This Australian case1 concerns a claim made by a water treatment engineering company under a claims made professional indemnity policy.

The assured was employed by a local council to design and construct a wastewater treatment plant. A dispute arose after the assured stopped work at the pre-commissioning stage. The assured maintained that it could not continue the work because the council had not performed its own obligations under the contract, while the council claimed that the assured had not performed the pre-commissioning work as required by the contract.

The council wrote to the assured to inform it that it was engaging another company to complete the contract and would exercise its rights to claim compensation from the assured, although the amount of compensation claimed was not set out in the letter. The dispute resulted in an arbitration award obliging the assured to pay damages. The assured then claimed under its professional liability policy.

The policy provided cover for “any claim first made against...the Insured...during the period of the policy and notified...during the period of the policy arising out of any wrongful act committed by you...”“Claim” was defined as “a written demand...for money or compensation...”.

Among other issues, the court was asked to consider whether a “claim” had been made by the local council against the assured during the policy period, and if so, whether the claim arose out of a “wrongful act”committed by the assured “in the course of its professional activities”.

The court found that although the claim letter from the council did not make an express demand for money, it was a claim that fell within the policy. It was necessary to consider underlying facts rather than the manner of drafting.

Although the assured had decided to stop work on the project, this still constituted a “wrongful act” under the policy as this was not restricted to unintentional acts. Furthermore, although the assured had abandoned the works and was no longer working on the site, this fell within “in the course of” activities and when the assured left the site it had not demonstrated an intention no longer to be bound by the contract.

Accordingly, the assured was entitled to recover under the policy.