EP Financial Services Pty Ltd v Arch Underwriting at Lloyd’s Limited & Ors [2021] QSC 347

SUPREME COURT OF QUEENSLAND CITATION: EP Financial Services Pty Ltd v Arch Underwriting at Lloyd’s Limited & Ors [2021] QSC 347 PARTIES: EP FINANCIAL SERVICES PTY LTD ACN 130 772 495 (applicant) v ARCH UNDERWRITING AT LLOYD’S LIMITED ON BEHALF OF SYNDICATE 2012 (first respondent) AND ARCH MANAGING AGENCY LIMITED ON BEHALF OF SYDNICATE 1955 (second respondent) AND LIBERTY MANAGING AGENCY LIMITED FOR AND ON BEHALF OF SYDNICATE 4472 (third respondent) AND UNDERWRITING LIMITED ON BEHALF OF SYNDICATE 3624 (fourth respondent) FILE NO: BS 8289 of 2021 DIVISION: Trial Division PROCEEDING: Originating Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 16 December 2021 DELIVERED AT: Brisbane HEARING DATE: 22 October 2021 JUDGE: Bradley J ORDER: THE COURT DECLARES THAT: 1. On its proper construction, clause 7.20(a) of the policy wording in the professional indemnity insurance policy between the respondents, as insurers, and the applicant, as an insured, (the “Policy”) does not exclude the respondents’ liability to indemnify the applicant for the claim by Michiyo Tanabe and Mickks Pty Ltd (the “Clients”) to recover losses suffered from acting on advice given to them by Jonathan Bonnett as an authorised representative of the applicant between 15 January 2013 and 18 September 2013. -- 1 of 14 -- 2 2. The respondents are liable to indemnify the applicant under the Policy for its claim in respect of the claim made by the Clients. AND THE COURT DIRECTS THAT: 3. The parties are to provide written submissions on costs by 31 January 2022. CATCHWORDS: INSURANCE – PROFESSIONAL INDEMNITY – EXCLUSIONS – where the applicant held professional indemnity insurance (the Policy) with the respondents as underwriters –where the applicant is a company that provides investment and financial planning advice – where an employee and authorised representative of the applicant (adviser) provided negligent investment advice to the applicant’s clients – where the clients suffered financial loss as a result – where the clients commenced proceedings against the applicant and its adviser which was settled by the applicant out of court – where a claim for indemnity by the applicant was refused by the respondents in reliance upon an exclusion clause in the Policy relating to the listing of products in the Insured’s Approved Product List – where the Policy is a composite policy – where an exclusion should be construed to give a congruent operation to the various provisions of the Policy as a whole – where the scope of the exclusion clause is ambiguous – whether the exclusion clause applies to deny the applicant’s claim for indemnity Australian Securities and Investment Commission Act 2001 (Cth), s 12DA Corporations Act 2001 (Cth), s 913B, s 917B, s 917F Birrell v Dryer (1884) 9 App Cas 345, cited Caine v Lumley General Insurance Limited [2008] NSWCA 4, followed Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, cited DMS Maritime Pty Ltd v Royal and Sun Alliance Insurance PLC [2018] QSC 303, applied Eide UK Ltd v Lowndes Lambert Group Ltd [1999] QB 199, cited Federation Insurance Ltd v Wasson (1987) 163 CLR 303, cited General Accident Fire & Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388, cited Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458, followed McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, cited Onley v Catlin Syndicate Ltd as underwriting member of -- 2 of 14 -- 3 Lloyd’s Syndicate [2018] FCAFC 119, cited Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12, followed Trickett v Queensland Insurance Co Ltd [1936] AC 159, cited Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, cited Zhang v Minox Securities Pty Ltd [2009] NSWCA 182, considered COUNSEL: R S Ashton QC for the applicant S Couper QC for the respondents SOLICITORS: Colin Biggers & Paisley for the applicant Moray & Agnew for the respondents [1] This is a decision on an application for declarations about an exclusion clause in a professional indemnity insurance policy (the Policy) and the liability of the four respondent underwriters to indemnify the applicant under the Policy for its claim. [2] There are no facts in dispute. An agreed statement of facts has been signed by the parties.1 Factual matters [3] The applicant is a company that provides financial services and investment and financial planning advice. At all relevant times, the applicant held an Australian Financial Services Licence (AFSL) issued under s 913B of the Corporations Act 2001 (Cth) (the Act). [4] The four respondents are underwriters at Lloyd’s of London who subscribed to the Policy. Dual Australia Pty Ltd acted as the agent of the respondents in respect of the Policy. The Policy [5] The applicant, as an insured, and the respondents, as insurer, were parties to the Policy in the period 1 July 2013 to 31 August 2014. [6] The Policy is made up of a number of documents.2 These are a Dual Australia Proposal Form completed by the applicant (the Proposal), a Dual Certificate of Currency, a Dual Professional Indemnity Schedule (the Schedule), a Dual Australia Professional Indemnity Insurance Policy Wording (the Policy Wording), and a Dual Australia Stockbroking Addendum. [7] The Policy Wording contained this Insuring Clause: “Section 2: INSURING CLAUSE 2.1 WE agree to indemnify the INSURED for any CLAIM for compensation first made against the INSURED and reported to US during the INSURANCE 1 It is exhibited to the affidavit of Mathew Thomas Deighton filed 21 July 2021. 