Professionals acting unprofessionally? The meaning of
“professional services” in a D&O policy exclusion
Written by Gemma Houghton, Senior Associate
470 St Kilda Pty Ltd (St Kilda) engaged Reed Constructions Australia Pty Ltd (Reed) as the design and construct contractor for a construction project at 470 St Kilda Road, Melbourne (the Contract). It was a term of the Contract that Reed must claim payment for works completed under
the Contract on a progressive basis.
Reed issued a progress payment claim for works completed under
the Contract (claim no. 15). St Kilda requested that Reed provide
documentary evidence in support of claim no. 15. Accordingly, the
Chief Operating Officer of Reed, Mr Robinson, executed a statutory
declaration in support of claim no. 15. It followed that the payment
requested in claim no. 15 was issued.
Some time later, St Kilda objected to the payment made under claim no.15 and argued that Mr Robinson
did not have a reasonable basis for making the supporting statutory declaration. St Kilda commenced
proceedings against Mr Robinson, which alleged that by providing the statutory declaration in support if
claim no.15, he had engaged in misleading and deceptive conduct and negligently breached his duty of
care (the Proceedings).
Reed had the benefit of a Directors and Officers (D&O) liability insurance policy (the Policy) and Mr Robinson
sought indemnity in respect of the Proceedings, under the Policy. However, indemnity was denied on the
+ the Proceedings arose out of the Mr Robinson’s act of providing a statutory declaration;
+ that act constituted a “professional service”; and
+ the Policy excluded loss in respect of any claim arising out of the provision of “professional services”.
That exclusion relevantly excluded loss arising from a 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 of, or actual or alleged failure to render any professional services
to a third party.”
Mr Robinson objected to the denial of cover and issued a cross claim in the Proceedings against his insurer.
This case considered
the meaning of
services” in the
context of a
in a Directors &
W+K CFG Bulletin, April 2014Pursuant to that cross claim, the court considered whether the Proceedings were in respect of a claim arising
from a breach of professional services. More specifically, whether, in making the statutory declaration,
Robinson was providing “professional services”.
What are professional services?
The insurer submitted that Mr Robinson was providing project management services when he gave the
statutory declaration, that project management is a recognised discipline that should be characterised as a
professional service, and therefore the professional services exclusion of the Policy was triggered.
The Court was not persuaded by the insurer’s submissions and instead concluded that:
+ Mr Robinson provided a “service” but not a “professional service” when he executed the statutory
+ it is not an accepted principle that providing project management services will always be regarded
as a “professional service”. The Court further stated that:
“So far as an insurance contract is concerned, however, whether or not project management falls
within the meaning ‘profession’ or involves ‘professional services’ would depend on the commercial
context in which the policy is made, its objects and its terms”;
+ in this case, Mr Robinson was not providing project management services when he provided the
statutory declaration. The statutory declaration was merely a mechanism to provide documentary
evidence of payment of monies due. In other words the statutory declaration provided factual
information only and was an administrative activity, not a project management activity; and
+ the professional services exclusion is intended to exclude services that are truly professional in
nature, for example architectural design, engineering or surveying. An administrative activity of
this nature should not fall within the professional services exclusion.
In reaching its decision, the Court also referred to and relied on the following general principles:
1. The starting point should be the general principles governing construing insurance contracts,
namely the overarching principle referred in McCann v Switzerland Insurance Australia Ltd
(2000) 203 CLR 579:
“A policy of insurance...is a commercial contract and should be given a business like interpretation.
Interpreting a commercial document requires attention to the language used by the parties, the
commercial circumstances which a document addresses, and the objects which it is intended to
2. The correct approach to construing an exclusion clause is as outlined in Darlington Futures Ltd v
Dellco Australia Pty Ltd (1986) 161 CLR 500. In that case, the High Court stated as follows:
W+K CFG Bulletin, April 2014“The interpretation of an exclusion clause is to be determined by construing the clause according
to its natural and ordinary meaning, read in light of the contract as a whole, thereby giving due
weight to the context in which the clause appears including the nature and object of the contract
and where appropriate, construing the clause contra proferentum in case of ambiguity...”
