FKP Commercial Developments Pty Ltd v Zurich Australian Insurance Limited [2022] FCA 862 - What are “professional services”?
Posted on June 09, 2023
The recent decision of Justice Jagot in FKP Commercial Developments Pty Ltd v Zurich Australian Insurance Limited [2022] FCA 862 is a good reminder for builders that professional indemnity insurance policies will not cover losses that are not sufficiently connected to the provision of “professional services”. If you design and build jobs, you should read on.
Background facts
The related entities FKP Commercial Developments Pty Ltd and FKP Constructions Pty Ltd (together, FKP) were the Insured under a Design and Construction Professional Indemnity policy (Policy) issued by the respondent, Zurich Australian Insurance Limited (Insurer).
The Applicants made a claim under the Policy with respect to a claim made against them by a Strata Group as the owner of two apartment buildings built by FKP in Rosebery, NSW. The Strata Group alleged defects in the buildings for which the Strata Group sought damages.
Policy provisions
The Policy included the following relevant clauses:
Insuring clause
We agree to indemnify the insured against loss incurred as a result of any claim for civil liability first made against the insured and notified to us during the period of insurance, based on the insured’s provision of the professional services.
The advance payment of claim expenses condition
We will advance claim expenses incurred by an insured in the defence of a claim, as they are incurred and prior to the final adjudication of the claim, where:
(a) indemnity under this policy is confirmed in writing by us; or
(b) at our absolute discretion, without admitting indemnity, we agree to advance such claim expenses.
All such payments shall be repaid to us by the insured (or where more than one insured has received such payments, by such insureds severally and according to their respective interests) in the event and to the extent that the insured is not entitled to payment of such claim expenses under the terms and conditions of this policy.
Professional services were defined in the Policy as:
(a) design, including advice in relation to design, in accordance with all relevant building, construction or engineering codes and standards;
(b) drafting;
(c) technical calculation;
(d) specification;
(e) project management;
(f) construction management;
(g) feasibility studies;
(h) programming and time flow management;
(i) quantity surveying;
(j) surveying;
(k) training in respect of (a) to (j) above
Issues
The Court considered two main issues:
- The Applicants’ entitlement to payment of claims and expenses prior to the final adjudication of the claim is under the advance payment of claim expenses condition.
- Is the claim against the Applicants by the Strata Group a “claim for civil liability … based on the insured’s provision of the professional services”?
Decision
The Court held that FKP were not entitled to indemnity, or even to advance payment of their expenses prior to the Insurer’s indemnity decision.
Her Honour determined that the Applicants did not engage in “professional services” within the meaning of the Policy, meaning the relevant insuring clause did not trigger and therefore the policy did not respond to the claim. In coming to this finding, her Honour held that construction services did not fall within the meaning of “professional services”.
Lessons learned
Construction industry participants and in particular ‘design and construct’ builders need to be aware that:
- Claims made against construct only builders are unlikely to attract cover under policies of professional indemnity insurance.
- Builders who offer design services may
be granted indemnity under professional indemnity policies, but only insofar as the claims made against them are specifically in relation to the design service they have provided.
- Builders should read the fine print of their professional indemnity insurance policies to determine whether the insuring clauses in them cover their loss in relation to claims made against them.
If you need advice about any of the issues discussed in this article, please give us a call.
