Class action finding a risk for liability cover

A recent court decision has raised concerns about the ability of liability cover to defend insureds against class actions.

In September, the Federal Court handed down its decision in Morgan, in the matter of Brighton Hall.

The case concerned a class action against the now-liquidated financial services company Brighton Hall for advising some clients to invest in Westpoint before it collapsed.

Brighton Hall claimed indemnity from its PI insurer and court was asked to consider whether class actions gave rise to one claim or a claim for each plaintiff. The court found the latter.

Clayton Utz Partners Fred Hawke and Mark Waller say the decision has potentially major significance for insurers.

They drew parallels with an English case in which a company that had £75 million of cover being left with no effective insurance protection against a £100 million class action settlement because the inability to aggregate the underlying claims.

“Since many companies rely on their liability insurances in the event of class actions, and likewise the successful plaintiffs and their litigation funders, the excess aggregation language assumes critical importance,” they say.

“The widest-reaching wording based on the cases, which is generally available in the financial liability insurance markets, is that which applies one excess in respect of all claims or losses ‘arising out of or in connection with a single source or originating cause’.

“Policyholders who may be at risk of class actions should review their liability insurances and, if in doubt, obtain advice on the aggregation language used.”

For a more detailed examination of this case, click here.