New Zealand: Legal defence costs and the limits of professional indemnity insurance

Last Updated: 17 January 2016
Article by Richard Hargreaves
Most Popular Article in New Zealand, January 2016

The Court of Appeal confirmed last month that professional indemnity insurers can apply a very strict interpretation of which business activities are insured under a PI policy. Just because an activity is part of a business enterprise does not mean cover applies for any and all professional liability which may arise.

JCS Cost Management Limited v QBE Insurance (International) Limited [2015] NZCA 524 concerned a company which claimed its legal defence costs from its PI insurer after Auckland Council had brought an unsuccessful court case against it.

Background Facts

JCS Cost Management Limited is a firm of quantity surveyors and construction project managers. In 2009, JCS' director, Mr Johnston, visited an open home with a potential purchaser. Mr Johnston went to help the potential purchaser decide whether renovations she had in mind were feasible. He wasn't paid for his time, but agreed to go as a means of marketing his company, hoping to secure the project management of any of the purchaser's planned renovations. Ultimately, the client bought the house, and JCS managed some renovations.

It transpired that the house had significant weathertightness issues. The homeowner sued Auckland Council, which then joined JCS and Mr Johnston to the proceedings on the basis that Mr Johnston gave pre-purchase advice to the homeowner. The Council's third party claim against Mr Johnston failed on the basis that he did not give pre-purchase advice about weathertightness, and he was awarded costs on the proceedings, payable by the Council. However, even with the costs awarded he was left $53,000 out of pocket.

Mr Johnston looked to his professional indemnity insurer, QBE, to fund his defence costs, on the basis that QBE insured his (and JCS') business activities. QBE declined Mr Johnston's claim, saying that the weathertightness proceeding was the result of a professional activity outside the remit of his PI policy. The High Court supported QBE's position, and Mr Johnston appealed.

Policy Terms

The discussion in the Court of Appeal centred on whether the Auckland Council had a valid claim against JCS and Mr Johnston for the purposes of the policy. The QBE policy provided:

  • QBE shall indemnify the Insured for any Valid Claim subject to the terms of this Policy"
  • "In addition, QBE shall pay Costs and Expenses incurred with the written consent of QBE in the defence or settlement of any Valid Claim...

A valid claim was defined in standard terms by the policy as a claim alleging civil liability by any act, error, omission or conduct ... in connection with the insured's professional business practice.

Professional business practice was stated in the insurance schedule as JCS' quantity surveying and project management.

QBE maintained its policy would only respond if Auckland Council's weathertightness claim resulted from JCS' quantity surveying or project management activities. Mr Johnston said his marketing activity was carried out in his professional capacity as a project manager, and that his defence costs should be covered (at [19]).


The majority of the Court of Appeal (Courtney and Clifford JJ) considered that QBE was not liable for JCS' legal costs, because marketing and providing pre-purchase advice fell outside the strict policy definition of JCS's professional business practice (at [64]). Although visiting the house with the potential purchaser was done in the course of JCS' business, it was not quantity surveying or project management, so was not insured under the wording of the QBE policy.

Justice Miller did not agree with the other two judges. His dissenting judgment cited previous cases (for example IAG New Zealand Limited v Jackson [2013] NZCA 302) in which the phrase 'in connection with' had been given a wider interpretation, making it possible that JCS' marketing (in the hope of securing project management work) could be interpreted within the bounds of the policy professional business practices. Miller J thought that QBE could not fully establish that Auckland Council's claim was not a valid one under the policy, and said a full trial would be needed to decide that point, instead of the summary judgment QBE had been granted in the High Court.

Accordingly, the Court of Appeal found that there was no cover for Mr Johnston's legal costs, although an appeal is likely.


The Court of Appeal cited the fundamental principle that insurers are only liable for loss proximately caused by an insured peril (at [58]). Insurers will be pleased that the Court of Appeal (majority, anyway) was not tempted to interpret the stated categories of professional business practice loosely, instead reinforcing a strict policy interpretation.

Every individual and business with professional indemnity insurance should take note of the Court's narrow interpretation approach, and re-check its PI policy schedule/summary for covered business activities. Mr Johnston did not act unusually in attending a gratis preliminary meeting in the hope of securing future work; many would expect such activities to fall within their PI cover. Unfortunately for Mr Johnston in this proceeding, his marketing activity was outside the strict limits of his cover, leaving him with unrecoverable legal defence costs.

If the Supreme Court grants leave to Mr Johnston to appeal this decision, the insurance industry can expect a 'final word' on the flexibility of the insured activities categories in PI policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Richard Hargreaves
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.