Imagine spending years building a business. You have professional indemnity insurance. You renew it annually. Your insurer knows who your directors are, understands that your business operates in the construction industry and has been provided with information about the services you perform.

Then a claim arrives. You turn to your insurance. The insurer says you are not covered.

Not because you failed to pay the premium. Not necessarily because you failed to disclose a claim. Not even because you were expressly excluded from the definition of an insured.

Instead, the insurer says that the liability for which you are being pursued was not incurred in the conduct of the particular “Professional Business” insured under the policy.

In other words, you may be insured as a person or company, but the activity giving rise to your liability falls outside the cover.

That is not a theoretical problem. In Owners Corporation v Shangri-La Construction Pty Ltd [2026] VSC 117, the Supreme Court of Victoria considered a director's attempt to obtain indemnity under professional indemnity policies after a judgment of more than $3.7 million was entered against him in connection with defective combustible cladding.

The director succeeded on one important question: he was an insured under the policies, notwithstanding that he was not named on the certificates of insurance.

He nevertheless failed to establish entitlement to indemnity. No relevant claim had been made and notified within the policy periods. Further, the particular statutory liability was not incurred in his conduct of the Professional Business defined by those policies.

The case illustrates three distinct coverage questions that are too often treated as if they were one:

  • Who is insured?
  • What business and professional activities are insured?
  • Has a claim triggering the policy actually been made and notified in time?

Getting the first answer right does not resolve the other two.

For directors, professional services firms, construction businesses, financial services licensees and their brokers, the implications extend well beyond cladding disputes.

01 The $3.7 million problem

Shangri-La Construction Pty Ltd was a residential design-and-construct contractor. In 2011, it entered into a contract for the design and construction of an apartment building in Clayton, Victoria.

During the project, its managing director, Obaid Naqebullah, recommended using expanded polystyrene (EPS) panels as external cladding. The specification was prepared largely by him, and the building was constructed using that material.

The cladding was combustible, was not approved for use in the manner adopted and did not comply with the relevant building requirements.

The owners ultimately received assistance through Victoria's cladding rectification scheme. The State then sought to recover the rectification costs using statutory rights under the Building Act 1993 (Vic).

Under section 137F of the Building Act 1993 (Vic), qualifying financial assistance can subrogate the Crown to the recipient’s relevant rights and remedies. Those rights can be enforceable jointly and severally against a company and its officers at the time of the relevant act or omission. Section 137F(4) prevents enforcement against an officer where it is proved that the act or omission occurred without that officer’s knowledge or consent. The statutory mechanism therefore involves more than simply showing that someone was a director. In October 2025, judgment was entered against Mr Naqebullah personally for $3,174,775.99, excluding GST, plus $550,672.14 in interest: a total of $3,725,448.13.

He sought indemnity under two professional indemnity policies held in connection with Shangri-La's business, covering 6 August 2017 to 6 August 2018 and 6 August 2018 to 6 August 2019.

The policies did not provide a straightforward answer.

The Court had to examine whether Mr Naqebullah was insured, whether a claim had been made and notified within the relevant periods, and whether his liability arose in the conduct of the defined Professional Business.

He succeeded on the first question, but not the others. The claim for indemnity was dismissed.

The significance of the decision lies in the separation of those questions. The existence of a professional indemnity policy does not establish that every liability connected with a professional business is covered. Nor does the fact that a director personally contributed to the work establish that every liability imposed on that director is a liability insured under the policy.

The legal basis of the liability, the policy's definitions and the timing of the claim all matter.

02 What does “Professional Business” cover?

A business may describe itself as a construction consultancy, engineering practice, financial planning firm or professional services provider.

Its website may list design, project management, advice, compliance, certification, consulting and other services.

Its clients may engage it on the basis of that broad range of capabilities.

But the insurer does not necessarily insure every activity that reasonably falls within that commercial description.

