As I have noted in several posts on this site (most recently here), one of the recurring D&O insurance coverage questions is the extent of the preclusive effect of the professional services exclusion. In the following guest post, Rehana Box and Marie Vlassis of the Ashurst law firm take a look at judicial developments in Australia regarding this issue. This article previously appeared in the LexisNexis Australian Insurance Law Bulletin. I would like to thank Rehanna and Marie for their willingness to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to publish a guest post on this site. Here is Rehana and Marie’s guest post.
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Executive Summary
The decision of Chubb Insurance Company of Australia Limited v Robinson[1] (Chubb) recently handed down by the Full Federal Court provides a useful reminder of the court’s approach to the interpretation of the term “professional services” in exclusion clauses, and more generally, the construction of insurance contacts.
In the case of Chubb, Justices Foster, Robertson and Davies took a narrow view of the meaning of the professional services exclusion[2] and gave the insurance contract a businesslike interpretation. In support of the narrow construction of “professional services” in the exclusion, the Court confirmed that that the term ‘‘professional’’ in the insuring clause of a professional indemnity policy does not necessarily bear an identical meaning in an exclusion clause in a D&O Policy[3].
The case is consistent with the recent decision of Todd v Alterra[4] on the interpretation of insurance contracts[5] in confirming that:
- the policy must be read and constructed as a whole[6];
- words and their use must be construed in context and not in a vacuum[7]; and
- the commercial purpose or object to be secured by the policy must be considered[8].
The Design & Construct Contract
The case involved Reed Constructions Australia Pty Ltd (Reed), a building contractor and wholly owned subsidiary of Reed Building Group Pty Ltd (RBG). In October 2010, Reed entered into a design and construct contract (D&C contract) with 470 St Kilda Road Pty Ltd (St Kilda) for the redevelopment of an office building in Melbourne and the construction on that site of residential apartments (the Leopold project).
The terms of the D&C contract for the Leopold project required Reed to verify all Progress Claims by procuring a statutory declaration from one of its officers or employees in support of each claim. The purpose of a Progress Claim was to detail the value of the work undertaken by Reed, including the value of materials used and work of subcontractors.
The Progress Claim
On 12 December 2011, Reed made Progress Claim No 15 which was supported by a statutory declaration made by Mr Robinson, Reed’s Chief Operating Officer. Mr Robinson supervised a number of construction projects including the Leopold project.
After Reed was placed into liquidation, St Kilda took the view that, by Progress Claim No 15, Reed had sought payments of amounts to which it was not lawfully entitled and commenced proceedings against Mr Robinson, claiming damages for misleading and deceptive conduct and negligence.
Mr Robinson denied liability to St Kilda and, by a cross-claim, sought indemnity from Chubb in respect of any liability which he might ultimately be found to have to St Kilda.
The Policy
A Directors and Officers (D&O Policy) underwritten by Chubb was held by RBG for the benefit of the directors and officers of Reed. The D&O Policy was subject to a professional services exclusion in respect of any ‘act or omission in the rendering of, or actual or alleged failure to render, any professional services to a third party’[9].
Reed also held a Professional Indemnity (PI) Policy with Liberty International Underwriters (LIU). Chubb denied Mr Robinson indemnity on the basis that he had rendered a professional services to St Kilda and that the professional services exclusion was triggered.
The decision at first instance
At first instance, Mr Robinson succeeded against Chubb. Chubb appealed the decision arguing that:
- her Honour Justice Kenny (the Primary Judge) had erred by applying the contra proferentem rule to the professional services exclusion clause even though no ambiguity in the wording had been demonstrated by Mr Robinson, arguing that her Honour used that rule as a first point of reference rather than as a last resort[10]; and
- the ‘‘professional services’’ included project management services and could be defined satisfactorily as services of a skilful character according to an established discipline in GIO Australia v Newcastle City Council[11].
The Full Federal Court upheld the decision of the Primary Judge.
Why was the service provided by Mr Robinson not a professional service?
The critical question on appeal was whether the professional services exclusion applied to Mr Robinson’s claim for indemnity.
The starting point to defining a “professional service” is found in the principle expounded by Justice Kirby in GIO[12] which states that these are ‘‘services of a skilful character according to an established discipline”[13]. However, the reasoning of the Court supports that this is only useful if an occupation falls within the meaning of the word ‘‘profession’’.
