Software company Nuix, subject to a shareholder class action and regulatory proceedings after listing in 2020, has lost a court case about the retention on insurance it held.

Nuix’s “tower” of policies included public offering of securities insurance (POSI) and a directors’ and officers’ cover.

D&O claims had a retention of $2.5 million and POSI claims a retention of $10 million, and when related claims were made, only one retention applied.

Nuix argued the $2.5 million retention should apply, so its insurers should pay out after it exhausted that amount.  

However, the Federal Court has supported lead insurer Berkshire Hathaway Specialty Insurance and 14 other insurers and Lloyd’s syndicates, which said the retention of $10 million applied.

The court rejected Nuix’s argument that since claims attracting the lower retention were made first, the $2.5 million should apply.

The dispute was specifically about the retention, not whether the policies responded to the claims.

The court says class actions were launched against Nuix in 2021 and 2022, and in September 2022 the Australian Securities and Investments Commission started Federal Court proceedings against the company.

Throughout 2021 and 2022 Nuix contacted Berkshire Hathaway about coverage and sought permission to incur defence costs under the policies.

Berkshire Hathaway responded that under the POSI policy, the ASIC investigations engaged side B coverage for insured persons and the class actions engaged side C relating to securities claims.

It said there were two groups of claims under the D&O policies – which should be treated as a single claim – one with side B attracting a $2.5 million retention, and one under side C with a $10 million retention. Therefore, the $10 million retention should apply.

The court notes class actions are “notorious” for involving substantial demands that can result in multimillion-dollar claims. Securities actions are well entrenched in Australia’s class action industry and the litigation cost is higher.

“Therefore, the insuring of such potential claims involves significant risk for an insurer and, prudently, it will require a substantial retention.”

If the $2.5 million applied, it would give the insured cover on a securities claim for any loss above that sum, when it had been agreed the retention for this type of claim was $10 million.

The decision is available here.