2 These are at pages 1 to 50 of exhibit MDT-02 to Mr Deighton’s affidavit. -- 3 of 14 -- 4 PERIOD in respect of any civil liability resulting from any breach of professional duty by the INSURED in its conduct of its PROFESSIONAL BUSINESS.” [8] Clause 3.3 of the Policy Wording is in these terms: “WE agree to provide cover in respect of any CLAIM against the INSURED resulting from the conduct of any consultant, subcontractor, agent or Authorised Representative in the PROFESSIONAL BUSINESS of the INSURED and for whose acts, errors or omissions the INSURED is liable. WE will not cover the consultant, subcontractor, agent or Authorised Representative.” [9] In the Schedule, it was agreed that clause 3.3 of the Policy Wording is amended by adding the following: “For the avoidance of doubt, a reference to ‘consultants, subcontractors or agents’ in Clause 3.3 … includes a reference to a Credit Representative acting in such capacity.” [10] The ‘PROFESSIONAL BUSINESS’ is defined in the Schedule as: “Provision of financial product advice and dealing in a financial product as per AFSL no. 325252 only; portfolio administration services”. [11] The term ‘INSURED’ is defined at clause 6.11 of the Policy Wording: “INSURED means (a) The person, partnership, company, SUBSIDIARY or other entity, specified as the INSURED in the Schedule; and (b) Any person who is during the INSURANCE PERIOD a principal, partner, director or employee of the person, partnership, company, SUBSIDIARY or other entity specified as the INSURED in the Schedule, but only while acting in the course of the PROFESSIONAL BUSINESS.” [12] The applicant was one of seven companies specified as the “INSURED” in the Schedule. [13] The “POLICY” is defined in clause 6.13 of the Policy Wording: “POLICY means this POLICY wording, the Schedule, the PROPOSAL and any endorsement attaching to and forming part of the POLICY either at commencement or during the INSURANCE PERIOD.” [14] In section 11 of the Proposal, the applicant provided the name, age, qualification, date of qualification and number of years in the practice for each of seven principals, partners or directors of the applicant. The Proposal did not require a listing of the applicant’s employees or authorised representatives. It included, in section 1, a -- 4 of 14 -- 5 question about whether the applicant had “any non-employed Authorised Representatives” under its current AFS Licence. The applicant answered “No”. [15] Section 7 of the Policy Wording deals with exclusions. There are 26 exclusion clauses in the Policy Wording. The respondents declined indemnity in reliance upon clause 7.20(a) (the exclusion clause). [16] In the context of clause 7, clause 7.20(a) is in these terms: “Section 7: EXCLUSIONS WE will not cover the INSURED, including for DEFENCE COSTS or other loss in respect of: … 7.20 Approved Product and Product Disclosure Any CLAIM or liability directly or indirectly based upon attributable to or in consequence of any: (a) Financial products or instruments not contained in the INSURED’S approved product list at the time the advice was given;” The events leading to the applicant’s claim under the Policy [17] Jonathan Bonnett was an authorised representative of the applicant during the insurance period. In that capacity, between 15 January 2013 and 18 September 2013, Mr Bonnett gave financial planning advice to Ms Michiyo Tanabe and her company Mickks Pty Ltd (together the clients). The advice included a recommendation to the clients that they invest in certain ways involving Millinium Capital Managers Limited (MCML). The clients acted on the advice. They suffered financial loss as a result. [18] The shares in MCML acquired by the clients were a financial product. MCML was not contained in the applicant’s approved product list at the time Mr Bonnett gave the advice to the clients. [19] It is agreed between the parties that the advice was given by Mr Bonnett negligently and in breach of a duty of care owed to the clients. [20] The clients made demand upon the applicant and Mr Bonnett for compensation for their financial loss. The clients then commenced proceedings (the client proceedings) seeking recovery of their losses from Mr Bonnett, the applicant, and MCML. [21] The applicant settled the client proceedings by paying a settlement sum out of court. The applicant made a claim for indemnity under the Policy for the settlement sum and associated legal costs of the client proceedings. [22] The parties agree that the only issue in dispute between them is the application of the exclusion