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Declaration: width September 4, 2019

XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215

114 Courts will usually not make a declaration as to the liability of an insurer to indemnify an insured in circumstances where the liability of the insured to a claimant has not yet been established by judgment: AMP Financial Planning Pty Ltd v CGU Insurance Limited (No 2) at [4]-[12] (Heerey J). This is because the power to make a declaration should not be directed to answering hypothetical questions: University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10; [1975] HCA 26; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582; [1992] HCA 10; AMP Fire & General Insurance Co Ltd v Dixon [1982] VR 833 at 839-840.

115 In the present case, the declaration was too wide. The words “liable in accordance with the terms and conditions of the Policy to indemnify” did not provide sufficient certainty as to what had been determined by the separate questions. Difficulties could arise if subsequent events or the discovery of new material provided XL with another basis for denying indemnity.

116 The proper basis for any declaration is to be found in the agreed facts and the answers to the separate questions. If, in addition to answering the separate questions, a declaration was considered appropriate, it would have been better expressed in negative terms, moulded to reflect the answers to the separate questions.

117 Without intending to be prescriptive, the declaration might have been expressed in terms that, upon the proper construction of the policy comprised in the documents referred to in the agreed facts and in the circumstances which have happened, XL is not entitled to decline to indemnify the defendants and refuse to pay their defence costs in relation to BNY’s claim against them by reason of the operation of cl (ix) of Endorsement 1 to the policy.

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