Coverage Update – Retention Tension: Court decides on Aggregated Claims

In this article, we unpack the Court’s reasoning and assess the impact the decision has on policy interpretation.

Last week, the Federal Court of Australia handed down an important decision in the matter of Nuix Limited v Berkshire Hathaway Specialty Insurance Company & Ors [2025] FCA 1002 regarding the applicable Retention under a Directors’ & Officers’ Liability Insurance policy and a Public Offering of Securities Insurance policy (together, Policies) when multiple related claims were made.

Each Policy provided a Retention of $2.5 million for Claims made under Side B Coverage ‘Company Reimbursement’ for Claims against Insured Persons (Side B Claims) and a Retention of $10 million under Side C Coverage ‘Company Securities’ for Securities Claims against the Company (Side C Claims). Each Retention was to be borne by the Insured, and the Insurer’s liability only applied excess of the applicable Retention.

The applicant Insured requested the Court to determine which Retention was applicable when a Side B Claim was “first in time”, and subsequently, a related Side C Claim followed.  The question put to the Court proceeded on the assumption that the two Claims were to be aggregated so as to be considered a single Claim.

Nuix Limited (Nuix) argued that the lower $2.5 million Retention applied. Conversely, Insurers contended that the higher Retention of $10 million applied.

The Court sided with the respondent Insurers’ interpretation, holding that the applicable Retention was the $10 million Retention under each of the Policies.

Key Takeaway

The Court’s decision is a further example of the judicial approach to interpretating insurance contracts, where, in the absence of ambiguity in the terms of the contract, the Court adopts a common sense and non-technical approach to arrive at a commercially sensible outcome having regard to the language and objects of the agreement, as well as the parties’ respective financial interests or risks.

Background 

The wider matter relates to claims made against Nuix in relation to, amongst other things, forecasts contained in a prospectus issued for an initial public offering on 18 November 2020, and further statements made to the market after Nuix was listed on the ASX on 4 December 2020. These events led to ASIC commencing several investigations and subsequently filing civil penalty proceedings against Nuix and several directors. Three representative proceedings were also commenced, two of which were subsequently consolidated, and the third action was permanently stayed.

Nuix sought indemnity in relation to the claims made against the directors and the Company under both Side B and Side C of the Policies.

Policy wording 

The Retention clause relevantly provided that the Retention shall apply to Loss resulting from each and every Claim, and the Insurer’s liability with respect to Loss covered by the Policy resulting from each and every Claim shall be excess of the applicable Retention, relevantly being:

The Policies included similarly worded “Related Claims” clauses, which read as follows: 

5.5 - More than one Claim involving the same Wrongful Act or Related Wrongful Acts of one or more Insureds, or with respect to an extradition proceeding or Insured Person Inquiry, arising from the same or related facts or circumstances or series of causally or logically related facts or circumstances, shall be considered a single Claim, and only one Retention shall be applicable to such single Claim.

All such Claims constituting a single Claim shall be deemed to have been first made on the earlier of the following dates: (i) the date on which a Claim forming part of any such single Claim was first made; or (ii) the date on which any such Wrongful Act, Related Wrongful Act or, with respect to an extradition proceeding or Insured Person Inquiry, such fact or circumstance, was notified under this Policy or any other policy providing similar coverage, regardless of whether such date is before or during the Policy Period or any applicable Discovery Period. In no event shall a single lawsuit or proceeding constitute more than one Claim subject to more than one Retention.

Whilst this clause deemed related Claims to be a single Claim, meaning one Retention would apply, neither this clause nor any other provision identified which Retention applied when a Side B Claim and a Side C Claim constituted a single Claim.

Nuix argued that as the first-in-time Claim made under the Policy triggered Side B coverage, which was later aggregated with the subsequent Side C Claim to constitute a single Claim, the applicable Retention was $2.5 million. The Insurers’ position was that the larger $10 million Retention applicable to Side C Claims applied.

Judgment

Applying the general principles of contractual interpretation, the Court found that:

1. The language of the Policies was clear and the Retention applicable to a Side C Claim was $10 million.
   1. The Court observed that:
      • securities class actions carry significant risk for an insurer in comparison to different claims and prudently require a substantial Retention; and
      • a substantial Retention also reduces the premiums charged and makes cover more affordable for the Insured.
2. The object of the Policies was to provide cover for Loss arising from Claims to the extent that it exceeds the applicable Retention, with different levels of Retention reflecting the differential risk evaluation that different Claims may give rise to.  His Honour found: “The higher the retention, the lower is the insurer’s risk and the lower will be the premium charged.  Thus, a construction that maintains the efficacy of the retention agreed upon and which is reflected in the premium, is one that more properly accords with the parties’ intentions”.
3. There was a likelihood that the conduct of the directors and officers of the Company would give rise to a Side B Claim against them and a Side C Claim against the Company so as to constitute a single Claim under clause 5.5. His Honour found that Nuix’s proposed construction would have the effect of the higher Retention rarely applying and was inconsistent with the ‘deterrent objective’ of the $10 million Retention.
4. The Insurers’ constructions provided certainty at the time when the contract of insurance was entered into so that the parties knew from the moment the Policies took effect that when Side C Cover is sought following the making of a Securities Claim, the $10 million Retention applies to that risk.
5. If the applicable Retention was dependent upon the timing of the Claims, as Nuix asserted, it would create uncertainty and had “no commercial logic to it”.
6. There was no unfairness because when a Side C Claim is made after a Side B Claim, the Insured retains the benefit of there being one single Retention.
7. The Court found the reasoning of her Honour, Justice Peden, in the New South Wales Supreme Court decision of CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999 at [491] “accurate and compelling” and should be respected.

Conclusion

The Court concluded that the correct construction of the Policies is that when Side C Claims are made, calling upon indemnification under the Side C Cover, the higher Retention of $10 million applies, regardless of whether or when any other related Claims are made.

Clyde & Co acted on instructions from Berkshire Hathaway, AIG and Beazley.

If you would like to discuss the issues raised in this Article or require any assistance, please contact any of the people below.