In a case where there was ambiguity, the Supreme Court of New South Wales gave effect to the commercial intention of the parties to a professional indemnity insurance policy which sat excess of underlying policies1.
The relevant Project Specific Professional Indemnity Policy (PSPI Policy) was purchased in October 2012 to cover six entities for works relating to the LNG Gladstone Pipeline Project. Liberty Mutual Insurance Company (Liberty) was the leading underwriter and the PSPI policy had a limit of liability of $50m with a $1m deductible and a 10 year policy period. It was stated to be “... in excess of any Additional Insurance” and the Schedule identified certain specified policies held by the insureds – including an “Annual Professional Indemnity” (2012 Lloyd’s Policy), with a limit of US$15m and a deductible of US$5m.
In 2015, a dispute arose between parties to the Project, and one of the insureds, Kellogg Brown & Root (KBR), notified Liberty of a claim under the PSPI Policy. At this time, the 2012 Lloyd’s Policy had expired and been replaced by the 2013 Lloyd’s Policy, subject to the same limit and deductible. KBR also notified Lloyd’s of a claim under the 2013 Lloyd’s Policy.
Liberty sought a Court declaration that the PSPI Policy only applied in excess of the 2013 Lloyd’s Policy. KBR argued that the reference to “Additional Insurance” was an exclusive reference to the 2012 Lloyd’s Policy.
The Court granted the declaration sought, on the basis that a “reasonable business person in the position of the parties” would have understood that the PSPI Policy was to be applied in excess of the insurances effected and maintained in accordance with the Project parties’ contractual obligations (i.e. to effect and maintain insurances both during, and six years after, the Project), because:
- Insured and insurers knew that KBR was subject to a contractual obligation to effect and maintain other insurance;
- Insurers had explicitly enquired about the other professional indemnity insurance in its proposal form; and
- The reference in the Schedule to the expression “Annual Professional Indemnity” suggested the parties intended that the policy might “occur once every year”.
This case demonstrates how the courts strive to give effect to the commercial intention of parties in complex commercial and insurance arrangements in circumstances where there is ambiguous wording.