Court of Appeal finds ‘professional services’ exclusion to be construed more narrowly

Legal Directions

Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018]
NSWCA 100

The Appellant, Weir Services Australia Pty Ltd (Weir), appealed the decision of the Supreme Court of NSW which dismissed its claim against AXA Corporate Solutions Assurance (AXA) in respect of issues of indemnity under a broadform liability policy relating to personal injury and property damage in respect of Weir’s business.

Background facts

Weir’s ‘business’ included manufacturing and engineering services in a variety of areas. Phil Gold Processing and Refining Corp (Phil Gold) retained Weir in connection with the refurbishment of a semi-autogenous grinding mill (the Mill). The Mill comprised several components which needed to be assembled in Canada in order to form an operating machine that would then be shipped to Phil Gold’s mineral processing facility in the Philippines for use. Weir completed the work on the Mill for Weir in or around 2009. The Mill later suffered damage when a circumferential weld disintegrated and one of the end plates became partially detached from the drum. Phil Gold alleged that the damage to the Mill occurred due to:

1. Inadequate welding undertaken by Weir as part of the retainer; and/or

2. Weir failing to detect the pre-existing welding needed to be renewed.

Phil Gold commenced an arbitration against Weir, claiming substantial damages for breach of contract and contraventions of the Trade Practices Act 1974 (Cth), then in force.

Before a final award was issued in the arbitration, the parties entered into a ‘cap and collar agreement’ which stipulated that, in the event that Phil Gold was awarded damages, its recovery from Weir would be limited to US$10.725 million (the cap) and regardless of the outcome, Weir would pay a fixed amount of US$2 million (the collar) to Phil Gold.

The Tribunal ultimately found that Weir was not liable to Phil Gold and as such, Weir did not have any liability to Phil Gold arising out the arbitration. However, by virtue of the cap and collar agreement, Weir was required to pay Phil Gold US$2 million. Weir was also left to bear its own costs of the arbitration.

Weir sued AXA, arguing that it was entitled to be indemnified under the policy for both the amount paid to Phil Gold under the cap and collar agreement and the costs of the arbitration.

At first instance

The trial judge dismissed the proceeding on the following bases:

  • The insuring clause in the policy was not engaged due to Weir’s failure to establish that an ‘occurrence’ had resulted in ‘Property Damage’, as required under the policy
  • As a result of the insuring clause not being engaged, the policy similarly did not respond to indemnify Weir for legal expenses incurred as a result of the arbitration
  • Even if the insuring clause was engaged, Weir’s claim would have been excluded pursuant to the ‘professional service’ exclusion under the policy
  • The cap and collar agreement did not constitute a reasonable settlement or compromise with a third party which could be relied upon as against AXA

On appeal

Weir argued on appeal that the Judge at first instance erred in relation to all the above issues. However, the Court of Appeal ultimately dismissed the appeal, having found, among other things, that:

  • The cap and collar agreement did not constitute a reasonable settlement as it did not make Weir legally liable to pay money by compensation for damage
  • The failure of the weld of the Mill was not an ‘occurrence’ which required AXA to indemnify Weir under the policy
  • The professional service exclusion would have defeated any claim for indemnity or costs

In its decision, the Court of Appeal made some important comments in respect of the proper construction of the ‘professional service’ exclusion in the policy, which provided that the insured was not covered for ‘Liability caused or arising from the rendering or failure to render professional advice or service by You or any error or omission connected therewith.’

The Court of Appeal noted that an such an exclusion ‘must be construed in a way that does not negate (nor cause to be ‘inappropriately circumscribed’) the indemnity provided by the insurance and as a result:

  • ‘professional’ will be interpreted more narrowly in an exclusion clause rather than the insuring clause of a professional indemnity policy, and
  • a ‘professional service exclusion’ may be confined to breaches of duty owed to the persons who retained the insured to perform services for them in the course of its business.

The Court of Appeal said that the scope of the services which Weir was contracted to perform needed to be determined by the assignment as a whole. In this instance, Weir was contracted to provide ‘engineering services’ and the representations Weir was alleged to have made were ‘intimately connected’ with it having that professional expertise. Accordingly, the services that were performed by Weir were found to have amounted to professional services excluded under the policy.

Conclusion

This case serves to illustrate the importance for both insureds and insurers to carefully consider the intent and effect of any settlements entered into between parties to litigation when considering whether a policy of insurance responds to indemnify the insured for the settlement. It should not be assumed that all settlements are ‘reasonable settlements’ and thereby entitled to indemnification by insurers. The Court of Appeal also made clear that when considering whether a claim is excluded under the ‘professional service’ exclusion in a broadform liability policy, the services provided should not be interpreted in isolation, but in the context of the overall scope of the services being performed.

Further information / assistance regarding the issues raised in this article is availalbe from the author, Christine N. Westlake, Associate or your usual contact at Moray & Agnew.

 


Related Articles

High Court to reconsider application of advocate’s immunity to negligently advised settlements: special leave granted in Attwells & Anor v Jackson Lalic Lawyers Pty Limited

Legal Directions

On 7 August 2015 the High Court granted special leave to the plaintiffs in the Attwells proceeding. The High Court’s reconsideration…

Continue reading

Up the garden path: VWA stumbles in recovery claim against university

Legal Directions

VWA v Monash University [2016] VSC 178 (McDonald J., 22 April 2016) Introduction This recent Supreme Court of Victoria decision exemplifies…

Continue reading

NO LONGER PART OF THE GROUP: IT MAY NOT BE TOO LATE

Legal Directions

Murray v Great Southern Managers Australia Ltd [2018] VSC 416 Facts In August 2011, a group proceeding was commenced on behalf…

Continue reading