Nuix v Berkshire Hathaway: Federal Court gives important guidance on multiple retentions in insurance policies.

Nuix Limited v Berkshire Hathaway Specialty Insurance Company [2026] FCAFC 87 8 min read

The Full Court of the Federal Court has dismissed an appeal by Nuix Limited, upholding the decision at first instance that where related claims made on a liability policy attract different retentions, and the wording is otherwise silent, the applicable retention will be the larger of the two—in this case, $10 million.

This resolves a common gap in 'related claims' aggregation clauses, which typically provide that only one retention applies without specifying which one.¹ In this Insight, we explain the decision and its practical applications.

Key takeaways

• The larger retention applies: Where related claims engage two retentions, without specifying which is to apply, the applicable retention is likely to be the highest available.
• The order in which claims are made is irrelevant: A construction under which the retention depends on the order in which claims are made was found to be ‘happenstance’ with ‘no commercial logic’, and could not answer the case where related claims were made simultaneously.
• Retentions are part of the bargain: The agreed retention is a salient policy feature reflected in the premium. Given 'Side B' and 'Side C' claims are routinely brought together, Nuix's construction would have undermined the efficacy of the agreed retentions, and thus was found to be one that did not properly accord with the parties’ intentions. 
• No clawback, but no relief either: The Court held that if the insurer has already paid out on the footing of a lower retention before the related higher-retention claim is made, the insurer cannot claw those payments back—but the absence of a clawback mechanism does not displace the larger retention going forward.

Background

In November 2020, Nuix issued a prospectus for the purposes of Chapter 6D of the Corporations Act 2001 (Cth) in connection with an initial public offering (IPO) of its shares, and was admitted to the official list of the ASX on 4 December 2020.

Nuix held two liability policies with insurers led by Berkshire Hathaway Specialty Insurance Company (the Insurers): a Public Offering of Securities Insurance Policy specific to the IPO (the POSI Policy) and a Directors & Officers Liability Policy (the D&O Policy) (together, the Policies).²

Under the Policies, no retention applied to 'Side A' Coverage (ie non-indemnified loss of insured persons); a retention of $2.5 million applied to 'Side B' Coverage (ie company reimbursement of the loss of insured persons); and a retention of $10 million applied to 'Side C' Coverage (ie company cover for securities claims). Clause 6.2 provided that a retention 'shall apply to Loss resulting from each and every Claim', and that the Insurers' liability 'shall be excess of the applicable Retention', which is 'borne by the Company uninsured under this Policy'.³

The related claims clauses in the Policies provided that, where there was more than one claim involving the same or related wrongful acts, or arising from the same or related facts or circumstances, they 'shall be considered a single Claim, and only one Retention shall be applicable to such single Claim'. Critically, however, the clause did not specify which retention would apply where aggregated claims engaged different coverage sections.⁴ While not uncommon, this stands in contrast to many common market wordings that provide statements along the following lines, providing greater contractual certainty:

In mid-2021, Nuix received statutory notices in connection with an Australian Securities and Investments Commission (ASIC) investigation. Three shareholder class actions were subsequently commenced against Nuix in the Supreme Court of Victoria in late 2021 and early 2022, with ASIC filing its own proceeding in the Federal Court in September 2022.⁵

In November 2022, Berkshire Hathaway issued its coverage position, in which it determined that under the POSI Policy: (a) the ASIC investigation engaged Side B Coverage; (b) the class actions engaged Side C Coverage; and (c) together they constituted a single claim by reason of clause 5.5, such that a retention of $10 million applied. It adopted a materially similar position under the D&O Policy.⁶

The first instance decision

Two separate questions were heard in advance of the wider coverage dispute. Each was directed at one of the two Policies under consideration—the POSI Policy and the D&O Policy—but both raised the same substantive issue of construction: 'where a Side B Claim is made first and a related Side C Claim follows, such that by operation of clause 5.5 the two Claims constitute a single Claim, what is the applicable Retention?' The trial judge answered each question: $10 million.⁷

At first instance, his Honour discussed nine considerations, the most significant being that:⁸

• The Policies' language favoured the Insurers' interpretation. There was no indication that the agreed $10 million retention would not apply merely because an insured had previously sought Side B cover for a related claim, and where multiple retentions are applicable to related claims, 'it is more a natural conclusion that the larger will absorb the smaller', as this approach 'does least violence to the parties' clear agreement';⁹
• Higher retentions lowered the Insurers' risk and, in turn, premiums, so a construction maintaining the efficacy of the agreed retention accorded with the parties' intentions;¹⁰ and
• Nuix's construction made the retention depend on the happenstance of which claim was made first, so that substantially different retentions might apply to what are essentially the same aggregated claims, a result that was 'self-evidently, unsatisfactory' with 'no commercial logic to it'.¹¹