clause and its effect on the respondents’ liability to indemnify the applicant under the Policy. It is otherwise intended that any quantum flowing from the Court’s construction of the Policy will be the subject of agreement between the parties. -- 5 of 14 -- 6 Submissions [23] Mr Ashton QC, who appeared for the applicant, urged the Court to understand the Policy as a composite policy. [24] Where the persons insured under the same policy have rather different interests in the subject matter of the insurance, the insurance policy may be described as a composite policy. So that: “the covenant of indemnity which the policy gives must, in such a case, necessarily operate as a covenant to indemnify in respect of each individual different loss which the various named persons may suffer. In such a case there is no joint element at all.”3 [25] The parties covered by a composite policy are insured for their respective insurable interests, even though the composite policy is a single whole contract. The rights and obligations of different insureds under the same composite policy can be exercised independently of each other - unless there is an express or implied term to the contrary.4 For “reasons of convenience,” a composite policy comprises in one document “the interests of a number of persons whose connection with the subject- matter of the insurance makes it natural and reasonable that the whole matter should be dealt with in one policy”.5 [26] In the context of the different persons insured by the Policy, Mr Ashton submitted that the exclusion clause should be read as operating to exclude a claim by Mr Bonnett, as an authorised representative and as an employee who provided the impugned advice, but not to exclude a claim by the applicant for its liability to the clients for the advice given by Mr Bonnett in those capacities. Mr Ashton contended the decision of the New South Wales Court of Appeal in Zhang v Minox Securities Pty Ltd6 involved a comparable exclusion clause in a composite policy. [27] In Zhang, a clause in a professional indemnity policy excluded the insurer’s liability to provide indemnity in respect of any claim concerning: “any financial or investment product that at the time the actual or alleged act, error or omission occurred is not listed on the Approved Product List of the entity which has issued the Insured with a proper authority to deal in financial products”. [28] Handley AJA, with whom Hodgson and Macfarlan JJA agreed, accepted that the purpose of the relevant clause was to deny cover to insured individuals “who acted outside their normal authority by marketing financial or investment product which were not on their Approved Product list, but not to deny cover to innocent employers of those individuals”.7 3 General Accident Fire & Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388, 405 (Greene MR). 4 Federation Insurance Ltd v Wasson (1987) 163 CLR 303. 5 Eide UK Ltd v Lowndes Lambert Group Ltd [1999] QB 199. 211-212. 6 [2009] NSWCA 182. 7 Zhang [24]. -- 6 of 14 -- 7 [29] In construing the clause, his Honour reasoned that claims against the employer, as an insured, did not fall within the exclusion because the policy was a composite policy, which commonly “contain exclusion clauses which deny cover to one Insured while preserving it for another”.8 In Zhang, the employer (an insured entity) did not issue the relevant Approved Product List to itself, but only to its representatives, including the relevant employee. [30] Mr Ashton submitted that the exclusion clause in the Policy should be construed in the same way. According to Mr Ashton, a similar construction produced the following conclusions. The subject of the exclusion clause is advice on financial products not contained in the insured’s approved product list. The applicant, as a corporate entity, cannot give such advice itself. The exclusion applies to those insured individuals who give the advice, being the principals, partners, directors, and employees of the applicant. If any of those insureds gave advice about products not on the applicant’s approved product list, then a claim by that insured would be excluded by cl 7.20(a) of the Policy Wording. However, a claim by the applicant, for the applicant’s liability for the advice given by another insured, would not be so excluded. [31] Counsel for the respondents, Mr Couper QC, emphasised that the policy ought to be “given a businesslike interpretation, paying attention to the language used by the parties in its ordinary meaning, and to the commercial, and where relevant, the social purpose and object of the contract, in the context of the surrounding circumstances”, citing part of the reasons of Allsop CJ and Gleeson J in Todd v Alterra at Lloyds Ltd.9 These are found in the following parts of those reasons: “[35] The nature or character of a contract of insurance is “elusive” to define: Parkington M et al, MacGillivray and Parkington on Insurance Law (8th ed, Sweet & Maxwell, 1988) [1] at 1. The working definition given over 100 years ago by Channell J