In brief - Courts attribute different meanings to "professional services" depending on the context

Major and complex construction projects generally involve comprehensive insurance programmes to manage the flow of risk and liability arising in relation to various potential losses involving death and personal injury, material damage and loss of time and consequential losses.

Many of the policies will involve the concept of "professional services", for example:

  • Standard Professional Indemnity (PI) cover for professionals involved in the project will insure claims arising from "professional services"
  • Public and products liability and contracts works policies will exclude certain claims arising from "professional services" (often subject to write backs for property damage and personal injury).

What does "professional services" mean in these policies?

"Professional services" covered

Courts generally give a wide interpretation to what is "professional" in PI policies, considering the term as one which probably involves "no more than advice and services of a skilful character according to an established discipline" (GIO General Ltd v Newcastle City Council [1996] NSWSC 322).

Indeed, the fact that a PI policy has been issued to an insured can be a good indication that the services provided by the insured are "professional". (Suncorp Metway Insurance Ltd v Landridge Pty Ltd [2005] VSCA 223Tesco Stores Ltd v Constable [2008] EWCA Civ 362)

This means that in the context of a construction PI policy, an insurer may have difficulty proving that services fall outside cover for not being professional.

"Professional services" excluded

In Major Engineering Pty Ltd v CGU Insurance Limited [2011] VSCA 226, the court held that the usual advice given about a product in a sales and supply context was not a "professional service" as:

  • in supplying that product, the insured was not providing a professional service, much less professional advice, it was operating its business of manufacturing and selling equipment - the very business the policy covered
  • it was difficult to see how selling a product, even a bespoke product, could be characterised as providing a professional service. In ordinary business parlance, there is a recognised difference between "sales" and "service". (See also Hall v Adventure Training Systems Pty Ltd & Anor [2005] NSWSC 1079.)

Court does not allow indemnity clause to be circumscribed

In Fitzpatrick v Job & Anor [2007] WASCA 63, the court dealt with a policy exclusion for claims "arising out of a breach of duty owed in a professional capacity". The alleged breach arose from an allegation that the insured (an engineering firm) did not "advise or inform" the purchaser claimant about the need for a barrier or safety switch. The court held that this was not a "professional service" as otherwise recovery under the indemnity clause of the products liability insurance would be severely circumscribed, which would defeat the purposes of the insuring clause.

Insured fails to convince court that building a road was "professional"

Pioneer v QBE [2002] NSWSC 137 is an interesting example of a situation where an enterprising insured sought to argue that building a road was "professional" to come within the policy, which was "limited to cover design and consulting/advisory services only". The insured submitted that its failure to prepare and submit a traffic control plan, decision to defer road sweeping and failure to advise and ensure that sufficient signage was erected at the site once the gravel was spread on the new surface, fell within the insured services.

The court held that the insured's contract was to perform roadwork in accordance with the design and specifications laid down by the RTA and was, therefore, a contract for execution of design rather than the provision of design or advisory/consulting services and fell outside of cover.

Court finds that statutory declaration falls outside cover

The decision in Pioneer is consistent with 470 St Kilda Road Pty Ltd v Robinson [2013] FCA 1420, involving a D&O policy with a "professional services" exclusion. The court held that that providing a statutory declaration was part of the routine administration of the D&C contractor's business, as there was no requirement or expectation that the statutory declaration be the outcome of professional assessment or be completed by a professional person, and therefore fell outside cover. (See Solicitors' Liability Committee v Gray & Anor [1997] FCA 652 on the limits of PI cover for lawyers.)

Courts interpret insurance policies in accordance with intended effect

It should come as no surprise that courts will construe insurance policies as commercial contracts and interpret them in accordance with their intended effect. Viewed this way, the simultaneously narrow and wide (and probably inconsistent) meaning attributed to the same words makes some sort of sense.