The High Court has handed down a unanimous decision that a “known circumstances” exclusion in a barrister’s professional indemnity (PI) policy set an objective standard.

The case revolved around Mr Porthouse, a barrister who failed to advise his client on relevant changes to workers’ compensation laws in NSW. The client nevertheless succeeded in his case at arbitration, but the Crown applied for a re-hearing before the District Court. When that court also found for the client, the Crown appealed.

Before the case was resolved Mr Porthouse completed a PI proposal with CGU, in which he stated he was not aware of any circumstances which could result in any claim being made against him.

When the Crown’s case succeeded the client sued his legal team, and Mr Porthouse in turn claimed on his policy. CGU declined indemnity on the basis of the “known circumstances” exclusion.

The insurer lost in two courts before taking its appeal to the High Court.

Last week the High Court unanimously found the proposal clause in question set an objective standard, confirming the disclosure obligations of professionals under claims-made policies and the consequences that follow if known circumstances are not notified.

A CGU spokesman today described the court’s finding as “a watershed decision for all writers of PI and directors’ and officers’ policies”.

“The court has provided clarity on the interpretation of what a ‘reasonable person in the insured’s position’ considered may result in a claim being made against them.”

A full report on the case will be published in next week’s ANALYSIS.