Who was responsible for the design? Federal Court considers professional services exclusion

Professional services exclusions continue to generate difficult questions where construction contractors engage external consultants to perform specialised design functions.

In Rosenlund Constructions Pty Ltd v Certain Underwriters at Lloyd's of London Subscribing to Policy Number 08070017 [2026] FCA 1442, the Federal Court was required to determine whether a contractor that had outsourced engineering design responsibilities could nevertheless be denied cover by reason of such an exclusion.

The Court concluded that the exclusion applied. In doing so, it emphasised that the relevant question was not whether the insured personally performed the design work, but whether the insured had assumed contractual responsibility for that work. The decision provides important guidance on the application of professional services exclusions in construction and Design & Construct projects.

Background

H Hassarati & Co Pty Ltd (Hassarati) was engaged by Lendlease to demolish the Sydney Entertainment Centre and retained Grasso Consulting Engineers Pty Ltd (Grasso) to advise on the roof demolition methodology. A later version of the methodology, Revision P, contained a defective sketch. Hassarati issued Revision P to Rosenlund’s demolition crew and directed that it be followed despite concerns raised on site. The roof subsequently collapsed, damaging Rosenlund’s equipment.

After Hassarati was deregistered, Rosenlund pursued its public and products liability insurers directly under s 601AG of the Corporations Act 2001 (Cth). The insurers accepted that the insuring clause was engaged but relied on an exclusion for liability:

“Caused by or arising out of the rendering of or failing to render professional advice or service by the Insured or any related error or omission.”

The exclusion was subject to a write-back where the professional advice or service was not provided for a fee.

Why the professional services exclusion applied

Rosenlund argued that Grasso had provided the relevant professional services and Hassarati had merely passed on documents prepared or approved by the engineer. Jackman J rejected that characterisation.

His Honour held that the first step in applying a professional services exclusion is to identify precisely what the insured was retained to do. Hassarati’s subcontract required it to design and document the works, prepare an engineered demolition methodology and exercise the professional skill, care and diligence expected of an experienced subcontractor.

Although Hassarati had engaged Grasso to undertake the engineering work, Hassarati warranted Grasso’s designs, remained responsible for Grasso’s acts and omissions as if they were its own, and was required to ensure that the designs were suitable for their intended purpose. The subcontract therefore did not permit a clear division between Grasso’s professional services and Hassarati’s own responsibilities.

By issuing Revision P and directing that it be followed despite the demolition crew’s concerns, Hassarati adopted the methodology as part of its own professional advice or services. That conduct involved specialised skill and judgment and was not merely the administrative transmission of another party’s advice. Alternatively, Hassarati’s failure to check that Revision P reflected Grasso’s approved design and was suitable for its intended purpose was itself a failure to render professional services.

The words “arising out of” did not require the professional services to be the proximate cause of the loss. Hassarati’s contractual responsibilities, its provision of Revision P and its direction that the methodology be followed provided the necessary causal or consequential connection.

The Court further concluded that the exclusion remained applicable notwithstanding the write-back for professional advice or services not provided for a fee. Although the subcontract did not separately identify a fee for professional services, Hassarati was paid to perform the subcontract as a whole, including the functions requiring professional skill and judgment. 

Key takeaways

• Courts will begin with the insured’s contractual scope, rather than simply asking who physically performed the technical work.
• Outsourcing design will not avoid a professional services exclusion where the insured warrants, adopts or remains responsible for the consultant’s work.
• Both issuing defective technical material and failing to perform a contractually required professional review may fall within an exclusion applying to the rendering or failure to render professional services.

The decision therefore confirms that engaging an external consultant will not necessarily take an insured outside a professional services exclusion where the insured retains responsibility for the consultant’s work and is required to exercise its own professional skill and judgment.

Clyde & Co has extensive experience advising insurers and insureds on coverage issues arising from construction, engineering and design-and-construct projects, including the operation of professional services exclusions and other key policy provisions. For further information about the decision and its potential implications, please contact the authors or your usual Clyde & Co contact.