Mutual and Federal Insurance Company Ltd v Ingram NO and Others (CA 119/2007) [2008] ZAECHC 175; 2009 (6) SA 53 (E) (2 October 2008)

REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE DIVISION – GRAHAMSTOWN)

In the matter between: Case No: CA 119/2007

MUTUAL AND FEDERAL INSURANCE

COMPANY LTD Appellant

and

GAVIN MURRAY INGRAM N.O. 1st Respondent

RHODERICK GAVIN INGRAM N.O. 2nd Respondent

R B MERTSCH INSURANCE BROKERS 3rd Respondent

Coram: Froneman, Chetty and Dambuza JJ

Date Heard: 22 September 2008

Date Delivered: 2 October 2008

Summary: Contract of Insurance – exception clause – interpretation – directly or indirectly – broker’s duty

_______________________________________________________________

JUDGMENT

CHETTY, J

[1] This appeal, with leave of the court a quo, Sandi J, is primarily concerned with two issues, firstly, a contract of insurance concluded between the appellant and the OGC business trust (the trust) and secondly, the duty of care owed to the trust by its insurance broker, the third respondent. As its name indicates, the appellant is an insurance company and the first and second respondents, the trustees of the trust which traded as Auto Executive, a pre-owned motor vehicle dealership (the dealership) situate at 27 Grahamstown Road, North End, Port Elizabeth.

The contract of insurance

[2] On 9 July 2002 a portion of a parapet wall at the top of the dealership collapsed inwards onto the roof, plummeted through the ceiling and caused extensive damage to a number of motor vehicles on display in the dealership showroom. The third respondent, on behalf of the trust, lodged a damage claim form with the appellant in respect of the loss suffered by the trust. The appellant however repudiated liability on the basis of one of the specific exceptions

to liability contained in the policy of insurance.

[3] The trust duly instituted an action for the damages suffered against the appellant as the first defendant and its broker as the second defendant. At the conclusion of the trial the learned judge found that the appellant had not discharged the onus of proving that it was exempted from liability by reason of the specific exception (clause 4.8) contained in the motor dealers section of the policy and held the appellant liable for the damages suffered by the trust. The court a quo thereupon concluded it was consequently released from determining the lis between the appellant and the third respondent and ordered the appellant to pay the costs incurred by both the trust and the third

respondent.

The collapse of the wall

[4] The crucial issue the court a quo was called upon to determine was whether the parapet wall collapsed as a result of weather conditions. If it did, caedit quaestio. The appellant’s repudiation would be lawful. It is apposite therefore to note the provisions of clause 4.8. It is contained in section 4 of the motor traders section of the multimark III policy and reads as follows:-

“4. Specific exceptions

The company will not be liable under this sub-section for: . . .

damage to the vehicles defined in Definition 1.1 and 1.3 whilst in or on the premises if the loss or damage is caused by or arises directly or indirectly from fire, explosion, lightning, theft or any attempt thereat, weather conditions, earthquake or earth tremor or volcanic eruptions.”

Typically, clauses such as clause 4.8 which have been inserted in a policy for the purpose of exempting an insurer from liability for a loss, which, but for the provision, would have been covered, are construed against the insurer with the utmost strictness because of the duty on the part of the insurer, in framing the policy, to exempt its liability in clear and unambiguous language.

[5] It would appear from the judgment that in finding against the appellant the court a quo however considered clause 4.8 to be ambiguous. Consequently, it applied the contra preferentem rule and construed the clause against

the appellant to avoid what it regarded as an apparent absurdity. With respect to the learned judge his approach and conclusion was clearly wrong. The offending clause, in my judgment, admits of no ambiguity read in the context of the policy as a whole. It clearly states that one of the particular risks which the insurer wishes to exclude is loss or damage which is caused or arises, whether directly or indirectly, from a number of specific perils including weather conditions which ordinarily would connote a plethora of meteorological phenomena. Insurance cover for the eventuality of damage caused by such perils resorts under the fire section of the multimark III policy which, it is common cause, was not held by the trust.

[6] The uncontested evidence of both insurance expert witnesses called on behalf of the appellant, Andrew Selby Bolton and Trevor Daniels, was that in assessing insurance cover for accidental damage to stock in trade in the case of a typical motor trader, viz., the motor vehicles, the assessment of risks in relation to such damage differs from the assessment of risk in relation to the major perils. Different considerations apply under both the motor traders and fire section of the multimark policy respectively.

[7] It follows from the aforegoing therefore that in determining whether the appellant had discharged the onus of establishing that it was exempted from liability by clause 4.8, the enquiry must perforce commence with an analysis and evaluation of the evidence adduced by reason of the trial court’s omission to do so. Although the learned judge referred to the fact that various witnesses had testified, it is evident from the judgment that by reason of his conclusion as to the ambiguity of the clause, his treatment of the evidence adduced was perfunctory.

