When in doubt, think like a businessperson

16 June 2022

The Court applies the established principles of insurance policy interpretation to find that indemnity should not be granted.

In Issue

  • Whether the costs incurred by a statutorily established Board of Inquiry and payable by the Insured was an indemnifiable claim.

The background

In 2015 a large volume of serious complaints and concerns were made about the applicant, the Huon Valley Council (Council). In response, the Tasmanian Minister for Planning and Local Government (the Minister) established a Board of Inquiry (Board) to investigate the complaints using his powers under section 215 of the Local Government Act 1993 (Tas) (the Act). The Board’s final report (Board Report) was released in June 2016 and made approximately 60 findings and 55 recommendations over a vast array of issues concerning the Council’s affairs. On 5 April 2017, the Minister advised that pursuant to section 229 of the Act, the costs of the Board totalling $336,230 were to be borne by the Council.

The Council claimed cover under its Corporate Practices Protection Insurance Policy (the Policy) which was denied by the respondent, Swiss Re International SE (Swiss Re). Pursuant to rule 30.01 of the Federal Court Rules 2011 (Cth) an order was made for the following question to be determined: "Upon proper construction of the Policy, does the Policy respond to the claim made on [Swiss Re] by the Minister for $336,230…”.

The decision at trial

Ultimately, Chief Justice Allsop found the Policy did not respond to the Council’s claim. His Honour agreed with Swiss Re that the Council’s submissions “failed to give proper attention to the language of the Policy, the commercial circumstances which the Policy addresses and the objects it intended to secure.’1

There were three sections to the policy, two of which the Council contended could respond to the claim.

Section 1 provided broad form statutory liability cover for penalties, enforceable undertaking expenses, legal costs and prosecution costs for a statutory liability claim. A statutory liability claim was defined in the policy as ‘… any written notice of originating legal proceedings issued against or served upon the Insured by a Regulatory Authority during the Policy Period that alleges a Statutory Breach.

Section 2 of the Policy provided indemnity for the reasonable legal costs of an inquiry into the acts, errors, omissions of the Council.

When read to ‘give effect to the ordinary meaning of words used and according with a sensible understanding of the commercial operation, objectives and purposes…[of the Policy]… as understood by an ordinary business person within its commercial context,2’ the Policy could not respond because:

Section 1

The establishment of the Board or the Board Report did not satisfy the definition of a Statutory Liability Claim as defined in the Policy and the costs of the Board did not fall within the meaning of penalties, legal costs or prosecution costs.

Section 2

No evidence was provided that the Board’s costs were legal fees in the ordinary sense i.e fees for work performed by a legal professional and their support staff and associated expenses.

Implications for you

This case is a reminder that the Courts do not favour creative interpretations of insurance policies. The principles of policy interpretation are well established and when applied clarify a great deal of ambiguity.

Huon Valley Council v Swiss Re International SE [2022] FCA 611

1At [52] citing McCann v Switzerland Insurance Australia Ltd [2000] 203 CLR 579 at 589 [22]
2At [68]

Ask us how we can help

Receive our latest news, insights and events
Barry Nilsson acknowledges the traditional owners of the land on which we conduct our business, and pays respect to their Elders past, present and emerging.
Liability limited by a scheme approved under Professional Standards Legislation