The Federal Court has dismissed an application by Allianz to reduce the limit for sexual misconduct claims on a professional indemnity policy.

Allianz asked the court for rectification of the policy issued to the Uniting Church because it was ambiguous and read in a way that did not correspond with the parties’ intention that the sexual misconduct limit was separate from the PI limit.

The church agencies that fought the application denied they had agreed to this.

The policy, covering the year from March 31 2008, had an indemnity limit of $25 million on any one claim and in the aggregate, and a “reinstatement” table with a limit of $15 million for sexual abuse claims and nil reinstatements.

Cover was placed on March 31 2008 and the policy was executed that July 8.

Justice Michael Lee considered emails sent in March 2008 between the church’s broker, Marsh, and various insurers about coverage and limits.

He says that at March 31 the precise limit and scope of the PI cover had not been concluded and the question of whether the policy would limit cover to $15 million for sexual misconduct claims appeared to be the subject of ongoing negotiation with Allianz while it obtained quotes and discussed coverage options with its reinsurers.

One email said Allianz was trying to get the sexual misconduct limit increased to $25 million, and discussions on this continued well past March 31.

Justice Lee says placement advice on March 31 recorded a position reached during the negotiation process rather than a concluded and continuing common intention.

Differences between the placement advice in March and the policy as executed in July tended to indicate choices made while finalising the instrument, rather than a failure to record an otherwise agreed set of terms.

The church had made clear that it wanted the PI limit of $25 million to include sexual abuse claims.

A court can grant an “equitable remedy” enabling a contract to be rectified when a mistake has been made and it does not reflect the true agreement of the parties, but Justice Lee says the remedy should be used with extreme caution.

Clear and convincing proof is needed for a claim of rectification to succeed and the proof must be “strict”, so the integrity of agreements is not undermined.

Read the judgment here.