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Bank class action ‘shows coverage gap’

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A NSW Supreme Court ruling on a Bank of Queensland class action defence claim has highlighted a potential gap in cover under civil liability policies, law firm Allens says.

The bank sought indemnity for payments resulting from a class action brought by 192 investors who lost money in a Ponzi scheme run by Sherwin Financial Planners.

The investors took action against the bank because they said it allowed certain account transactions to be made at Sherwin’s direction. The claim was settled for $6 million.

An Allens report says the key issue in the Supreme Court case is whether costs and losses incurred amounted to one or several claims under the bank’s civil liability policy.

Justice James Stevenson found there were multiple claims, and even if that wasn’t the case an aggregation and disaggregation clause in the policy delivered the same result.

“As a result of the decision, each of the claims under the policy attracted a $2 million deductible and the bank was left without effective cover for its claim,” Allens says.

Partner Louise Jenkins says policy wordings can vary quite significantly and it is difficult to generalise about the impact of the Bank of Queensland case, but there is nothing particularly unusual about the underlying claim to differentiate it from similar ones arising from class actions.

“We consider there is a real likelihood that the same result would arise if an insured made a claim arising from a class action under a similarly worded policy,” Ms Jenkins told insuranceNEWS.com.au.

“From our perspective, the most important takeaway for all insureds is they should take care to review their policy wording and ascertain precisely what is, and is not, likely to be covered in the event of a similar claim.”

AIG was the lead insurer under the policy. The case details can be viewed here.