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When will an insolvency exclusion apply?

Kaboko Mining Limited v Van Heerden (No 3) [2018] FCA 2055

When an insurance policy includes a clause stating that cover will not extend to any loss based on the insolvency of a company, you need to be careful about identifying what actually caused the loss.

In a recent case, the Federal Court rejected the application of an insolvency exclusion in a claim brought against directors of a mining company in administration, because the insolvency was found not to have caused the loss. Where the exclusion applies to a “loss”, then the insolvency of the insured entity must have caused the loss that is the subject of the claim for the insolvency exclusion to apply.

We review the background to the case which is a reminder to insurers that an insolvency exclusion does not automatically apply when the insured entity is insolvent.

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