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NSW Supreme Court finds that Liberty Mutual Insurance is able to exercise an exclusion clause claiming that SunWater failed to render flood management services. 
The first defendant in this proceeding (SunWater) was one of the defendants in the Queensland floods class action, by virtue of it having provided to the first defendant in the class action (Seqwater) ‘flood management services’ (by providing the services of the Senior Flood Operations Engineer, Mr Ayre). Those services were provided pursuant to a ‘Service Level Agreement’ between SunWater and Seqwater, which obliged Seqwater to pay certain fees for the services. It was the conduct of Mr Ayre that was alleged in the class action to have been a substantial cause of the losses claimed, and it was alleged against SunWater that it was liable either for its own acts or omissions in providing the ‘flood management services’ to Seqwater and/or was vicariously liable for the conduct of Mr Ayre as its employee.

Following the trial of the class action, SunWater paid a substantial sum to settle the claims made against it in the class action. It then sought an indemnity from its insurers (which included the plaintiff in this proceeding, Liberty) pursuant to a General and Products Liability and Professional Indemnity Policy (Policy) (and various excess layers). Liberty denied indemnity, and in doing so relied upon an exclusion clause in the Policy which excluded liability for claims “arising out of the rendering of or failure to render professional advice or service for a fee by The Insured”. In this proceeding, Liberty sought declaratory relief that the exclusion clause was engaged and that it was therefore not liable to indemnify SunWater. SunWater denied that the exclusion clause was engaged, and relied on the following contentions.

First, while SunWater accepted that it had provided a ‘service’ to Seqwater; and that the services which Mr Ayre had provided to Seqwater were a ‘professional service’ within the meaning of the exclusion clause; it contended that SunWater itself (being the insured under the Policy) had not provided a ‘professional service’ to Seqwater within the meaning of the clause. Instead, it argued that it had essentially provided a labour hire service to Seqwater, and that the ‘professional service’ (being the flood management services) were provided by Mr Ayre to Seqwater. However, Stevenson J rejected that argument, finding that on the proper construction of the ‘Service Level Agreement’ between SunWater and Seqwater, it was SunWater that was providing the ‘professional service’, and that it simply did so through its employee, Mr Ayre. His Honour did not consider that anything that was said in the judgment of Beech-Jones J at first instance in the class action was to the contrary (at [43]-[62]).

Secondly, SunWater contended that the exclusion clause, on its proper construction, only applied in respect of claims made against it by the same person to whom the ‘professional advice or service’ was rendered (being, in this case, Seqwater), and did not apply to claims made against it by other third parties (i.e. the plaintiff and class members in the class action). After a lengthy review of several authorities which concerned similar exclusion clauses, his Honour rejected SunWater’s contention and found that there was no textual support for such a construction (at [63]-[139]).

Thus, his Honour concluded (at [141]) that:

… the claim made against SunWater by the group members in the class action proceedings, now resolved by the Settlement Deed, is a claim “arising out of the rendering of [sic] failure to render professional advice or service for a fee” and is excluded from cover by the Exclusion in the Primary Policy.


Liberty Mutual Insurance Company, Australia Branch v SunWater Ltd (No 2) [2021] NSWSC 1582

Supreme Court of New South Wales, Stevenson J,
3 December 2021

Plaintiff’s Solicitors: YPOL Lawyers;
Defendants’ Solicitors: Allens / HWL Ebsworth Lawyers / Clyde & Co;
Plaintiff’s Funder: N/A

Austlii Link: Available here

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