in Prudential Insurance Company v Commissioners of Inland Revenue [1904] 2 KB 658 at 663-664 remains the foundation of analysis: for a monetary consideration (the premium) the person (the underwriter) agrees to pay to the other (the insured) a sum of money or some benefit upon the occurrence of one or more specified events. Other relationships could well fit such a simple mould. One needs, however, before identifying or characterising the contract as one of insurance, to elaborate upon each element — premium, promise to pay, sum of money or other benefit, upon a specified event — not by way of further definition, but by reference to the purpose and character of the arrangement to share the risk of, or spread the loss from, unhoped-for, but possible, contingencies that may or may not happen (in life insurance, as to timing of an ultimately certain contingency). … [38] A contract of insurance has the object or purpose of sharing the risk of, or spreading loss from, a contingency. Relevant to its 8 Zhang [26]. 9 (2016) 239 FCR 12 at [42]. -- 7 of 14 -- 8 character as insurance will be how the contract came to be effected, its nature and purpose and how it is to be performed: see generally Seaton v Heath [1899] 1 QB 782 at 792-793 (Romer LJ). … [40] Ultimately, of course, such tasks of categorisation or characterisation depend on the context, in particular, the purpose of the enquiry. From the nature, character and purpose of insurance there is no reason, and no precedent, for according an insurer the tenderness accorded to guarantors and indemnifiers as reflected in the general principle recently restated in Bofinger at [53]. … [42] The principles, otherwise, to apply in relation to the interpretation and construction of insurance policies as commercial contracts were not in dispute. Such principles can be found in authorities dealing with the construction of commercial contracts, to some of which reference was made in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [19]-[23]; and also in authorities dealing specifically with contracts of insurance: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] (Gleeson CJ), [73]- [74] (Kirby J); Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [15] and [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ); Australian Casualty Company Ltd v Federico (1986) 160 CLR 513 at 520-521 (Gibbs CJ), and see also the valuable discussion of principle by Kirby J (though in dissent) in Johnson v American Home Assurance Company (1998) 192 CLR 266 at [19]. The principles need not be restated here beyond some essential considerations, which for present purposes can be taken to be that the policy is to be given a businesslike interpretation, paying attention to the language used by the parties in its ordinary meaning, and to the commercial, and where relevant, the social purpose and object of the contract, in the context of the surrounding circumstances, including the market or commercial context in which the parties are operating, by assessing how a reasonable person in the position of the parties would have understood the language. Preference is to be given to a construction supplying a congruent operation to the various components of the whole. [43] The importance of the commercial purpose in the interpretation and construction of a policy can be seen in the cases referred to by McHugh JA (as his Honour then was) in Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 405. [44] To refer to “social” purpose (where relevant) is not to detach the process of interpretation and construction from the objective enquiry as to the meaning of a document regulating the private -- 8 of 14 -- 9 rights of the parties. It is to identify the reality that in some circumstances a policy of insurance as a commercial document will find its place in some aspect of the organisation of society through the rights and obligations thereby created by it. That place or purpose will have its weight in the description of meaning to the words in question.” Consideration of the submissions [32] Under the Policy, the insureds are the applicant, the other six companies named in the Schedule, and each person who is a principal, partner, director or employee of the applicant or of any of the other named companies. [33] The applicant is an insured, under cl 6.11(a) of the Policy Wording because it is specified as such in the Schedule. The applicant is insured in respect of any civil liability resulting from any breach of professional duty by the applicant in its conduct of its professional business, under clause 2.1 of the Policy Wording. [34] As an ASFL holder, the applicant was responsible, as between the applicant and the clients, for the conduct of its representatives, whether or not they were authorised representatives, and whether or not the conduct was within the representative’s authority.10 In addition to authorised representatives, the applicant’s representatives are its employees and directors, the employees and directors of its related bodies corporate, and any other person