The trial judge also drew support from CIMIC Group Ltd v AIG Group Ltd, in which a similar issue arose under a different policy. Nuix applied for leave to appeal.¹²

The appeal

Nuix advanced a single ground on appeal: that the primary judge had erred in his construction of clauses 5.5 and 6.2. Its contended construction was that:¹³

• When a claim is first made on an insured, a retention becomes applicable to that claim.
• For each successive related claim, clause 5.5 deems the existing and successive claims to be a single claim.
• Nothing in the Policies, expressly or implicitly, provides for a change to the applicable retention upon the making of subsequent related claims, or that the highest retention applies.
• Accordingly, where the Side B claim comes first, the applicable retention is $2.5 million.

There was no dispute as to the applicable legal principles.¹⁴

Because construction admits of only one correct legal answer, the Full Court began with its own consideration of the issue, rather than with the alleged errors. It acknowledged, as senior counsel for Liberty (another of the Insurers) had conceded, that no language in the Policies expressly resolved the question: there was no provision that the retention applicable to the first claim in time applied, and none that the highest retention applied.¹⁵

Why the Insurers’ construction prevailed

The Full Court preferred the Insurers’ construction—that clause 5.5 relevantly does no more than stipulate that a single retention applies to the aggregated claim, and does not take away the $10 million retention that clause 6.2 attaches to loss resulting from the Side C claim—for three reasons:¹⁶

• First, the simultaneous claims problem: Nuix’s first-in-time construction simply did not answer the question of what happens when a Side B claim and a related Side C claim are made at the same time—a quite plausible scenario, as claims against a company and its directors may well be made in the same letter of demand. The order of payments clause (clause 6.5) was no answer: it was not directed at determining the applicable retention.¹⁷
• Second, arbitrariness: on Nuix’s construction, whether the retention was $2.5 million or $10 million depends entirely on which claim happens to be made first. That is happenstance, and there is no commercial logic to it.¹⁸ While the Court did not address this point directly, it is possible to envisage the temptation for insureds to seek to 'game the system' by seeking to stagger how and when claims are received and presented for reimbursement.
• Third, the nature of a retention: a retention means an insurer’s liability is not triggered until the retention is exceeded, and the retention is borne by the company uninsured. In bearing the first $10 million of loss, the company can be said to be bearing both the first $2.5 million of loss resulting from the Side B claim and the first $10 million of loss resulting from the Side C claim. Conversely, if the company bore only the first $2.5 million, it would not be bearing the agreed uninsured layer of $10 million for the Side C claim. The larger retention applying was therefore the more natural construction.¹⁹

Nuix's remaining textual argument, that if Insurers were right, one would expect a 'clawback' mechanism for moneys already paid out on the footing of the $2.5 million retention before a related Side C claim arrives, was rejected as not determinative. In the absence of such a mechanism, it was conceded that the Insurers simply could not claw back what they had paid; that consequence was not enough to prefer Nuix’s construction.²⁰

The alleged errors

Having upheld the Insurers' construction, the Full Court dealt with Nuix's complaints only briefly. The primary judge did not err in treating one function of a retention as incentivising an insured to act prudently and avoid loss.²¹ Nor was there any substance in the complaints that his Honour impermissibly 're-framed' the question by asking whether the $2.5 million retention 'prevails', or erred in saying that each claim retained its 'inherent character' for the purpose of identifying the applicable retention (an approach consistent with the Full Court’s own reasoning).²²

The appeal was dismissed, with costs.²³

What this means in practice

• Drafting point for placement and renewal: Related claims clauses not uncommonly provide that 'only one retention' applies without specifying which. Parties who want a different rule—eg first in time, lowest applicable, or a pro rata approach—must now say so expressly, as the default construction is likely to favour the larger retention absorbing the smaller. We expect revised language may, however, be difficult to negotiate.
• Budget for highest applicable retention: Insureds with similarly worded D&O or POSI Policy programs should assume that, where related claims trigger multiple coverage sections—eg a regulatory investigation giving rise to claims against directors or officers under Side B, followed by a class action against the company under Side C—the highest applicable retention will apply to the aggregated claim.
• Sequencing and notification strategy will not help: Because the order in which related claims are made is irrelevant, an insured cannot secure the lower retention through the timing of claims or notifications. The character of the claims, and not their chronology, dictates the outcome.

If you would like to know more about the issues raised in this Insight, please contact any of the people below.