Background
Nuix Limited is a software development company that conducted an initial public offering in November 2020 and was admitted to the Australian Securities Exchange in December 2020. The company obtained two liability insurance policies from Berkshire Hathaway Specialty Insurance Company: a Public Offering of Securities Insurance (POSI) policy and an Executive First Directors & Officers Liability Insurance (D&O) policy. Both policies contained similar coverage provisions with different retentions.
In 2021, the Australian Securities and Investments Commission (ASIC) commenced an investigation into Nuix, and three class actions were filed against the company and its officers in the Supreme Court of Victoria. ASIC subsequently filed proceedings in the Federal Court. Throughout 2021 and 2022, Nuix sought confirmation from Berkshire Hathaway that coverage would be provided for defence costs in relation to both the ASIC investigation and the class actions.
The critical issue concerned the applicable retention (the threshold amount that the insured must bear before insurance coverage is triggered). Both policies provided for a $2.5 million retention for Side B Coverage (company reimbursement of indemnities to officers) and a $10 million retention for Side C Coverage (company securities claims). Clause 5.5 of each policy provided that related claims would be treated as a single claim with only one retention applicable. Berkshire Hathaway took the position that the ASIC investigation constituted a Side B Claim and the class actions constituted related Side C Claims, resulting in a single claim subject to the $10 million retention.
The Court’s Holding
The Full Court of the Federal Court (Moshinsky, Charlesworth and McEvoy JJ) granted Nuix leave to appeal but dismissed the appeal, upholding the primary judge’s decision that the applicable retention was $10 million. The court found that the primary judge had correctly construed the policies in concluding that when a Side B Claim and a related Side C Claim are deemed a single claim under clause 5.5, the applicable retention is the higher retention amount of $10 million.
The court noted that no issue was taken on appeal with the primary judge’s statement of the applicable principles of contract construction. The judgment applied established authorities on insurance policy interpretation, including the requirement to consider the text of the policy in context, the commercial purpose of the coverage, and the ordinary meaning of the words used. The court found that the plain language and structure of the retention clause supported the primary judge’s conclusion that the $10 million retention applied to the combined claim involving both Side B and Side C coverage triggers.
Key Takeaways
- Where an insurance policy provides different retentions for different types of coverage (here, $2.5 million and $10 million) and a clause deems related claims as a single claim with one retention applicable, the higher retention applies when both coverage types are triggered.
- The interpretation of “applicable Retention” in the context of related claims requires careful construction of the policy language and consideration of which retention provision governs a combined claim.
- The court confirmed that a retention (unlike a deductible) means the insurer’s liability is not triggered until the retention amount is exceeded; the retention applies to all covered loss arising from a single claim.
- Application for leave to appeal was granted despite the technically interlocutory nature of the primary judge’s orders, as the separate questions were final in character and involved important issues of policy construction.
Why It Matters
This decision clarifies how insurance policies should be interpreted when related claims trigger different coverage tiers with different financial thresholds. For companies with tiered directors and officers liability coverage, the ruling confirms that related claims will be consolidated into a single claim, and the retention applicable to that consolidated claim is determined by the policy’s terms. Here, the presence of both a Side B claim (against officers) and a Side C claim (securities claim against the company) resulted in the higher retention applying, significantly affecting Nuix’s out-of-pocket costs.
The judgment is significant for corporate insureds and their insurers in interpreting the interaction between related claims provisions and different retention amounts within a single policy. It reinforces that policy construction must follow established principles and that the commercial allocation of risk reflected in different retentions for different coverage types will be given effect where related claims are combined. This has practical implications for notification and claims management strategies when multiple types of claims arise from related facts and circumstances.