acting on behalf of the applicant.11 [35] It follows that the applicant was liable for Mr Bonnett’s acts, errors and omissions as an authorised representative and as an employee. [36] By cl 3.3 of the Policy Wording, the respondents agreed to provide cover to the applicant for any claim against the applicant resulting from the conduct of any authorised representative, such as Mr Bonnett, in the applicant’s professional business for whose acts, errors or omissions the applicant is liable. That clause did not extend cover to Mr Bonnett for any claim made against him as an authorised representative of the applicant. [37] However, Mr Bonnett was an insured under cl 6.11(b) of the Policy Wording because he was an employee of the applicant. He was an insured for any claim made against him in respect of civil liability resulting from any breach of professional duty by him in the conduct of (relevantly) the provision of financial product advice as per the applicant’s AFSL. [38] It follows that the interest of the applicant in the insurance cover was separate to that of Mr Bonnett. The considerations relevant to a construing composite policy apply to construing the exclusion clause in the Policy. 10 Corporations Act 2001 (Cth) (the Act), ss 917B to 917F. As an AFSL holder, the applicant was entitled to appoint authorised representatives to provide specified financial services on its behalf. It could do so by giving the authorised representative a written notice under s 916A of the Act. These authorised representatives could be individuals, as Mr Bonnet was, or corporations, partnerships, or trustees of a trust. 11 Act, s 910A(a). -- 9 of 14 -- 10 [39] Under the client service agreement between the applicant and the clients, the applicant was to provide the clients with financial advice. I do not accept in full Mr Ashton’s submission that the applicant could only have provided advice through its principals, partners, directors, employees or authorised representatives. The applicant could, for example, have issued written advice directly to the clients about a financial product by a newsletter or general email communication from the applicant. That did not occur here. I accept that it was likely any advice would be provided to a client by an individual who was a principal, partner, director, employee or authorised representative of the applicant. Advice that takes into account clients’ objectives and financial situation or needs was likely to be given by an individual, rather than, for example, by newsletter or general email, in order to satisfy any relevant obligation under chapter 7 of the Act. [40] The client proceeding was against both the individual adviser (Mr Bonnett) and the applicant. The clients sued for negligent advice given by Mr Bonnett in the form of his written recommendation. This conduct was alleged to have been negligence on the part of both Mr Bonnett and the applicant, as well as a breach of implied terms of the client services agreement between the applicant and the clients, a negligent misrepresentation, and misleading and deceptive conduct in breach of section 12DA of the Australian Securities and Investment Commission Act 2001 (Cth) (the ASIC Act). The clients also made separate claims against MCML. [41] There is nothing novel about a corporation being held liable for the negligence of its employee or agent. Indeed, the liability framework enacted by the provisions in part 7.6, division 6 of the Act expressly make the holder of an AFS licence liable for the conduct of its representative. [42] The relevant clause in Zhang was not the same as the exclusion clause in the Policy. Arguably, it was the act of issuing the approved product list to its employee advisor and its inability to issue it to itself that led Handley AJA to reason in Zhang that the relevant clause applied to deny indemnity to the negligent employee advisor, who acted outside their authority by marketing financial products which were not on the approved product list issued to the advisor, but not to deny cover to the employer entity that issued the approved product list to the advisor. [43] I accept the approach to construction described by Allsop CJ and Gleeson J in Todd v Alterra at Lloyds Ltd,12 identified by Mr Couper QC. It is also explained in the reasons of Beach J, which led to the same conclusion as Allsop CJ and Gleeson J, but by “a different constructional pathway”. 13 [44] In the more recent decision of DMS Maritime Pty Ltd v Royal and Sun Alliance Insurance PLC,14 Bond J (as his Honour then was) applied similar principals, drawing on the following summary by the full court of the Federal Court in Onley v Catlin Syndicate Ltd as underwriting member of Lloyd’s Syndicate:15 “Necessarily, a policy of insurance is assumed to be an agreement which the parties intend to produce a commercial result … as such, it ought to be given a businesslike interpretation being the construction 12 (2016) 239 FCR 12. 13 Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12 (Beach J). 14 [2018] QSC 303 at [84]. 