3. It was necessary to look at the specific conduct that attracted the exclusion clause, in order to
determine its application to the policy in question. Looking at the nature of Reed’s business,
in that it was a design and construct contractor, the Court considered it was clear that the policy
intended to insure against risks in performing those activities.
4. If an exclusion clause is open to interpretation and one of those interpretations would
inappropriately circumscribe the cover provided by the insuring clause and the other would not,
the latter is to be preferred.
5. The fact that Reed had the benefit of professional services cover under another insurance policy
had little, if any, bearing on the construction of the exclusion clause.
Impact of this case
The court’s findings in this case regarding the meaning of “professional services” in the context of a D&O
Policy exclusion, are important to both insurers and insured for a number of reasons including:
1. Clarifying what your policy excludes: if parties to an insurance contract want to be sure what
aspects of an insured’s operations are excluded pursuant to a professional services exclusion
(particularly project management tasks), such activities should to be clearly defined.
2. Professional services providers: professional service providers cannot assume that all of
their activities will be classified as a professional service for the purpose of their insurance
3. Overlap of policy cover: just because an insured has separate professional
indemnity cover, does not necessarily mean that a Court will construe a professional
services exclusion in a D&O policy in an insurer’s favour.
The main message from this case is that if parties to an insurance contract want specific “professional
services” activities to be excluded (or included), make sure those activities are clearly defined in the policy.
The Court’s approach of looking at the object of insurance cover provided, when determining the meaning
of professional services, is consistent with long standing authority. In this case however, because of the lack
of clarity in defining the professional services to be excluded, the decision generates some uncertainty for
insureds and insurers regarding the meaning of professional services and what cover may or may not be
available under a policy with a professional services exclusion. Nonetheless, parties can take steps to avoid
interpretation uncertainty by ensuring that the meaning of “professional services” in their insurance policies
is clearly defined.
W+K CFG Bulletin, April 2014Recent changes to Queensland building and
construction industry legislation
Written by Raisa Conchin, Special Counsel
The Queensland Government has recently enacted a number of changes to the laws governing
the building and construction industry. The changes (which came into force on 1 December
2013) are anticipated to be the tip of the iceberg, with further amendments expected to be on the
Government’s legislative agenda in the coming months.
So what has changed?
The existing licensing requirements have been modified to more closely reflect the commercial
arrangements common to the industry. Previously, a party which contracted to undertake “building
work” was required to hold a building licence. Now, the Queensland Building and Construction
Commission Act 1991 (Qld) (the QBCCA) provides that certain persons are not required to hold a
building licence when contracting to undertake building work.
If you are a:
+ special purpose vehicle (SPV) recognised by the Queensland Treasurer and engaged to carry out a
+ lead contractor;
That the Court did not reach a definitive view on whether project management is a recognised professional
service also creates uncertainty for project managers. Whilst on the one hand such uncertainty may be
unhelpful, the flip side is that it allows courts to look at the wider commercial picture, when considering the
scope of a professional services exclusion. The decision does serve as a reminder to focus upon the task that
is the subject of the cause of action and consider whether that task falls within the excluded professional
Gemma Houghton, Senior Associate
p: +61 2 8273 9955
W+K CFG Bulletin, April 2014+ property developer; or
provided that the person actually carrying out the “building work” is appropriately licensed, you are
now not required to hold a building licence.
This change removes the burden of holding a licence, particularly for head contractors and property
developers, and recognises the commercial reality that building works are largely carried out by
appropriately licensed contractors.
However, these changes:
+ cease to apply if the unlicensed person causes or allows any of the “building work” to be
performed by a person who does not hold an appropriate licence;
+ do not allow for unlicensed persons to administer, advise, manage or supervise the “building
+ do not apply to residential construction or domestic “building work” (persons engaged in this type
of work are still required to hold the appropriate license).