Professional indemnity policies commonly define the insured's “Professional Business”, “Professional Services” or “Business Activities”. The definition may identify particular services, particular professional disciplines or services performed by suitably qualified persons. It may also expressly exclude activities such as construction, contracting, manufacturing or the supply of products.

The operative question is what the actual policy covers.

In Shangri-La, the relevant definition included design-related work, including design advice, drafting, technical calculations and specification work in accordance with applicable building, construction or engineering codes and standards. It also distinguished that work from construction-related activities undertaken solely in the capacity of a building contractor.

That distinction mattered because the director's involvement in recommending cladding and preparing a specification did not, by itself, determine the character of the liability for which he was being pursued.

The State’s claim against him relied on the statutory cladding-subrogation mechanism applicable to officers, subject to its requirements and the qualification in section 137F(4). It was not necessary for the State to establish that he had breached a professional duty in providing design services of the kind contemplated by the policy.

The Court concluded that the liability was not incurred in the conduct of the defined Professional Business.

This is a subtle but important distinction.

There is a difference between:

  • a liability arising from a negligent design or professional recommendation;
  • a liability arising from a contractual warranty given by a builder;
  • a liability arising from the performance of construction work; and
  • a statutory liability imposed because a person held a particular office or status.

The same project may involve all four. The same individual may have participated in all four activities.

Yet the policy may respond differently to each, depending on the wording and the legal basis of the claim.

The practical lesson is that the description of your business on your website, your business registration or your professional licence is not a substitute for checking the definition of Professional Business in your insurance policy.

The definition must be tested against the actual work the business undertakes, the contractual obligations it assumes and the liabilities it may face.

03 Why the proposal form mattered

Here is where the decision becomes particularly interesting for businesses and insurance brokers.

Mr Naqebullah was not named as an insured on the certificates of insurance. The underwriters argued that he was not entitled to personal indemnity under the policies.

Yet the Court reached the opposite conclusion.

Why?

Because the Court did not treat the certificates as the whole insurance contract. It examined the policy wording, the proposal forms and the other relevant insurance documents together.

The proposal forms asked detailed questions about the company's directors, including their qualifications, experience, responsibilities and professional backgrounds. Those questions were relevant to assessing the risks associated with the directors themselves. The forms did not invite the applicant to nominate which directors were intended to receive cover.

The policy wording, although imperfectly drafted, was also consistent with directors falling within the intended class of insured persons.

Taken together, the documents supported the conclusion that the parties intended directors to be insured. The Court also found, in the alternative, that Mr Naqebullah qualified as a third-party beneficiary under section 48 of the Insurance Contracts Act 1984 (Cth). Section 48 permits recovery in accordance with the insurance contract and preserves applicable insurer defences. It did not establish that this particular liability was covered.

This is a powerful reminder that a certificate of insurance is not necessarily the final word on who is insured.

But there is an equally important qualification.

The decision does not mean that a director omitted from a certificate will automatically be covered. The outcome depended on the construction of the particular insurance contract and the evidence of the parties' objective intentions.

The lesson is that the complete contractual arrangement matters.

Why the proposal form deserves closer attention

Businesses often regard the proposal form as an administrative step completed before the “real” insurance document arrives.

That is a mistake.

The proposal form may help identify:

  • the business activities the insurer was asked to insure;
  • the people and entities intended to receive cover;
  • the professional qualifications and experience relevant to the risk;
  • the services performed by directors and employees;
  • the nature of the contracts undertaken; and
  • the claims history and other circumstances disclosed to the insurer.

Depending on the wording of the contract, the proposal form may also be incorporated into the policy or otherwise be relevant to its construction.

That means a proposal form can become important years after it was completed, when the parties disagree about what the insurer agreed to cover.

Consider a consultancy whose director performs design work, manages construction contracts and supervises site operations. The proposal form asks about the director's qualifications and professional services, but the schedule identifies only the company.

If a dispute later arises about the scope of the insured persons, the proposal form may provide important evidence of the intended arrangement.

Equally, if the proposal form describes a narrow range of services, that description may become relevant when a later claim concerns work outside that scope.