15 [2018] FCAFC 119 (Allsop CJ, Lee and Derrington JJ), omitting the footnoted case references. -- 10 of 14 -- 11 which a reasonable business person would give to it … The contract is naturally enough interpreted, in a temporal sense, as at the date on which it was entered into … The Courts frequently have regard to the contextual framework in which a contract is formed, to the extent to which it is known by both parties, to assist in identifying its purpose and commercial objective … It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit.” [45] It follows that construing the Policy requires consideration of the language used, the commercial circumstances it addresses, and the objects it is intended to secure.16 Any particular provision, such as the exclusion clause, should be construed to give a congruent operation to the various components of the whole Policy.17 [46] These noble principles must contend with the style of expression adopted by underwriters and their agents in their standard policy wording and various specific endorsements. Within the constraints of such language, the interpretation a reasonable businessperson would adopt is the sound approach, paying attention, as such a person would, to purpose and commercial objective and the commonly known factual context. The use of standard policy wording and insured-specific endorsements, might indicate the factual context is more significant for the construction of the endorsements than for the standard policy wording. [47] The clause considered in Zhang was different to cl 7.20(a). But they have in common that neither was drafted to make explicit whether it was to apply to the liability of the insured entity for conduct of an employee and to the liability of an insured employee for his or her own conduct. In a composite policy like the Policy, the use of the same expression “the INSURED” in the exemption clause to refer to the person not afforded cover and also to the person responsible for the approved product list presents a similar lack of clarity to the provision the subject of Zhang. [48] Neither construction put for the parties in this application could be characterised as unbusinesslike or uncommercial. Of greater assistance in this case is the setting of the exclusion clause in the Policy as a whole. Part of that setting is the nature of the Policy as a composite policy. The exclusion clause must be capable of operating where there are numerous insureds, each with a different potential liability for claims and so a different insurable interest. [49] The exemption clause (cl 7.20(a)) deals with “advice” without specifying if it encompasses advice provided by persons other than the insured who is making the claim under the policy. The “advice” must be provided by someone. The applicant’s liability extends not only to advice given by it, but also to advice given by a representative, including an authorised representative or an employee. On the other hand, the relevant liability of an employee insured is confined to advice they give. 16 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] (Gleeson CJ); approved in Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 (Wilkie) at [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ). 17 Wilkie at [16]. -- 11 of 14 -- 12 [50] The exclusion effected by cl 7.20(a) applies to any claim by Mr Bonnett for indemnity under the policy for advice he provided to the clients. It is not clear that it applies to a claim by the applicant for an indemnity for its statutory liability for Mr Bonnett’s conduct in giving the advice to the clients about MCML. In the context of the Policy being a composite policy, the use of the word “Insured” alone in the exclusion clause gives rise to uncertainty or even ambiguity. Neither a broader nor a narrower construction of the exemption clause could be said to contradict the language of the Policy. [51] It has long been accepted that both the persons insured and the underwriters have the same interest in any relevant terms of an insurance policy being definite. And that the insured have a right to suppose the underwriters understand a description in the policy as they ought to understand it.18 [52] Underwriters, through their agent, propose a policy wording. No endorsement is made without their consideration and agreement. The underwriters are in the business of assessing the risks they are prepared to accept in exchange for a stipulated premium. A reasonable businessperson in the position of the parties to a professional indemnity policy, such as the Policy, would understand each exemption to operate in clear terms and not to operate so as to alter the extent of cover in ways not clearly expressed in the clause. The underwriters bear the “risk of non-persuasion” in respect of an exclusion clause, and so the onus of proving the exclusion does apply.19 [53] In Caine v Lumley General Insurance Limited [2008] NSWCA 4, at [47], McColl JA accepted the general approach noted above and summarised its application to a term in an insurance policy in this way: “A