Where an insurance policy had a retroactive date so that there was no indemnity for any claim ‘arising from or in any way involving any act, error or omission committed’ prior to 5 June 2009, the court held that the indemnity was due because there was no direct or indirect causal connection between the events preceding June 2009 and the claims and liability under the policy.
The professional indemnity policyholder was allegedly liable for damages for paying the full amount of an investment to a third party without ensuring that an escrow arrangement was in place pending the completion of transfer of the shares.
The agreement relating to the transaction was entered into in 2008 and the question was whether the insured events preceded the 2009 retroactive date.
The court held that there must be some element of causation.
Where the policy speaks of ‘claims arising from or in any way involving’ preceding acts the words ‘arising from’ were accepted by the parties to mean ‘proximately caused by’.
The question was what the words ‘in any way involving’ meant. These words require a causal connection between a prior wrongful act and the claim. It requires more than the historical context or background against which the wrongful acts occurred. There must be some act, error or omission which could give rise to liability which occurs prior to the retroactive date which is genuinely part of a chain of causation that leads to liability for the claim in question.
In the present case the fact that the contract had been entered into and other background events had occurred before the retroactive date was not found to be causative in connection with the wrongful failure to put the funds into escrow subsequent to the retroactive date.
[The case is ARC Capital Partners Limited v Various Insurers]