When is a service not ‘professional’?

470 ST KILDA ROAD PTY LTD v ROBINSON [2013] FCA 1420

In 470 St Kilda Road Pty Ltd V Robinson [2013] FCA 1420 Kenny J considered the ‘professional services’ exclusion in a directors’ and officers’ liability insurance contract.  The case provides a useful review of the authorities dealing with this exclusion, and is relevant in respect of interpreting exclusion clauses in insurance contracts more generally.

Background

Mr Robinson was the Chief Operating Officer of Reed Constructions Australia Pty Ltd (‘Reed’).  In October 2010 Reed entered into a written contract with 470 St Kilda Road Pty Ltd (‘470 St Kilda Road’) to design and construct the ‘Leopold Project at 470 St Kilda Road (‘design and construct contract’).

Under the design and construct contract, Reed was to claim reimbursement for work performed on a progressive basis, and 470 St Kilda Road could request that Reed provide documentary evidence in support of those claims.

In December 2011 470 St Kilda Road requested that Reed provide documentary evidence regarding a particular progress payment.  Reed’s Contracts Manager requested that Mr Robinson complete a Statutory Declaration for that purpose.  Mr Robinson completed a Statutory Declaration supporting the progress payment for the amount of $1,426,641.70 and submitted it to 470 St Kilda Road’s representative under the design and construct contract.

470 St Kilda Road subsequently brought proceedings against Mr Robinson for misleading or deceptive conduct and in negligence alleging that he did not have a reasonable basis for making the Statutory Declaration regarding the progress payment.

Reed Building Group Pty Ltd, of which Reed was a subsidiary, had a directors’ and officers’ policy of insurance (‘D&O Policy’) with Chubb Insurance Company of Australia Ltd (‘Chubb’).  Mr Robinson claimed indemnity under the D&O Policy in respect of any loss he might be liable to suffer by reason of 470 St Kilda Road’s claim.

Chubb denied liability relying on the professional services exclusion.

Mr Robinson joined Chubb to the proceeding brought by 470 St Kilda Road.  This cross-claim was determined separately from and prior to the principal proceeding.

D&O Policy

The insuring clause, headed ‘Executive Liability Coverage’, was worded as follows:

‘The Company shall pay, on behalf of each Insured Person, Loss for which the Insured Person is not indemnified by an Organisation on account of any Executive Claim first made during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act occurring before or during the Policy Period.’

Leaving aside other defined terms, ‘Wrongful Act’ was defined as:

‘any act or omission, including but not limited to any error, misstatement, misleading statement, neglect, breach of trust or breach of duty committed, attempted, or allegedly committed or attempted by […] an Insured Person, individually or otherwise, in his Insured Capacity, or any matter claimed against such Insured Person solely by reason of serving in such Insured Capacity […]’

Chubb did not dispute that Mr Robinson’s claim would fall within the insuring clause, save for the professional services exclusion, which was worded as follows:

‘The Company shall not be liable for Loss in respect of any Claim […] for any actual or alleged act or omission, including but not limited to any error, misstatement misleading statement, neglect, or breach of duty committed, attempted or allegedly committed or attempted in the rendering or, or actual or alleged failure to render any professional services to a third party’ (emphasis added).

Chubb’s submission

In short, Chubb submitted that the payment process under the design and construct contract was complicated, depended on assurances that subcontractors had completed the work, and was integral to the function of project management assumed by and on behalf of Reed.  Chubb therefore submitted that Mr Robinson’s preparation of the Statutory Declaration was part of the function of ‘project management’, which should be accepted as a professional service within the meaning of the exclusion.

Mr Robinson’s submission

Mr Robinson submitted that the exclusion clause did not apply by virtue of a proper interpretation of the D&O Policy.  The provision of the Statutory Declaration was not a service, and project management was not a professional service, properly understood.

Kenny J’s decision

Her Honour applied four general principles of interpreting exclusion clauses in an insurance contract:

(a)           an exclusion clause should be given a businesslike interpretation, in accordance with its natural and ordinary meaning and in accordance with the object of the contract and the context within which it appears;[1]

(b)           the contra proferentem rule is to be used only in the case of ambiguity and is a rule ‘of last resort’;[2]

(c)           where an exclusion clause is open to two interpretations, the interpretation to be preferred is one which does not inappropriately circumscribe the cover provided in the insuring clause;[3] and

(d)          the onus of proof or risk of non-persuasion in respect to an exclusion clause rests with the insurer.[4]

Kenny J accepted that Mr Robinson by providing the Statutory Declaration was providing a service to Reed, but considered that, whilst ‘project management’ might be regarded as a professional service in some contexts, it did not necessarily fall within an established professional discipline.[5]

Her Honour considered the context of the exclusion within which Chubb provided the D&O cover, knowing that it was insuring ‘directors, officers and employees engaged in activities comprising or supporting the delivery of building and construction services by Reed’.[6]  If the exclusion is not to circumscribe the cover inappropriately, the ‘central focus’ must be on the act or omission of the individual.[7]

Accordingly, even if project management might amount to a professional service within the exclusion in some circumstances, in this instance Mr Robinson’s act of providing the Statutory Declaration was held not to be an act or omission ‘in the rendering of’ project management services.  Further, there was no requirement or expectation that the provision of the Statutory Declaration be undertaken by a professional person; it was administrative, and only in support of the delivery of the building and construction services provided by Reed.

In the circumstances, the ‘professional services’ exclusion did not apply to Mr Robinson providing the Statutory Declaration.  Kenny J thus held that Chubb was to indemnify Mr Robinson for any liability he might have to 470 St Kilda Road in the principal proceeding.

Conclusion

Her Honour’s reasoning is consistent with Australian authorities following the Canadian decision of Chemetics International Ltd v Commercial Union Assurance Company of Canada.[8]  The ‘professional services’ exclusion will not apply where the particular act or omission for which indemnity is claimed is not of itself professional in character, and incidental to whatever other obligations or duties the insured might perform.  Whilst this line of authority has been followed in public and products liability policies having a professional services exclusion, the decision is particularly relevant insofar as it applies such reasoning in the context of a D&O Policy.


[1] At [65] – [67], citing McCann v Switzerland Insurance Australia Ltd (2000) 2-3 CLR 579; CGU Insurance Ltd v Porthouse (200-8) 235 CLR 103; Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; and Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336

[2] At [68] – [69] citing North v Marina (2003) 11 BPR 21,359

[3] At [71], citing Fitzpatrick v Job (2007) 14 ANZ Insurance Cases 61-731; Vero Insurance Ltd v Power Technologies Pty Ltd (2007) 14 ANZ Insurance Cases 61-745; and Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 282 ALR 363

[4] At [72]

[5] At [76] – [89]

[6] At [108]

[7][7] At [109]

[8] (1984) 11 DLR (4th) 754.  See also, in particular, Fitzpatrick v Job (2007) 14 ANZ Insurance Cases 61-731; Vero Insurance Ltd v Power Technologies Pty Ltd (2007) 14 ANZ Insurance Cases 61-745; and Major Engineering Pty Ltd v CGU Insurance Ltd (2011) 282 ALR 363


Clive Madder – CommBar profile

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