A prudent lenders exclusion in the valuer's PI policy proved fatal for Aquamore Finance
A NSW Supreme Court decision on 20 March 2026 denied a non-bank lender access to its property valuer's professional indemnity cover.
In Aquamore Finance Pty Ltd v Australis Consulting Pty Ltd t/a Castles Valuers [2026] NSWSC 248, decided on 20 March 2026, Justice Fagan refused Aquamore Finance leave to join Lloyd's underwriters as defendants in proceedings against Castle Valuers, a land valuation firm. The court found that a key exclusion clause in the valuer's professional indemnity policy unarguably applied.
The case centred on a contaminated former service station at Cowan, New South Wales, approximately 42 kilometres north of the Sydney CBD. The property sat on three titles totalling 2,428 square metres and had soil contaminated with hydrocarbons. Castle Valuers' principal, Slim Hawatt, inspected the property on 14 October 2021. Castle Valuers issued its valuation report on 16 November 2021, valuing the property at $4.2m for first mortgage lending purposes. On 18 November 2021, at Aquamore Finance's request, Castle Valuers issued a fresh report in the same terms, identifying Aquamore Finance as the instructing entity. Castle Valuers arrived at the $4.2m figure by estimating the hypothetical value of four subdivided lots, then deducting the combined costs of hypothetical remediation ($320,000) and subdivision ($280,000) from the aggregate lot value of $4.8m.
Aquamore Finance, a non-bank lender, advanced $2.52m on 26 November 2021, representing 60 percent of the assessed value, with the property as security. The borrower, BBARC Pty Ltd, defaulted in February and March 2023. Receivers sold the property in June 2023 for $1.5m. Aquamore Finance calculated its loss at approximately $1.7m and commenced proceedings against Castle Valuers and Mr Hawatt for negligent valuation. It alleged the property's true market value at the date of inspection was no more than $1.6m, assuming the continuance of existing use rights and that no soil remediation was required.
The case took a further turn when Castle Valuers was wound up in insolvency in August 2025, following a winding-up order obtained by the Commissioner of Taxation. The company held no real property in Australia and ceased defending the claim. A $400,000 consent judgment against both defendants, entered in April 2025, remained unsatisfied. Aquamore Finance then sought to pursue Lloyd's underwriters directly under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).
The underwriters relied on two exclusions. The first, a development valuation exclusion in s 7.2 of the policy and its endorsement, did not succeed. The court found it was at least reasonably arguable that the valuation was not a "development valuation" within the meaning of the policy, because the land had a disused service station building on it, which ruled out the "vacant land" limb of the definition, and there was no evidence that the proprietor had a settled plan to demolish and redevelop it.
The second exclusion, the "prudent lenders" clause in s 7.6, proved decisive. That clause denied cover for valuations provided to lenders that were not authorised deposit-taking institutions, such as Aquamore Finance, unless the valuation report included specific language confirming three assumptions: that only the named lender could rely on it; that the lender had complied with its own lending guidelines as well as prudent finance industry lending practices, and had considered all prudent aspects of credit risks for the borrower, including the borrower's ability to service and repay any mortgage loan; and that the lender advanced funds at a conservative and prudent loan-to-value ratio.
The court found the valuation satisfied only the first assumption. Language in the risk section of the valuation expected the lender to be "notionally subject to finance industry standards with regards to general risk mitigation and prudent lender practices", language the court found fell well short of the required assumptions about the lender's own lending guidelines and the borrower's specific credit risk. A separate section of the valuation that quoted a PI endorsement for non-bank lenders also failed to convey any assumption about a conservative loan-to-value ratio.
Justice Fagan dismissed Aquamore Finance's application and ordered the company to pay the underwriters' costs.
