Australia: Failure To Render "Professional Advice"… Or A Defective Product?

Insurance Update

In a recent Victorian Supreme Court decision, the trial judge was required to consider whether a claim which had been made by Timelink Pacific Pty Limited (Timelink) against Major Engineering Pty Limited (Major) triggered the provision for the payment of legal costs in the insurance policy between Major and CGU Insurance Limited (CGU).

In December 2004, during the Sydney to Hobart Yacht Race, the maxi racing yacht "Skandia" was damaged when its piston rods on the canting keel buckled and broke, causing the keel to detach from the hull, forcing the crew to abandon the yacht. Timelink brought an action against Major, which had designed and manufactured the hydraulic cylinders that controlled the keel of the yacht, alleging Major had caused the loss by its defective performance or failure to perform the formulating of the design. Relevantly, Timelink did not allege that the hydraulic cylinders were defectively constructed. The claim was ultimately determined in Major's favour. Major had incurred $1.1 million in legal costs, of which $162,500 was settled, leaving over $900,000 in legal costs unpaid.

On 10 January 2005, Major notified CGU of the claim by Timelink and provided a copy of the Statement of Claim. Major had effected a products liability policy with CGU under which CGU agreed to pay damages for an occurrence caused by an unknown defect in Major's products, and in certain circumstances, to pay Major's legal costs. On 15 April 2005, CGU denied indemnity, relying on an exclusion in the policy for liability arising from the rendering of professional advice or service or the making or formulating of a design or specification within the domain of the engineering profession.

Consequently, Major brought an application against CGU seeking indemnity for the unpaid legal costs. The application was dismissed.

Central to Major's application was whether Timelink's claim against Major fell within the legal costs clause of the products liability policy. According to Pajone J, whether the policy responds to the claim:

"... depends upon the proper construction of the terms of the policy, an adequate identification of the claim and an evaluation of whether the claim falls within the terms of the policy as properly construed."

With regard to the task of properly construing the terms of the policy, his Honour considered that:

"... it is always essential to bear in mind that what is to be determined is whether the intention of the parties as revealed by the insurance contract was to cover the particular claim which the events gave rise to." (our emphasis)

His Honour did not consider that the actual facts of the case, nor the particular formulation of the claim, were determinative in relation to policy response in the circumstances. Rather, Pajone J stated:

"It's the true nature of the claim that must be considered and for that purpose it is necessary to make such enquiry as is necessary." (our emphasis)

Further, it was not relevant to the determination of policy response to address whether the claim would have succeeded or not. In that regard, Pajone J stated:

"The obligation to provide legal costs for a defence must be judged in this policy upon the assumption that the claim brought would succeed."

Counsel for Major argued that the true nature of the claim against Major was not for defective design. However, in his Honour's view, the claim was not one of product liability, since at no stage did Timelink contend that there was any defect with the product supplied (the hydraulic cylinders) other than its unsuitability for its intended purpose. His Honour found:

"Timelink's claim may, perhaps, never have been capable of success, but if it had succeeded it would not have been a claim of a defect in Major's product capable of engaging the right of indemnity under its contract of insurance with CGU."

Pajone J also found the claim brought by Timelink fell within the terms of an exclusion in the policy for liability arising out of Major rendering professional advice or in making a design. Consequently, even if Timelink was successful, CGU would not have been obligated to indemnify Major.

Interestingly however, his Honour commented on the interpretation of the term "professional advice" when referred to in an exclusion. Pajone J stated:

"It may be accepted, for present purposes, that a professional negligence exclusion may be read contra proferentum, so as to give a wider meaning to the concept of "professional advice" in an insuring clause than in an exclusion clause, but here the claim was of a liability caused by or arising out of Major's performance or failure to perform the rendering of professional advice or service through the supply of a product which, in itself perhaps not defective, was claimed to have been unfit for the design it had been supplied to satisfy." (our emphasis)

His Honour appears to suggest that a court would be more willing to accept that "professional advice" falls within the ambit of a professional indemnity policy, rather than accept that such advice is excluded by a products liability policy. However, the Court was satisfied in this case that the "professional advice" which was the subject of the claim by Timelink fell squarely within the scope of the exclusion.

In this case, the Supreme Court of Victoria has provided some interesting points of reference in relation to the determination of policy response. In summary, whether a policy responds to a claim will depend upon:

  • the proper construction of the terms of the policy
  • an adequate identification of the claim and an evaluation of whether the claim falls within the terms of the policy as properly construed; neither the actual facts nor the particular formulation of the claim will be determinative
  • the true nature of the claim must be considered
  • whether it was the intention of the parties as revealed by the insurance contract to cover the particular claim which the events in question have given rise to, and
  • a professional negligence exclusion may be read contra proferentum so as to give a wider meaning to the concept of "professional advice" in the insuring clause than in an exclusion clause.

Major Engineering Pty Limited v CGU Insurance Limited [2009] VSC 504

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.

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.