Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

It is clear that the courts are, rightly, conscious of the commercial purpose of the policy when asked to interpret the scope of the terms ‘ profession ’ or ‘ professional duty ’. However, despite the trend towards a broader interpretation of ‘ professional ’ duties and services in professional indemnity policies generally, the courts have adopted a more cautious approach when those concepts arise in exclusion clauses. ‘Breach of professional duty’ versus ‘Liability in connection with professional business’ An insuring clause that affords cover for ‘breach of a professional duty in the conduct of the insured’s Professional Business’ will be construed narrower than a clause affording cover for ‘any civil liability incurred in connection with the insured’s Professional Business’. In the latter case, as a matter of interpretation, the term ‘professional business’ will ordinarily be construed broadly, as defining the ambit of an insured’s business rather than limiting cover to a breach of a professional duty. It will not restrict cover to professional liability arising from a breach of professional duty. 361 As its widest, therefore, a policy on this basis could be construed as providing cover to an insured for any claim or liability where the underlying conduct was ‘ in connection with ’ the conduct of its business, regardless of whether it involved a breach of professional duty by the insured. The causal requirement ‘ in connection with ’ is itself of wide import, requiring only a causal or consequential relationship between the claim and the insured’s business, not necessarily limited to a breach of professional duty. A liability incurred in connection with an insured’s professional business will usually be unproblematic where it arises in the ordinary pursuit of the insured’s profession. Uncertainties can arise, however, where an insured also conducts separate business of an entrepreneurial nature, or steps beyond the roles and responsibilities ordinarily associated with its professional business. In Solicitors’ Liability Fund v Gray & Winter , 362 a firm of solicitors (Gray & Winter) were involved in a scheme in which they purchased properties and then promoted and sold those properties to clients, with the aimof providing those clientswith investment and tax advantages. The transaction that was the subject of the proceeding involved the purchase and then sale of a kiwifruit orchard to a syndicate of clients. The syndicate sued the respondents for false representations, negligence and breach of fiduciary duty. The action was settled commercially, and the solicitors then sought an indemnity under their professional indemnity policy for the settlement sum, which provided indemnity ‘against any civil liability in connection with their practice’. The insurer resisted the claim on the basis that the work being performed by the solicitors was not in connection with their practice as solicitors.

The solicitors were successful at first instance; however, the insurer’s appeal was allowed.

Justice Lockhart, while acknowledging the broad scope of a solicitor’s practice, commented that:

‘there must, however, be some point reached where the solicitor ceases to engage in his practice as a solicitor and enter other areas of activity, particularly business activity. This case is an excellent example of the grey dividing line between the two.’ 363

361 This was the approach adopted in Pioneer Road Services v QBE Insurance Ltd [2002] NSWSC 137. 362 (1997) 147 ALR 154. 363 Ibid 165.

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