In the recent decision of Aquamore Finance Pty Ltd v Australis Consulting Pty Ltd t/a Castles Valuers [2026] NSWC 248 (Aquamore), the Court held that where a valuation report did not contain the specific statements required by the valuers professional indemnity policy, in the event of a claim, the insurer is within their rights to deny indemnity.
In Aquamore, Fagan J, interpreted “development” and “prudent lenders” clauses holding the latter did not include wording equivalent, or even substantially to the same effect, as what was required by the policy wording.
These clauses (amongst many other “profession” specific endorsements) are commonly applied to valuers’ professional indemnity policies. The form of these clauses vary from insurer to insurer, often in substantially different terms to what is set out in APIV Standard 7. We discuss these exclusions and the extent of coverage available for valuers in our professional indemnity for valuers fundamentals.
His Honour provides useful guidance in Aquamore on the interpretation of these exclusions. Here, the analysis concludes how the prudent lenders exclusion operated for an insurer, enabling them to successfully deny cover to a valuer.
Summary of facts
The valuer in this instance, had been engaged by the plaintiff lender to provide a valuation for first mortgage security purposes on a property “Cowan”, a disused service station on contaminated land. The valuer adopted a hypothetical approach in this instance: estimating the end value of a subdivided site (four residential lots), then deducting assumed costs for soil remediation and subdivision works. Resulting in an “as is” valuation of approximately $4.2M. The lender relied on that valuation to advance funds of around $2.5M. Following default, the property realised approximately $1.5M, resulting in a substantial shortfall and giving rise to the alleged loss.
Relevantly, the valuer became insolvent, and the lender sought to proceed directly against the valuer’s professional indemnity insurer (Woodina Underwriting Agency Pty Ltd on behalf of its capacity providers “Woodina”). Insurers may be joined under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) under claims made policies but only where a claim is made and notified during the currency of a policy period.
The Court was asked to determine in this case whether Woodina could demonstrate a clear entitlement to deny indemnity, and if it could, then the application for joinder of Woodina would have to be refused.
Insuring agreement
The Court determined the insuring clause was engaged as the valuation was performed after the retroactive date, the claim was made and notified during the policy period, and the claim arose from covered professional services.
The development valuation exclusion
Woodina argued the valuation was a “development valuation” (given the hypothetical subdivision and residual approach).
The development valuation exclusion within the policy removed cover for claims arising from valuations prepared for development or project-based lending, particularly where the valuation is undertaken on an “as if complete” basis.
Under the policy, a “development valuation” was defined as “a valuation of vacant land assessed as a development site, or improved land where existing structures are to be demolished and the site redeveloped”, such clauses typically being linked to construction finance, development funding, or project-based lending purposes.
The exclusion was reinforced by endorsement wording which broadened its operation and, importantly, applied irrespective of any causal connection between the valuation methodology and the loss.
It should be noted that the definition of “development valuation” was purpose-driven, not purely methodological. It did not extend to valuations undertaken for other purposes (e.g. mortgage lending, pre-purchase, or taxation), even if they involved hypothetical assumptions.
Accordingly, whether the exclusion applied in this instance turned on the true purpose and context of the valuation, rather than the use of development-style modelling alone. Importantly, here, the exclusion, including the endorsement language, was found not to be engaged where there was no evidence that the proprietor, the valuer or the financier had any settled purpose of undertaking “construction”, or “development”, or a “project.” Further, there was no evidence that any of the parties intended that finance should be advanced for any such purpose or that the valuation would be given with a view to finance being provided for a purpose of that nature.
This guidance assists significantly in understanding the intention of these policy exclusions and their terminology in the context of insurance. It is often the least understood concept across the profession.
Every time a valuer receives an instruction which is specifically referred to in their insurance policy, or the APIV standards, they should consider the terms of their professional indemnity policy as a whole (especially policy exclusions and endorsements) and do so alongside the APIV standards. The extent of their policy cover and the requirements of those standards will determine how a valuer should undertake the valuation and report upon the valuation.
Prudent lenders clause
This clause excludes cover unless, in substance, the valuation report stated that the lender would comply with its own lending guidelines, prudent lending practices, would assess borrower credit risk and serviceability and the loan would be advanced at a prudent loan-to-value ratio. This clause operates as a condition of cover.
Justice Fagan approached the interpretation of the clause with strict textual discipline, analysing whether the valuation contained statements equivalent, in substance to the requirements set out within the policy. It was determined that whilst the valuation included general commentary indicating that the lender was “expected” to be subject to industry standards and or operating within a broader risk environment, this was insufficient to comply with the policy requirements.
Prudent lending conduct
The exclusion clause required a statement that the lender had its own lending guidelines, had complied with those guidelines and had considered borrower-specific credit risk, including serviceability. Those elements were absent from the clause used by the valuer within their valuation.
In rejecting the suggestion that generalised statements about industry standards or expectations could satisfy the requirements set out within the policy, His Honour states at paragraph 57:
I do not consider it reasonably arguable that an expectation of the lender being ‘notionally subject to finance industry standards with regards to general risk mitigation and prudent lender practices’ is equivalent to, or even substantially to the same effect as, [the required assumption].
Loan to value ratio
The valuation itself included an extract of the valuer’s insurance policy referring to loan-to-value ratio (LVR) thresholds. The Court held that this did not meet the policy requirements. His Honour held that exclusion clause required a statement that the loan would be advanced at a conservative and prudent LVR. Merely reproducing policy language did not convey that assumption. Saliently at paragraph ,29 Fagan J states:
The quotation of that endorsement in the valuation is not accompanied by any explanation of its significance. In my view the mere quotation of the endorsement does not convey to Aquamore Finance anything to the effect that the valuation is provided on the assumption that the loan to be advanced will be at a ‘conservative and prudent’ LVR…
The Court concluded that the valuation did not include wording that was equivalent, or even substantially to the same effect, as the requirement of the exclusion clause.
Practical implications
Professional indemnity policies are ‘claims made’. Many valuers often change insurers regularly. Where insurers specify differing clause requirements over separate periods of insurance, valuers leave themselves exposed to real risk a claim will not be covered if they fail to update their precedents. This case stands as further evidence that regular review and reading of both your policy of insurance and the APIV standards, is crucial good practice management.
If a policy requires specific statements to be included in a valuers professional report as a condition of cover, failure to include those statements will entitle the insurer to deny indemnity: regardless of whether the claim would otherwise fall within the policy.
The decision by the Court in this instance confirms that exclusion clauses will be interpreted strictly. The requirement for “substantial compliance” means true equivalence, not approximation and any generalised or implied assumptions will not suffice. Policyholders should seek advice on coverage as these exclusions may be negotiated out or negotiated to reduce any onerous implications they may have.
Also note that whilst these clauses were in part implemented to protect the profession from liability, they may be a double-edged sword!
