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Liability arising from progress payment covered by insurance

Liability arising from progress payment covered by insurance

Claim for progress payment – Progress Claim Construction – D&C Construction – D&O Policy – Contract Management

Case note: Chubb Insurance Company of Australia Pty Ltd v Robinson

This was an appeal by Chubb Insurance Company of Australia Pty Ltd (Chubb) to the Full Court of the Federal Court of Australia (Court). The decision of the Court concerned a preliminary issue in the case.

Mr Glenn Robinson who was employed by Reed Constructions Australia Pty Ltd (Contractor) as its Chief Operating Officer (COO) sought cover under the Contractor’s D&O Policy. Mr Robinson sought cover for his role in procuring a progress payment on behalf of the Contractor, under a design and construct contract (D&C Contract).

The Facts

In 2010, the Contractor and 470 St Kilda Road (Principal) entered into a D&C Contract for a construction project known as the ‘Leopold Project’ at 470 St Kilda Road in Melbourne.

The Contractor held a directors and officers liability policy (D&O Policy) with Chubb. Mr Robinson was an Insured under the D&O Policy.

In December 2011, the Principal asked the Contractor to provide a Statutory Declaration signed by Mr Robinson, to support the Contractor’s claim for a progress payment under the D&C Contract. Mr Robinson executed a Statutory Declaration. A progress payment was then made by the Principal to the Contractor.

The Contractor is in liquidation. The Principal commenced proceedings against Mr Robinson in 2012 claiming that:

  1. Mr Robinson did not have a reasonable basis for making the Statutory Declaration submitted in support of the progress payment.
  2. Mr Robinson engaged in conduct that was likely to mislead or deceive and acted negligently.

Mr Robinson sought indemnity under the Contractor’s D&O Policy.

The D&O Policy

Insuring clause

The D&O Policy contained the following insuring clause relating to liability cover for Insureds:

‘Executive Liability Coverage

The Company shall pay, on behalf of each Insured Person, Loss for which the Insured Person is not indemnified by an Organisation on account of any Executive Claim first made during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act occurring before or during the Policy Period.’

Exclusion clause

The D&O Policy contained an exclusion clause which read:

‘(A) Exclusions Applicable to All Insurance Clauses 

The Company shall not be liable for Loss in respect of any Claim:

Professional Services  

(v) 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.’

Chubb denied indemnity under the D&O Policy, relying upon this exclusion clause.

The Findings

At first instance, the Federal Court found that the exclusion clause did not operate to allow Chubb to exclude cover under the D&O Policy because:

  1. Mr Robinson’s conduct in signing the Statutory Declaration and procuring payment was ‘project management services’.
  2. Chubb did not establish that project management was a ‘profession’ as at 2010 or 2011. So it was not a ‘professional service’ for the purposes of the exclusion clause.

Chubb appealed the Federal Court’s decision. In the appeal judgment dated 26 February 2016, the Court agreed that project management was not a profession as at 2010 or 2011. However, the Court also found that it did not constitute the rendering of any service by either Mr Robinson or the Contractor. Rather, it was an act done in the course of proper discharge of the Contractor’s contractual obligations to the Principal. The Court was satisfied Mr Robinson’s conduct fell within the insuring clause.

Accordingly, the Court refused the appeal by Chubb because the conduct of Mr Robinson was not a professional service for the purposes of the exclusion clause.

Considerations

The outcome in this case turned on the wording of the D&O Policy, the case pleaded against Mr Robinson and the exclusion relied upon by the insurer.

However, it’s a decision that should be welcomed by insureds and principals. It illustrates the need for parties, insurance brokers and lawyers to identify when an insurance policy might respond to a contractual dispute.

BOOK A FREE CONSULTATION for advice and information about your D&O policy, by calling (07) 3067 3025 or contact us online.

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Kate Denning

Kate is the Founder & Principal of Denning Insurance Law. Kate opened her own practice out of a desire to deliver high value, specialised legal services. With top tier and in-house experience, her passion for delivering great results, approachable manner and breadth of experience, set her apart from her competitors.

Kate DenningLiability arising from progress payment covered by insurance

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