The point is not that the proposal form invariably overrides the policy wording. It does not. Nor can a business assume that a statement in a proposal creates cover inconsistent with clear operative terms.

Rather, the proposal form must be considered as part of the relevant contractual and evidentiary picture.

In Shangri-La, that broader examination assisted the director on the question of insured status. It did not, however, overcome the separate defects in the timing and nature of the liability for which he sought indemnity.

That is precisely why each part of the policy needs to be examined separately.

05 Outsourcing does not necessarily transfer the risk

The importance of defining professional activities is not confined to professional indemnity policies.

In Rosenlund Constructions Pty Ltd v Certain Underwriters at Lloyd’s of London Subscribing to Policy Number 08070017 [2026] FCA 1442, the Federal Court considered a professional advice or services exclusion in a combined public and products liability policy. The decision was delivered on 30 September 2026.

The underlying dispute concerned demolition work at the former Sydney Entertainment Centre, later known as the Qantas Credit Union Arena. H Hassarati & Co Pty Ltd (Hassarati) was the insured demolition contractor. After Hassarati was deregistered, Rosenlund pursued Hassarati’s insurers under section 601AG of the Corporations Act 2001 (Cth). That provision requires, among other things, that the company had the relevant liability and that the insurance contract covered it immediately before deregistration. A judgment against a company does not, by itself, establish insurance coverage.

Hassarati had engaged Grasso Consulting Engineers to advise on the demolition methodology. A later methodology, Revision P, prepared by a Lendlease engineer, contained a sketch differing from the sequence approved by Grasso. Hassarati issued that methodology to Rosenlund’s demolition crew and directed that it be followed despite concerns raised on site. The roof collapsed onto an excavator, causing substantial damage.

The insurers accepted that the insuring clause was engaged, but relied on the professional-advice or services exclusion. The dispute therefore concerned an exclusion in Hassarati’s public and products liability policy, not an application for professional indemnity cover.

Rosenlund argued, in substance, that the relevant methodology had originated elsewhere and that the immediate cause of the loss was not professional advice given by the insured, Hassarati.

The Court rejected that argument.

The contractual obligations mattered. The contractor had assumed responsibility for the engineering design and was required to exercise its own professional skill, care and diligence. Engaging an external engineer did not eliminate those obligations.

By issuing the methodology and instructing the demolition workers to follow it, the contractor had adopted it as part of its own professional services. Its failure to check the methodology against the approved design also fell within the professional services exclusion.

The exclusion contained a limited write-back for advice or services not given for a fee. The Court held that this write-back did not apply merely because no separate professional-services fee had been itemised. The overall contract price was consideration for the obligations undertaken, including those requiring professional skill and judgment.

The Court also treated “arising out of” as requiring a causal or consequential connection, not necessarily proximate causation. That conclusion concerned the words of this exclusion; it is not a substitute for examining the causation requirement in another policy.

The two cases address different policy questions, but together they illustrate a broader principle.

In Shangri-La, the fact that professional work had been performed did not establish that the particular statutory liability was incurred in the conduct of the insured Professional Business.

In Rosenlund, a contractor could not avoid a professional services exclusion merely because an external consultant had prepared the original technical material. The contractor's own contractual obligations and subsequent adoption of that material mattered.

In both cases, the Court examined the actual legal and commercial relationships rather than relying on labels such as “builder”, “consultant” or “professional services provider”.

For businesses, the lesson is uncomfortable but important: you may assume responsibility for professional work you did not personally perform, while remaining uninsured for a liability that arose in connection with professional work you did perform.

The policy wording determines where that boundary falls.

06 The right policy, the wrong year

Shangri-La also demonstrates a separate and frequently misunderstood risk in professional indemnity insurance.

The policies were written on a claims-made-and-notified basis. In broad terms, the relevant insuring clause required a claim to be first made against an insured during the policy period and notified to the underwriters in writing during that period.

