The Supreme Court of Victoria this week handed down a decision that prevented James Hird (Hird) from obtaining an indemnity under an insurance policy concerning the legal costs spent on his unsuccessful Federal Court claims. 

The decision is likely to have left Hird out of pocket for an amount close to $1 million.

Background

Following Hird's settlement with the AFL regarding his involvement in the Essendon supplements program, Hird obtained legal advice that ASADA was acting beyond its powers and following that advice, pursued an action in the Federal Court seeking declarations of invalidity and injunctions preventing ASADA issuing show cause notices to the Essendon players that referred to and relied on evidence collected during ASADA's joint investigation with the AFL.1

Hird was unsuccessful at first instance and at appeal.2

The financial cost in losing the Federal Court actions was significant – Hird had paid $691,989.97 in costs in pursuing the Federal Court actions. 

Following the Federal Court actions, Hird claimed the $691,989.97 as an officer under Essendon's directors and officers policy held with Chubb. 

Hird's Indemnity Claim

Hird's claim against Chubb centred on two sections (insuring clauses A and C) contained within the directors and officers section of the Chubb policy. 

Insuring Clause A – Executive Liability Coverage 

 "[Chubb] shall pay, on behalf of each Insured Person, Loss for which the Insured Person is not indemnified by [Essendon] an amount of any Executive Claim first made during the Policy Period for a Wrongful Act occurring during or before the Policy Period." 

Insuring Clause C – Legal Representation Expenses 

"[Chubb] shall pay, on behalf of each Insured Person, Legal Representation Expenses on account of any Formal Investigation commenced during the Policy Period.

The Key issues 

Insuring Clause A 

Whether the interview notices Hird received as part of the joint investigation undertaken by the AFL and ASADA fell within the definition of an Executive Claim (Hird Interview Notices)? 

Insuring Clause C

Whether the Federal Court legal costs were incurred on account of Hird's involvement in relation to the joint investigation undertaken by the AFL and ASADA?

Findings 

Insuring Clause A

The Court determined that the Hird Interview Notices were neither an Executive Claim or a demand or formal proceeding against Hird for a Wrongful Act in connection with the Federal Court actions.

The Court also found that ASADA had made no allegations against Hird and that ASADA had never alleged Hird had engaged in a Wrongful Act. 

The Court also determined that the Hird Interview Notices issued by ASADA were not documents which could trigger a claim that was an Executive Claim as defined under the policy. In contrast, the AFL's formal notice of charge against Hird (from which Hird was suspended) would have been considered by the Court to be an Executive Claim under the policy. 

Insuring Clause C 

Hird's key submission under Insuring Clause C was to assert that the definition of legal expenses must be broad enough to include "defensive" action to a Formal Investigation, in this instance, the Federal Court actions.

Chubb's response, in which the Court agreed, was that Hird was not able to demonstrate a sufficient connection between his involvement in the ASADA/AFL joint investigations in accordance with the Hird Interview Notices and his decision to pursue the Federal Court actions. 

Ultimately, the Court observed that the motivations in Hird commencing the Federal Court actions were connected to him wanting to protect his reputation and his continued ability to derive an income by the way of employment within the AFL system rather than those actions being sufficiently connected to matters relating to his involvement in the joint investigations conducted by the AFL and ASADA. 

Conclusion

It is important that parties remember that courts will look at the "text, context and purpose" of a contract in order to determine any dispute dealing with the interpretation of certain clauses or the objects as a whole.3 

In reviewing the text, context and purpose of the contract in this instance, the Court determined that Hird's claim fell outside the scope of the Chubb policy.