days to respond.