6 Although it is common ground that International Unity is as a matter of fact insolvent, Mr Neil SC and Mr Harding, for Prestige, submit that BWR's cross-claim does not allege, nor refer to, nor demonstrate any connection with, its insolvency, and that the claim therefore cannot be said to arise from the insolvency of International Unity.
7 The words "arising from" require that there be some causal connection between the claim and the specified matter, but the requisite nexus is satisfied by a less proximate relationship than that required by the phrase "caused by" [GIO (NSW) v R J Green & Lloyd Pty Ltd (1966) 114 CLR 437, 443 (Barwick CJ), 445 (Menzies J), 447 (Windeyer J)]. It is true that in Winspear v The Accidental Insurance Co Limited (1880) 6 QBD 42, a policy covering accidental death other than those "caused by or arising from" a natural disease or weakness was held to cover an accidental death by drowning, even though the insured fell into the water because he was having an epileptic fit - on the basis that the cause of the death was drowning, not the epileptic fit. The short ex tempore judgment of Coleridge LCJ, with whom Baggallay and Brett LJJ concurred, does not give attention to the phrase "arising from". While recognising that that case did involve an exclusion clause - unlike GIO v RJ Green & Lloyd which concerned an insuring clause - nonetheless it would be unreasonable to attribute to the words "claim arising from" a requirement for a more proximate nexus when they appear in an exclusion clause than when they appear in an insuring clause. As, in my view, Winspear is inconsistent in that respect with GIO v RJ Green & Lloyd, I must follow the latter; accordingly, I do not accept Prestige's submission that the relevant exclusions can operate only if their subject matter is the proximate cause of the claim.
8 It will satisfy the requirement that a claim "arise from" a matter, if it originates in, springs from, or has its foundation in, that matter [cf Walton v National Employers' Mutual General Insurance Association [1973] 2 NSWLR 73, 84]. A cause of action arises from a set of material facts, proof of which found the cause of action. Similarly, a claim arises from the underlying facts that, if established, justify the claim. In my view, a claim can be said to arise from a matter - at least - if it has a foundation in that matter, so that the matter is one of the underlying facts that, if they exist, together justify the claim.
9 BWR's cross-claim against Prestige alleged that Prestige had placed its public liability insurance with the Cameron Group (par 3); that the Cameron Group had ceased to operate and the public liability policy had as a result ceased to indemnify BWR (par 4); and that Prestige had negligently placed the insurance with an unregistered overseas insurer and failed to advise BWR of the associated risks (par 10). It is true that it did not explicitly refer to insolvency, but the craftiness or clumsiness of the claimant's pleading is not determinative of the characterisation of the claim for the purposes of the professional indemnity policy. Both parties accept that whether a claim falls within an exclusion depends on the facts that give rise to the claim, and not its formulation by the claimant [West Wake Price & Co v Ching [1957] 1 WLR 45; Haydon v Lo & Lo [1997] 1 WLR 198; Rouleston Clarke Pty Ltd (in liq) v FAI General Insurance Co Ltd [1999] TASSC 150; (2000) 11 ANZ Ins Cas ¶61-465; Murphy & Allen v Swinbank [1999] NSWSC 934, [492]]. Those cases establish that, for the purposes of a professional indemnity policy, the manner in which a claimant formulates its case against the insured cannot be decisive of the rights and liabilities of the parties to the insurance policy, for which purpose the claim is characterised by its underlying facts, and not the form in which the claimant propounds it. Thus, if the facts underlying a claim amount in substance to fraud, the circumstance that the claimant eschews fraud and pleads its case in negligence does not allow the insured to evade a fraud exclusion [West Wake Price v Ching; Rouleston Clarke v FAI General].
10 Damage is the gist of an action in negligence. Plainly, the damage asserted by BWR was that it was left without indemnity of value. While it pleaded that this was because the Cameron Group had ceased to operate, it is manifest that the Cameron Group was an intermediary who placed the insurance with International Unity, and the reason BWR was left without indemnity of value was that International Unity was insolvent. In substance, BWR's claim against Prestige was for loss it would suffer, if judgment on Mr Quintano's claim went against it, because it was practically uninsured - which situation was attributable to International Unity's insolvency. It is immaterial that BWR did not assert it had ever made a claim on International Unity, nor that any such claim had not been paid: those are not necessary elements of its cause of action, or claim. The loss that was the gist of BWR's claim was, as a matter of fact, attributable to International Unity's insolvency.
11 In my opinion, therefore, BWR's claim against Prestige originated in, sprang from, or had its foundation in, the insolvency of International Unity. International Unity's insolvency was a material underlying fact. Accordingly, in my judgment, the relevant claim was one that arose from the insolvency of an insurer, and clause 2.18(a) therefore operates to exclude cover.
Did the claim arise from breach of duty to advise on suitability?
12 As that decision is dispositive, it is strictly unnecessary to consider the clause 2.18(b) exclusion. However, in deference to the carefully formulated arguments that were presented, I will address it. Mr Neil SC accepts, correctly in my view, that BWR's cross-claim alleges a breach by Prestige of a duty to advise on the suitability of an insurer - that is, a breach of the type referred to in the exclusion. He submits, also correctly, that no such breach has been objectively established (as distinct from alleged), and by reason of the discontinuance of BWR's cross-claim it never will be established. Prestige's case is that a claim cannot arise from a matter if the matter does not objectively exist, and as the breach has not been and never will be objectively established, the Underwriters have not and cannot discharge their onus of proving that the claim is within the exclusion. This question, therefore, is whether (as Prestige contends) exclusion 2.18(b) properly construed operates only where, as a matter of objective fact, there has been a breach of the stipulated duty; or whether (as the Underwriters contend) it operates if the claim is one, justification of which would require the existence of such a breach.
13 Mr Neil SC submits that the principle, already mentioned, that whether a claim falls within an insured peril or an exclusion depends upon its underlying facts and not on the manner in which it is formulated by a claimant, means that in order to invoke an exclusion, the facts referred to in the exclusion clause must objectively exist, as distinct from being alleged as an element of the claim. However, I am unable to accept that submission. That principle does not necessarily require that the underlying facts must objectively exist, as distinct from that they be the material facts required to sustain the claim. Ultimately, the question must be one of construction of the exclusion in the relevant policy.