In a recent case (470 St Kilda Road Pty Ltd v Robinson [2013] FCA 1420), the Federal Court ruled against an insurer that sought to rely on a professional services exclusion in a D&O Policy to deny indemnity.

The case provides useful guidance on the court’s approach in construing exclusion clauses and the meaning of ‘profession’ and ‘professional’.

The Facts

St Kilda entered into a construction contract with Reed (the Project Manager), of which Robinson was an Officer. Robinson made statutory declarations in support of progress claims that included details of payments made to subcontractors. St Kilda sued Robinson on the basis that Robinson engaged in negligent and misleading/deceptive conduct in making one of the Statutory Declarations. Robinson sought indemnity from the insurer under Reed’s D&O Policy. The insurer denied indemnity to Robinson relying upon the professional services exclusion which provided that the Insurer would not be liable for Loss in respect of any 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;

Robinson cross-claimed against the insurer, seeking to be indemnified under the policy. The policy did not define the meaning of “professional services”. The question for the court to determine was whether the making of the Statutory Declaration by Robinson was “In the rendering of professional services”.

The Decision

The court held that it was not. It referred to the statutory declaration as being part of the routine administration of an insurance contract.

The court reiterated the principles of construing an exclusion clause. These are:

• An insurance policy is a commercial contract and should be given a businesslike interpretation;
• An exclusion clause should be construed according to its natural and ordinary meaning, read in the light of the contract as a whole and, where appropriate, construing the clause contra proferentem (interpretation against the insurer) in case of ambiguity;
• If an exclusion clause is open to two constructions, one of which would inappropriately circumscribe the cover provided by the insuring clause and one of which would not, the latter is to be preferred.

The Judge accepted that in making the Statutory Declaration, the Officer was providing a service to a third party. However, he rejected the insurer’s contention that project management is an established and well recognised discipline. Notably, he commented that whilst project management might be seen as a profession in some circumstances, whether or not project management falls within the meaning of “profession” or involves “professional services” would depend on the commercial context in which the policy is made, its objects and its terms.

In considering whether the liability which arose from a duty owed in a “professional capacity” should be placed on the role of Reed as a Project Manager or on the specific act/omission of the Officer, the Judge held that the primary focus should be on the specific actions which gave rise to the liability. This involves examining the totality of the circumstances, but with a focus on the actual conduct of the negligent individual performing the services.

On considering the meaning of ‘profession’ and ‘professional’ the Judge commented that the term ‘professional’ in an insuring clause doesn’t have the same meaning in an exclusion clause and much depends on the nature of the liability assumed under the particular policy of insurance.

The court’s reasoning in this case demonstrates its consideration of the commercial realities underpinning insurance policies. The court commented that if the exclusion had applied, then this would mean that it would apply whenever an officer or employee carried out any service in connection with the routine administration of a building contract. Having regard to the nature and purpose of the D&O policy, such an interpretation would have the effect of inappropriately circumscribing the cover provided by the policy;

The obvious purpose of the professional services exclusion in exclusion clause IV(A)(v) is to exclude activities that are truly professional in nature, such as architectural design, engineering, surveying and quantity surveying.  The clause was not intended to apply to the routine activities of Reed or its officers or employees, including in the provision of information in support of its payment claims under the D&C Contract.”

Comment

The case provides useful guidance on the court’s approach in construing exclusion clauses and the meaning of ‘profession’ and ‘professional’. It is common for D&O policies not to define what is a “professional service”. If there is a dispute as to whether the exclusion applies, there is no clear indication of how the exclusion should be construed. Ultimately, each case will turn on its own facts and regard must be had to the nature and purpose of the D&O policy, what the parties intended at the time the policy was entered into and the insurance policy as a whole as opposed to the exclusion clause in isolation.

Please don't hesitate to contact John or Uma should you have any questions about the case.

John Van de Poll, Partner
T: +61 9390 8406
E: jvp@holmanwebb.com.au

Uma Kotecha, Lawyer (qualified England and Wales)
T: +61 2 9390 8416
E: uma.kotecha@holmanwebb.com.au