Clash Of Coverage: Side B vs Side C

The Full Court of the Federal Court of Australia recently dismissed an appeal in Nuix Limited v Berkshire Hathaway Specialty Insurance Company [2026] FCAFC 87 and found that the larger of two retentions applied when considering aggregation of coverage under the insured’s policies.

In issue

• In the appeal proceeding, the Court was required to consider whether a $2.5 million Side B retention policy or $10 million Side C retention policy applied in circumstances where both Side B and Side C coverage were involved.

The background

In November 2020, Nuix Limited (Nuix) and its related company, Nuix SaleCo Ltd, issued a prospectus for an initial public offering (IPO). Nuix was subsequently listed on the ASX on 4 December 2020.

Nuix (as the insured) and its insurers (led by Berkshire Hathaway Specialty Insurance Company – (Berkshire Hathaway)) held two policies:

1. a policy titled 'Public Offering of Securities Insurance' for the period 18 November 2020 to 18 November 2027 (the POSI Policy), and
2. a policy titled 'Executive First Directors & Officers Liability Insurance' for the period 3 December 2020 to 3 December 2021 (the D&O Policy).
   (together, 'the policies').

The policies contained both Side B coverage ($2.5 million retention) and Side C coverage ($10 million retention).

Within the respective policy periods, Berkshire Hathaway was to pay to or on behalf of Nuix all loss:

• for which Nuix indemnified an insured person, as a result of a claim made against the insured person (Side B coverage), and
• stemming from a securities claim made against Nuix (Side C coverage).

Additionally, the policies included an aggregation clause, which stated that if the claims involved the 'same or related facts or circumstances or series of causally or logically related facts or circumstances', it shall be considered as a single claim where only one retention policy would apply (clause 5.5). The difficulty that arose was which retention policy would apply if the related claims involved both Side B and Side C coverage.

In 2021, ASIC commenced investigations against Nuix. Three class actions were also commenced against Nuix and other related parties. On 28 September 2022, ASIC formally commenced proceedings against Nuix in the Federal Court of Australia.

Throughout 2021 and 2022, Nuix sought confirmation from Berkshire Hathaway that coverage would be provided in respect of the class actions and the ASIC litigation and sought permission to incur associated defence costs under the policies.

Berkshire Hathaway, AIG Australia Ltd and Liberty Mutual Insurance Company (the insurers) indicated under the POSI policy:

• the ASIC investigations engaged Side B coverage
• the class actions engaged Side C coverage, and
• together, these constituted a single claim by virtue of clause 5.5.

Accordingly, Berkshire Hathaway advised that a $10 million retention applied.

With respect to the D&O policy, Berkshire Hathaway contended that there were two groups of claims, which should be treated as a single claim, one within Side B coverage (attracting a $2.5 million retention) and the other within Side C coverage (attracting a $10 million retention). In such circumstances, the applicable retention on the D&O policy was asserted to be $10 million by the insurer.

The primary judge was therefore required to determine how clause 5.5 should be applied and the applicable retention.

The decision at trial

At trial, the primary judge held that the $10 million retention applied. The primary judge found that applying only the $2.5 million retention would undermine the parties’ agreement that a $10 million retention would apply to Side C securities claims. There was held to be nothing in the policies to suggest that the Side C retention did not apply just because a related Side B claim had been made first.

The primary judge rejected Nuix’s 'first-in-time' argument; Nuix had advanced the position that the same related claims could be subject to either a $2.5 million or a $10 million retention depending only on which claim happened to be made first. The judge considered this outcome to have no commercial logic and to be unsatisfactory.

In reaching its conclusion, the Court applied established principles of contractual interpretation. This was consistent with the case of Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, whereby the policies were interpreted objectively by reference to what a reasonable person in the parties’ position would have understood the contract to mean. The primary judge also adopted a 'businesslike interpretation' of the policies as per the case of McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 (McCann).

Ultimately, the primary judge concluded that once a related Side C claim arose, the applicable single retention for all related claims was $10 million, regardless of whether the related Side B claim had been made first.

The decision on appeal

The Full Court of the Federal Court of Australia (Moshinsky, Charlesworth and McEvoy JJ) dismissed Nuix’s appeal, upholding the primary judge’s decision that the applicable retention was $10 million whenever related claims engaged Side C coverage.

The Court rejected Nuix’s first-in-time argument. It was reasoned that Nuix’s construction did not adequately address situations where a Side B claim and a related Side C claim were made at the same time. Further, the Court stated it did not commercially make sense for the applicable retention to depend on the order the claims had been made.

The Court held, having regard to clause 6.2 and noting that clause 5.5 did not expressly resolve the dispute, that it was more natural for the larger retention to apply in the event of related claims which engage both Side B and C coverage.

In reaching its decision, the Court applied established principles of contractual interpretation. Referring to Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514, the Court emphasised that commercial contracts must be interpreted by reference to their text, circumstance and commercial purpose. Further, citing McCann and Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, the Court observed that insurance policies should be given a businesslike interpretation that gives coherent operation to the policy.

Implications for you

The key takeaway for this case is for insurers to ensure clear wording within insurance policies such that they plainly explain which retention applies in related claims involving different types of cover. That is, to avoid similar disputes, if it is intended that a lower retention applies in relation to aggregated claims, this should be expressly dealt with in the policy wording.

This decision also serves as a reminder of the principles that a court will apply when interpreting contracts of insurance as well as the importance of the commercial intentions of parties.

Nuix Limited v Berkshire Hathaway Specialty Insurance Company [2026] FCAFC 87

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