The earlier correspondence concerned claims against Shangri-La. It did not make a claim against Mr Naqebullah personally under the later statutory regime.

The later claim against the director was not a claim first made and notified within either of those historical policy periods. He was joined to the proceedings in 2024. The date of joinder is not necessarily the date of the first claim under every policy: an earlier written demand may qualify, depending on the definition and the facts.

The Court rejected the argument that the earlier claims against the company could be aggregated with the later claim against the director so as to bring the latter within the earlier policies.

The aggregation provision treated claims arising from the same act, error or omission, or a common original cause, as a single claim for the purposes of the policy. But it did not retrospectively turn a claim made after expiry into one made during an earlier policy period.

That distinction matters.

An aggregation clause generally addresses how related claims are treated together under the relevant wording. It does not necessarily deem every later claim arising from the same project or event to have been made at the time of an earlier claim.

Nor should an insured assume that notifying a claim against its company automatically protects every director against a later personal claim.

Section 40(3) of the Insurance Contracts Act may prevent an insurer refusing indemnity by reason only that a claim was made after expiry. The insured must have given the insurer written notice of facts that might give rise to a claim against the insured, as soon as reasonably practicable after becoming aware of those facts and before the cover expired. These requirements should not be reduced to “send something before renewal”.

Section 54 may separately address certain post-contract acts or omissions, including some notification failures. Its operation depends on the contractual cover and the statutory conditions. It may apply to an omission to notify under a contractual circumstances-notification extension, even where the eventual claim is made after expiry. Under section 54(1), an insurer’s liability may be reduced by the amount fairly representing prejudice; the additional causative-act provisions must also be considered. Section 54 cannot simply supply missing compliance with the written-notification requirements of section 40(3).

Neither provision is a universal cure or automatically brings an otherwise uninsured activity or liability within cover. Section 40(3) expressly contemplates future claims; the important questions include what facts were notified, when and how they were notified, and whether the eventual claim arose from those facts.

The practical response is to notify potential claims and relevant circumstances promptly, in accordance with the policy and applicable law, and to obtain advice when there is uncertainty about what has been notified.

07 Describe the business you actually conduct

The cases raise an important question for businesses completing or renewing professional indemnity insurance:

How accurately does the proposal form describe the business being insured?

Consider a financial services firm that describes its activities as providing financial product advice. In practice, it also provides credit assistance, arranges referrals, assists with implementation and operates through authorised representatives.

Or consider a construction consultancy that describes its business as design and project advice. In practice, it also undertakes design-and-construct contracts, supervises contractors, adopts third-party designs and warrants completed work.

The additional activities may alter the risk profile materially.

A policy may define the Professional Business narrowly. An endorsement may extend cover to some additional services but not others. The proposal may contain an incomplete description of the business, or the schedule may fail to reflect an expansion in activities since the previous renewal.

The consequences may not become apparent until a claim arrives.

The correct approach is not simply to provide a broad business description and assume that all associated activities are covered. Nor is it sufficient to rely on a certificate stating that professional indemnity insurance is in place.

The insured and its broker should consider the actual scope of work performed, the contractual obligations undertaken and the kinds of civil liability that may arise.

That includes work performed by directors, employees, consultants, subcontractors and authorised representatives where relevant to the policy.

Where the business has expanded, changed its operating model or taken on new contractual responsibilities, those changes should be considered at renewal and disclosed where required.

A clear description of the business does not guarantee cover. But an incomplete or inaccurate description can create avoidable uncertainty about the scope of the risk accepted by the insurer.

For business insurance, disclosure and misrepresentation questions must also be considered under the applicable Insurance Contracts Act regime. Do not assume that the consumer-insurance duty to take reasonable care not to make a misrepresentation applies to every commercial policy. Ask the broker to identify the applicable duty, the questions requiring an answer and any endorsements needed to reflect the actual business.

08 Your next renewal: a practical review

The lessons from Shangri-La and Rosenlund can be translated into a practical review.