policy of insurance is a commercial contract and should be given a businesslike interpretation. This requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 (at [22]) per Gleeson CJ; approved in Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 (at [15]) per Gleeson CJ, McHugh, Gummow and Kirby JJ. The meaning is to be determined on an objective basis: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at [40]). Preference should be given to a construction which gives a congruent operation to the various components of the whole: Wilkie (at [16]). Further “where there is ambiguity in the construction of an insurance policy … particularly where that ambiguity exists in relation to an exclusion, there is a tendency to resolve the ambiguity in favour of the insured”: Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541 (at 563) per Mahoney JA; see also 18 Birrell v Dryer (1884) 9 App Cas 345, 352. 19 Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 35 VR 458, 471 at [47] (Bongiorno JA, Hansen JJA and Kyrou AJA agreeing), citing: Trickett v Queensland Insurance Co Ltd [1936] AC 159, 164; Bashtannyk v New India Assurance Co Ltd [1967] VR 573, 575; and Haileybury College v Emanuelli [1983] 1 VR 353, 336. -- 12 of 14 -- 13 Kirby P (at 545); Rich v CGU Insurance Limited [2005] HCA 16; (2005) 79 ALJR 856 (at [67]) per Callinan J.” [54] With respect to the construction of an exclusion clause, her Honour observed that is should be: “construed according to its natural and ordinary meaning, read in the light of the contract as a whole, giving due weight to the context in which it appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity: Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510.”20 [55] In the present circumstances, I have concluded that it is appropriate that the lack of clarity in the exemption clause should be resolved in favour of the applicant. In the context of an insurance policy, exemptions should be clear so that the contract as a whole can serve its commercial purpose. In this way, it is possible to give the exclusion clause its natural and ordinary meaning, in the light of the Policy as a whole, giving due weight to the context in which it appears including the nature and object of the Policy, and, where appropriate, construing the exemption clause contra proferentem in the case of ambiguity.21 [56] This accords with the purpose and object of the Policy to provide cover to each insured, save to the extent that cover is clearly limited by an exemption. It follows that the applicant’s construction should prevail over that contended for by the respondents. [57] Further support for this view may be found elsewhere in the Policy. [58] Within the Schedule, one of the endorsements attached at the inception of the Policy deleted clause 7.22 of the Policy Wording in its entirety and replaced it with the following: “7.22 Financial Services and Australian Credit Licence Any CLAIM or liability directly or indirectly based upon attributable to or in connection with any: (a) financial services provided by the INSURED or any representative, authorised representative or other agent while without: (i) an Australian Financial Services Licence (AFSL) under Chapter 7 of the Corporations Act, including but not limited to the suspension or withdrawal of an AFSL; or (ii) an appropriate authorisation for the provision of those financial services under an AFSL … 20 At [55]. 21 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510. -- 13 of 14 -- 14 Unless the INSURED, representative, authorised representative, … or agent is exempt from having an AFSL, or an authorisation under an AFSL for the provision of those financial services … . For the purposes of this exclusion, ‘financial services’, ‘representative’, ‘authorised representative’ and Australian Financial Services Licence’ have the same meaning as given to those words in or for the purposes of Chapter 7 of the Corporation Act … .” [59] As an endorsement, the replacement cl 7.22 must have attracted the particular attention of the parties. The replacement cl 7.22 deals with financial services “provided by the INSURED or any representative, authorised representative or other agent”. It plainly extends to exclude claims made by an insured for services provided by such a representative, authorised representative or agent.22 [60] The respondents could have provided certainty by changing the language of the exemption clause, perhaps to reflect that in the replacement cl 7.22 or by adding another endorsement deleting the exemption clause and replacing it with a clause drawn with the clarity of the replacement cl 7.22. Final disposition [61] Declarations should be made to the effect of those sought by the applicant. [62] The parties are to provide written submissions on costs by 31 January 2022. 22 Paragraph (a) of replacement clause 7.22 contains identical language to clause 7.21 in the Policy Wording. However, clause 7.21 does not credit services, which are the subject of paragraph (b) of the replacement clause 7.22. -- 14 of 14 --