Kyriackou v ACE Insurance Limited [2012] VSC 214
Supreme Court of Victoria1
In Brief
- Legal costs and fees incurred by an insured under a professional indemnity policy will only be recoverable where they relate to an insured "Claim".
- If only injunctive or declaratory relief is sought, with no pecuniary relief, there will be no "civil compensation" or "civil damages" that might trigger cover under a policy.
- Where the basis of a prosecution lies in the entrepreneurial aspect of a business, rather than in any professional capacity, professional indemnity policies will not respond.
Background
This matter arises out of a policy of professional indemnity insurance (the Policy) issued by ACE Insurance Limited (ACE) to Mr Kyriackou and others (the Insured). During the period of insurance, the Australian Securities and Investment Commission (ASIC) commenced proceedings against the Insured.
In the proceedings, ASIC alleged that the Insured were involved in an unregistered managed investment scheme and sought interlocutory and final relief, including injunctions and declarations. ASIC later discontinued these proceedings.
The Insured claimed against ACE for their legal costs incurred during the proceedings. ACE denied indemnity on the basis that the claim fell outside of the insuring clause and, in the alternative, the claim was the subject of various exclusions.
The Policy
Under clause 1.1 of the Policy, ACE would indemnify the Insured:
"[A]gainst Loss arising and Claim in respect of civil liability for breach of a duty owed in a professional capacity first made against an Insured during the Period of Insurance."
"Loss" was further defined at clause 5.13 as:
"Loss means the aggregate of all amounts payable by the Insured or ACE as civil compensation or civil damages in respect of a Claim, including judgements [sic], settlements, legal costs and expenses awarded against an Insured and payments for Defence Costs."
"Claim" was defined at clause 5.4 as:
"Claim is a written demand for, or an assertion of rights to, civil compensation or civil damages arising out of the Firm's Business or a written intimation of an intention to seek such compensation or damages."
"Defence Costs" were defined at clause 5.5 as:
"Defence Costs are legal costs and disbursements and related expenses reasonably incurred in:
- defending any proceedings;
- conducting any proceedings for contribution or recovery; or
- investigating, avoiding, reducing or settling any Claim:
incurred by –
- Insured with the written consent of ACE after reporting the Claim to Ace; or
- ACE after it has assumed conduct of any such proceedings."
The key exclusion clause was at 3.17, which, read together with the lead clause at 3.1, stated:
"ACE will not be liable under the Policy to make any payment for Loss directly or indirectly caused by, arising out of or in any way connected with ... any breach by an Insured of a duty owed in the capacity of a director, secretary of [sic] officer of a body corporate."
Insuring for a "Claim"
Vickery J found that it was only if the proceedings against the Insured were a "Claim" for the purposes of the policy that the defence costs incurred by the Insured would be payable. In this regard, the primary issue was whether or not the ASIC proceedings sought "civil compensation" or "civil damages".
Vickery J found that these phrases were intended to mean a claim for pecuniary redress for an actionable wrong. ASIC, however, had only sought non-pecuniary relief such as injunctions, winding up of various companies and associated orders for liquidators being appointed.
Vickery J also found that even though there were statutory grounds to allow a court to award damages when an injunction is awarded, this was not sufficient to characterise the ASIC proceedings as a "Claim" for the purposes of the Policy. The pleadings and affidavit evidence revealed that the only areas of the claim where ASIC could have sought damages would have fallen under the exclusion clause, as they arose solely out of Mr Kyriackou's role as a director or officer of various companies.
Professional capacity
Having found that the policy did not respond as there was no insured claim for damages, Vickery J was also of the opinion that the policy would not have responded as the ASIC proceedings did not relate to duties owed in a professional capacity.
Vickery J looked at what is considered the broad view of the term "professional" in professional indemnity insurance and noted that it has been held that "the term involved no more than advice and services of a skilled character according to an established discipline."
Vickery J found that, even on a broad interpretation of professional, the basis of the ASIC proceedings was in Mr Kyriackou's capacity as an entrepreneur in the management of various companies and schemes and not as a professional. As this was not to be characterised as a breach of duty owed in a professional capacity, the ASIC proceedings again fell outside of the scope of the Policy.
Implications
When an insured seeks to have their legal costs covered, it is important to consider the nature of the proceedings that they are defending and the scope of the policy.
Where there is no claim for damages, either explicitly or implicitly, there is neither "civil compensation" nor "civil damages" which would trigger cover under a professional indemnity policy. Such phrases require the seeking of pecuniary damages in an actionable wrong.
Furthermore, professional indemnity insurance is to be construed with the objects in mind of providing indemnity for professional activities. Even in circumstances where the business being run has a professional character, such as the brokers of financial products in this circumstance, the entrepreneurial aspects will not attract cover under a professional indemnity policy.
Footnote
1 Vickery J
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