Kyriackou v ACE Insurance Ltd  VSC 214 (see Professional indemnity insurance - Hamlet without the prince?) concerned the refusal of an insurer to indemnify an insured under a professional indemnity policy for his costs in defending ASIC proceedings. An appeal lodged by the insured against the decision has been dismissed. Among other things, the appeal judgment considered the meaning of two phrases: “civil liability” and “professional capacity”.
In order for the insured to succeed on appeal, his defence costs had to be capable of being characterised as loss arising from:
any written demand for, or an assertion of a right to, civil compensation or civil damages arising out of the [insured’s] business or a written intimation of an intention to seek such compensation or damages in respect of civil liability for breach of a duty owed in a professional capacity ...
Were the ASIC proceedings for “civil liability”?
No. The ASIC proceedings involved an unregistered managed investment scheme, and were discontinued once the scheme had been wound up. The Court of Appeal concluded that the nature of the ASIC proceedings, having regard to the pleadings, could not be characterised as involving “civil compensation” or “civil damages”. While observing that “civil liability” was potentially broader in scope than “civil compensation or civil damages”, in this case its meaning needed to be restricted to rights connected with compensation or damages.
Was the insured acting in a “professional capacity”?
Yes, although ultimately this did not assist the insured. While the trial judge had concluded that the insured’s conduct had been in the commercial sphere, and not the professional realm, the Court of Appeal disagreed. There were two bases for this conclusion:
- what mattered was the insured’s overall activity in the context of which the breach occurred, and not the specific task that was said to have given rise to liability.
- where a professional indemnity policy is issued to someone not in a traditional profession, and the policy defines the person’s business, a narrow reading of “professional capacity” would deprive the insured of any meaningful cover.
The Court of Appeal’s decision resolves the problem, noted in our earlier newsletter, of professional indemnity policies being issued in the absence of professional activity. The decision may also mean that a closer examination of policy wording may be warranted where the insured is exposed to the risk of ASIC proceedings.