Compare the business description with the actual work

Do not stop at the business name or the services listed on the website. Examine the contracts, deliverables, responsibilities and activities undertaken in practice.

Read the definition alongside the insuring clause

Check whether design, advice, certification, project management, supervision, construction, implementation and related services are included, limited or excluded. Pay particular attention to the distinction between providing advice and assuming responsibility for its implementation.

Check who receives personal cover

Determine whether the policy covers the company, directors, former directors, employees, contractors and other relevant persons. Check whether cover depends on a person being named in the schedule or on performing services for or on behalf of the insured.

Retain the complete insurance documentation

This may include the proposal form, schedule, certificate, policy wording, endorsements, renewal questionnaires and relevant correspondence with the broker or insurer.

These documents may serve different purposes, but collectively they can be critical to understanding the cover that was arranged.

Examine the legal basis of potential liability

A claim arising from the same facts may be framed in contract, negligence, statute or another cause of action. The policy may respond differently depending on the wording and the basis on which liability is established.

Check notification and continuity arrangements

Understand when a claim is considered to have been made, what must be notified and when. Consider whether a change of insurer or a gap between policy periods could affect the treatment of known circumstances or later claims.

These steps will not eliminate every coverage dispute. They can, however, identify gaps before they become expensive litigation.

If your insurer has already declined cover

  • Obtain the insurer’s written reasons and identify each policy term or exclusion relied on. A reservation of rights is not necessarily a final denial.
  • Collect the complete wording, schedules, endorsements, proposals, renewal records and correspondence for every potentially relevant policy year.
  • Build a chronology of demands, claims, notifications and acknowledgments. Record which people and entities were named in each communication.
  • Compare the alleged liability with the actual insuring clause. Do not assume the claimant’s label, or the insurer’s description of the claim, settles the coverage question.
  • Check consent requirements before making admissions, settling or incurring substantial defence costs. Do not allow the underlying claim’s deadlines to lapse while disputing indemnity.

If the arranged cover does not match the instructions given to a broker, a separate issue concerning the broker’s obligations may arise. That requires its own assessment of the retainer, instructions, available cover, causation and loss. A coverage refusal alone does not establish broker negligence.

09 Insurance must match the business

Professional indemnity insurance is often treated as a product that a business either has or does not have.

That is too simplistic.

The more important questions are what activities are insured, which people receive the benefit of the cover, what liabilities fall within the insuring clause and whether the requirements for triggering the policy have been satisfied.

The decision in Shangri-La is a particularly stark example. The director established that he was insured, but that did not secure indemnity for a multimillion-dollar statutory liability. The timing of the claim and the definition of Professional Business proved decisive.

Rosenlund illustrates the other side of the same problem: a contractor's decision to outsource technical work does not necessarily remove its own professional obligations or place the resulting liability outside a professional services exclusion.

Neither decision establishes a universal rule that professional indemnity insurance will not cover statutory liability, construction-related liability or work involving external consultants. The outcome depends on the precise wording and facts.

But both demonstrate why policy definitions, proposal documents and contractual responsibilities deserve close scrutiny.

The real question is not whether a business holds professional indemnity insurance. It is whether the insurance responds to the business it actually conducts and the liabilities it can actually incur.

At GopherWood Lawyers, we act for corporate policyholders in substantial insurance coverage disputes, including disputes concerning professional indemnity, policy interpretation, exclusions and disputed indemnity. We examine the policy wording, the relevant insurance documents and the legal basis of the alleged liability to identify and pursue the available avenues for recovery.

If your insurer has declined indemnity or reserved its rights, contact GopherWood Lawyers about your coverage dispute.

For disputes of consequence, the details matter.

This article is general information only and does not constitute legal advice. The decisions discussed concern particular policies and facts. Coverage under any policy depends on its wording, the relevant circumstances and applicable law.

10 Sources and further reading

The case discussion draws on published analyses of the decisions. The application of either decision to another policy requires examination of its full reasons, wording and facts.

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