A Connecticut court found that the definition of “loss” in a policy which said that “loss does not include matters uninsurable under the law pursuant to which the policy is construed” was an exclusion even though it was found in a definition. The court reaffirmed that an exclusion can be anywhere in a policy because an exclusion is any provision “which eliminates coverage where, were it not for the exclusion, coverage would have existed”. It does not depend where the term is in the policy or what label is associated with the term. An exclusion may appear anywhere including the insuring agreement, the definitions section, endorsements, and even in the conditions section.
The policy was a Directors, Officers and Company liability insurance policy. The persons who suffered the loss acted as assignees for the directors and officers and the company claiming an indemnity from the insurers.
The claimants had invested money in a multimedia lifestyle company and reclaimed the amount they invested on the basis that the investments resulted from negligent or fraudulent misrepresentations. The court held that the claim was not for damages. It was for restitution of the amount invested, remarking that the distinction between “compensation” and “restitution” can be “tricky concept” to discern. Public policy denies insurance coverage for restitutionary payments because “you can’t, at least for insurance purposes, sustain a ‘loss’ of something you don’t (or shouldn’t) have … so there is no insurable interest in the proceeds of fraud or of some other deliberate delictual or criminal act”.
The court held that the amount claimed was not recoverable because it was not compensation but restitution.
As regards exclusions, South African law is similar. A provision limiting an indemnity placed in the insuring clause itself may not be an exclusion but other negative language in the policy excluding the risk is likely to be construed as an exclusion, placing the onus on the insurer.