The Court considered the commercial purpose of the D&O Policy, and accepted Mr Robinson’s submission that “the professional services exclusion in the present case must relate to a narrower band of activity than the work that generally comprises or supports the delivery of building and construction activities by the Reed group of companies.”[14]. In upholding the Primary Judge’s decision, the Court went on to say that if this were not so, the cover provided by the D&O policy would be inappropriately circumscribed[15].
The Court accepted that the expression ‘‘professional services’’ in the relevant exclusion clause means services of a professional nature furnished by RBG or one of its subsidiaries involving the application of skill and judgment by the person, being services which fall within the scope of a vocational discipline which is generally regarded as a profession[16].
In upholding the decision at first instance, the Court agreed that “project management” was not regarded as a profession in 2010 or in 2011[17]. Further, the Court held that the making of the statutory declaration by Mr Robinson did not constitute the rendering of professional services within the relevant exclusion in the D&O policy[18], and Mr Robinson’s acts amounted to routine compilation of factual material in order to secure a contractual payment[19].
What principles were applied in constructing the insurance contract and exclusion clause?
The principles of interpretation for insurance contracts have been well established by previous authorities over the last two decades. Consistent with previous decisions, Justices Foster, Robertson and Davies applied the following principles:
- A policy of insurance is a commercial contract and should be given a businesslike interpretation[20], requiring attention to the language used and commercial circumstances, and giving words their ordinary and fair meaning[21];
- The term “professional” in the insuring clause of a professional indemnity policy does not necessarily bear an identical meaning in an exclusion clause of a public liability or products liability policy. The same may be said of an exclusion clause in a D&O policy[22];
- The context in which the term “professional” is used in an insurance policy may be significant in determining its meaning[23]; and
- While the meaning of “professional” varies according to the context in which it is used, generally the word “professional” connotes “pertaining or appropriate to a profession” and “engaged in one of the learned professions”[24].
What does this decision mean for insurers?
The Court has reaffirmed its approach to the interpretation of insurance contracts. Further, it is clear that the Court will give a narrow interpretation to professional services exclusions.
Insurers should closely review their policy wordings for their intended meaning, particularly when considering the effect of exclusion clauses in management liability policies in relation to claims. In the realm of professional liability policies, an insurer must scrutinise the meaning of “professional” in light of the business to which the policy relates and the profession which is in view, for both insuring and exclusion clauses.
This article was first published in the Australian Insurance Law Bulletin 2016. Vol 32 No 5, page 62.
Authors
| Rehana Box,Partner
Sydney T: +61 2 9258 6407 rehana.box@ashurst.com |
Marie Vlassis, Lawyer
Sydney T: +61 2 9258 5621 marie.vlassis@ashurst.com |
|
This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at aus.marketing@ashurst.com.
Ashurst Australia (ABN 75 304 286 095) is a general partnership constituted under the laws of the Australian Capital Territory and is part of the Ashurst Group. Further details about Ashurst can be found at www.ashurst.com.
© Ashurst 2016. No part of this publication may be reproduced by any process without prior written permission from Ashurst. Enquiries may be emailed to aus.marketing@ashurst.com. Ref: 241409504.02 0 XXX 0000 www.ashurst.com |
[1] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 (Chubb).
[2] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 [15].
[3] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 [142].
[4] Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2015] FCA 147.
[5] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [103].
[6] Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2015] FCA 147 at [71].
[7] Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2015] FCA 147 at [72]
[8] Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2015] FCA 147 at [76].
[9] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [77].
[10] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [68].
[11] (1996) 38 NSWLR 558.
[12] GIO General Ltd (t/a GIO Australia) v Newcastle City Council (1996) 38 NSWLR 558.
[13] GIO General Ltd (t/a GIO Australia) v Newcastle City Council (1996) 38 NSWLR 558 at 568.
[14] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [149].
[15] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [149].
[16] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [150].
[17] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [159].
[18] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [162].
[19] Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [163].
[20] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65 at [22].
[21]McCann v Switzerland Insurance Australia Ltd [2000] HCA 65 at [74].
[22]Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [142]. See Fitzpatrick v Job [2007] WASCA 63
[23]Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [142]. See Fitzpatrick v Job [2007] WASCA 63
[24]Chubb Insurance Company of Australia Limited V Robinson [2016] FCAFC 17 at [148]. See FAI General Insurance Co Ltd v Gold Coast City Council [1995] 2 Qd R 341.