The recent Full Federal Court of Australia decision in Chubb Insurance Company of Australia Limited v Robinson1 considered the application of a ‘professional services’ exclusion in a Directors and Officers (D&O) insurance policy.
The decision highlights that routine acts performed by directors and officers will not necessarily be construed as ‘professional services’ so as to exclude cover in D&O policies.
Reed Constructions Australia Pty Limited (Reed) entered into a design and construct contract with 470 St Kilda Road Pty Limited (St Kilda) in October 2011 for the redevelopment and construction of a residential apartment and office building in Melbourne, Australia. The contract required Reed to, amongst other things, verify all claims for progress payments with statutory declarations.
On 12 December 2011, Reed’s Chief Operating Officer, Mr G Robinson, made a progress payments claim and provided a statutory declaration in support.
Reed was subsequently placed into liquidation. St Kilda took the view that Reed had sought payments of amounts to which it was not lawfully entitled. St Kilda commenced proceedings against Mr Robinson in the Federal Court claiming damages for misleading and deceptive conduct and negligence on the part of Mr Robinson. St Kilda alleged that Mr Robinson did not have reasonable grounds for asserting that all charges, costs and expenses claimed by Reed were properly due at the time he made his statutory declaration.
Mr Robinson sought indemnity under Reed’s D&O policy in respect of St Kilda’s claim. The insurer relied on an exclusion clause to decline indemnity on the basis that Mr Robinson was ‘rendering a professional service to a third party’ at the time he provided the statutory declaration to St Kilda.
Mr Robinson subsequently commenced proceedings against the insurer in the Federal Court claiming indemnity under the D&O policy. At first instance, the primary judge held that the professional services exclusion did not apply and ordered that the insurer indemnify Mr Robinson. For a full analysis of the primary judgment, please see our briefing2 of January 2014.
The insurer appealed the decision to the Full Federal Court. In essence, the insurer took issue with the primary judge’s application of the accepted relevant principles for construing exclusion clauses. The insurer argued that the primary judge:
- Erred by focusing on the specific conduct of Mr Robinson rather than on the overall activity of Reed in the context in which Mr Robinson’s conduct occurred.
- Applied the contra proferentem rule (a rule ‘of last resort’ which requires ambiguous clauses to be read against the relying party) even though no ambiguity in the wording of the exclusion had been demonstrated by Mr Robinson.
- Took an unduly narrow view of the professional services exclusion in contrast to the liberal approach adopted when courts construe similar wording in insuring clauses.
Mr Robinson argued that the professional services exclusion must relate to a narrower band of activity than general delivery of building and construction activities by Reed. Mr Robinson contended that a broader approach would inappropriately circumscribe the cover provided by the D&O policy.
The Full Federal Court, in dismissing the insurer’s appeal, held that:
- It is not a requirement, in every case, that the scope of an exclusion in respect of professional services in a D&O policy must correspond with the scope of cover provided by the common insuring clause in professional indemnity policies.
- The expression ‘professional services’ in the relevant exclusion clause means services of a professional nature involving the application of skill within the scope of a vocational discipline which is generally regarded as a profession.
- The primary judge was correct in finding that the insurer did not establish that project management was generally regarded as a profession at the relevant time, and that Mr Robinson’s conduct did not involve the rendering of project management services in any event.
- The making and provision of the statutory declaration by Mr Robinson did not constitute the rendering of any service to St Kilda by Reed or Mr Robinson. Rather, the act was done on behalf of Reed in the proper discharge of its contractual obligations and amounted to routine compilation of factual material in order to secure a contractual payment.