Definition of “building work”
The Queensland Building and Construction Commission Regulation 2003 (Qld) now provides
that certain activities are not considered to be “building work” for the purposes of the QBCCA.
Activities which do not constitute “building work” now include (among others):
+ hanging curtains, or installing, maintaining or repairing blinds or internal shutters;
+ laying carpets, floating floors or vinyl;
+ earthmoving or excavating;
+ services performed by a registered property valuer in the course of his/her professional
+ inspection, investigation or report for assessment of an insurance claim;
+ installing insulation (acoustic or thermal);
+ installing insect or security screens; and
+ installing hot water systems and solar panels.
Retention monies under building contracts
The QBBCA now expressly provides for retention money relief for contracts involving SPVs which have
been engaged to carry out a public-private partnerships. The existing ability to contract out of the
retention of 5% of the contract sum for contracts (other than subcontracts) now also applies to SPVs
W+K CFG Bulletin, April 2014(section 67K).
Further, the requirement that 5% of the contract sum be retained in respect of subcontracts does not
apply where the subcontractor is an SPV.
What are the potential risks?
Head contractors and property developers could potentially fall foul of the new licensing exceptions
if they “cause or allow” “building work” to be carried out by an unlicensed person. It is not clear if this
carve out is directed at punishing purposive acts or if it also includes inadvertent acts or omissions by
an unlicensed person. Unlicensed persons are urged to remain vigilant to ensure that “building work”
is always carried out by appropriately licensed persons.
Raisa Conchin, Special Counsel
p: +61 7 3236 8702
Brookfield Multiplex – Special Leave Application
By: Paul Spezza, Partner and Hayden Gregory, Paralegal
On 14 March 2014 the High Court granted Brookfield Multiplex special leave to appeal the decision of
the NSW Court of Appeal in The Owners Strata Plan No 61288 v Brookfield Australia Investments Ltd
 NSWCA 317. That decision has been condemned in some circles as an unwarranted extension of
the common law duty of care owed by builders to subsequent owners for certain types of latent defects
The appeal is expected to be heard in July or August 2014. Given the implications arising from the NSW
Court of Appeal decision, the construction and insurance industries will no doubt anxiously await the
outcome in the High Court.
Paul Spezza, Partner
p: +61 7 3236 8701
W+K CFG Bulletin, April 2014COMMERCIAL STRUCTURAL DEFECTS INSURANCE –
VICTORIA TO FOLLOW TASMANIA
Written by: Connor Burdon-Bear, Solicitor
The Victorian Government, as part of its response to a Victorian Competition and Efficiency Commission
inquiry, has recently committed to reducing “red tape” in order to boost productivity and reduce costs
for Victorian businesses.
The Honourable John Lloyd was appointed the Red Tape Commissioner. He previously held the role of
the Australian Building and Construction Commissioner.
As part of his review process, Mr Lloyd consulted with the business community, ultimately proposing
36 red tape reforms. One of the 36 red tape reforms involves reform to mandatory commercial builders
Currently all commercial builders must hold structural defects insurance as required by the
Building Practitioner’s Insurance Ministerial Order.
The only exception to this requirement is that commercial builders who are limited to
works regarding fitouts that are non-structural are not required to hold mandatory
In 2008, Tasmania, which had similar requirements in place, removed
a similar form of mandatory commercial builders defects insurance.
However, builders are still required to obtain contract works and public
liability insurance. It now appears that Victoria will follow suit.
The Government has advised that 22 of the 36 reforms will be “implemented in time
to meet the Government’s 25 per cent red tape reduction target commitment of July 2014
with the [others] to be introduced in the near future.”
The Government is yet to stipulate which of the reforms will be implemented by July 2014. We
will keep you advised of developments in future bulletins.