Where a professional indemnity policy excluded claims ‘arising out of or related directly or indirectly to the insolvency of the insured’ the court absolved the insurer from liability in a claim by a financial management company that had lost money on a £200 000 investment when the issuer of a bond went insolvent.

The court held that the words ‘arising out of’ together with ‘relating to’ and the use of the words ‘directly or indirectly’ indicated that the causative link might be more remote than a proximate cause and the court refused to give the exclusion a narrow interpretation when the words were plain.

The court also held that the term ‘insolvency’ did not refer to a formal insolvency process, such as a liquidation, and included an inability to pay debts.

The court had regard to the ordinary business meaning of the words because the technical legal definition would not have been uppermost in the mind of the parties.

The only cause of the loss associated with the failed bond and therefore the only cause of the resulting claim or liability was the insolvency of the parties responsible for the bond in the broad sense.

Although judgment had been taken against the insured this did not preclude the liability insurer from questioning whether there was in fact liability to the third party and whether any liability fell within the scope of the cover.

This judgment makes generous findings in favour of the insurer.

The case is Crowden and Another v QBE Insurance (Europe) Ltd.