[8] Before commencing with that exercise however, it is apposite to consider the precise ambit, if any, of the words “directly or indirectly” contextually. The phrase has been judicially considered in a number of cases e.g. Agiakatsikas N.O. v Rotterdam Insurance Co Ltd 1959 (4) SA 726 (C) where Van Winsen, J, said the following at p. 730B:-

“The word “indirectly” would seem to absolve the Company from having to prove that the intoxication of the deceased was the approximate cause of the injuries sustained by him. (See Coxe v Employers’ Liability Assurance Co. Ltd., 114 L.T. 1180.) If it could be shown that the state of intoxication of the deceased materially contributed to the bringing about of the collision then I think defendant could be said to have discharged the onus resting upon it.” (emphasis added)

See also Taylor N.O v National Mutual Life Assurance Association of Australasia Ltd 1988 (4) SA 341 (E).What these cases illustrate is that it is sufficient for an insurer, who, like the appellant bears an onus, to show that the weather conditions in some material way probably contributed to the damage to the stock in trade.

[9] During the course of the trial and once the issues had crystallised the two experts, structural engineers Mr Johannes Loots (Loots) and Mr James Cairns (Cairns) met to attempt to reach consensus as to the cause of the parapet’s collapse. They were in agreement on almost all material issues save for their divergence of opinion on the critical question of what ultimately caused the parapet’s collapse. Loots remained steadfast that the force of the wind coupled to the deteriorated condition of the bricks in the parapet wall caused its

collapse whilst Cairns was likewise adamant that the deteriorated state of the bricks alone caused its collapse. The two experts compiled a joint report and concluded inter alia that “if the wall had been fully structurally sound it would have withstood the wind force on the day and all winds recorded since 1948” (paragraph 6); “the wall would not have fallen over on its own, in spite of prior deterioration, if there had been no wind” (paragraph 8) and “a combination of the prior deterioration of the wall and the prevailing winds on the day caused instability of the wall resulting in its collapse”. (paragraph 12)

[10] There have been many learned views expressed concerning the correct approach to expert testimony. It was succinctly articulated in Michael and Another v Linksfield Private Clinic (Pty) Ltd and Another 2001 (3) SA 1188 (SCA) at para [36] as “what is required in the evaluation of such evidence is to determine whether and to what extent their opinions advanced is founded on logical reasoning”.

[11] Cairns’ opinion was premised on the fact that a properly constructed wall would not collapse. He thus eliminated the wind factor and looked for other possible causes. His investigations led to the discovery that the bricks had deteriorated over time hence he concluded that it, and it alone caused the wall to collapse.

[12] However, as adverted to earlier in paragraph [9], Cairns had reached consensus with Loots that the combined effect of the prior deterioration of the wall coupled to the prevailing winds on the day in question caused instability of the wall resulting in its collapse. Logically therefore the wind factor must have had a material bearing on the collapse of the wall and, a fortiori, the damage sustained to the stock in trade. I am satisfied that the damage fell within the specific exception envisaged by clause 4.8 exempting the appellant from liability.

[13] There is moreover a further reason why the appellant would be exempted from liability. As adumbrated hereinbefore the experts were in agreement that the wall collapsed in consequence of the combined effect of the wind and the state of deterioration of the bricks. In Lawsa, first re-issue vol. 12, the learned authors at para 280 refer to the legal position in England that where the loss is caused by two perils operating simultaneously at the time of the loss, the one being wholly excluded and the other falling within the risk as described, the insurer is held not to be liable. In the case cited as authority for the proposition viz., Wayne Tank and Pump Co. Ltd v Employers’ Liability Assurance Corporation Ltd [1974] QB 57 (CA) a resume of the facts as it appears in the headnote were as follows:-

“The plaintiffs, engineers, designed and installed equipment for storing and conveying liquid wax in a factory making plasticine. The pipeline was made of a plastic material wrapped by heating tape with a thermostat to control the temperature. The plaintiffs had a public liability policy with the defendant insurers indemnifying them against all sums which they became legally liable to pay as damages consequent upon . . . damage to property as a result of accidents happening in the course of their business causing damage on premises described in the policy, which included the factory. By exceptions to the policy the defendants were not liable to indemnify the plaintiffs in respect of liability consequent upon “damage caused by the nature or condition of any goods . . . sold or supplied by or on behalf of the insured.” The installation was switched on and left unattended overnight before it had been tested, and early the next morning it caught fire and the factory was destroyed.”

The evidence adduced at the trial established that there were two causes for the fire, firstly the unstable and dangerous plastic material used in the installation and the useless thermostat and secondly, the conduct of the plaintiff’s servant in switching on the heating tank and leaving it unattended overnight when the installation had not been tested.

[14] The one cause fell within the general words of the policy and the other, within a specific exception to liability. The court of first instance held the defendant liable to indemnify the plaintiff for the loss suffered. On appeal, Lord Denning M.R. found that the court a quo was wrong in law in concluding that on the evidence adduced the insurer was liable to indemnify the plaintiff. Commencing with the supposition that there was not one but two causes for the fire, he stated as follows at 67C:-

“That is enough to decide the case. But I will assume, for the sake of argument, that I am wrong about this and that there was not one dominant cause but two causes which were equal or nearly equal in their efficiency in bringing about the damage. One of them is within the general words and would render the insurer liable. The other is within the exception and would exempt them from liability. In such a case it would seem that the insurer can rely on the exception clause. There is not much authority on it, but it seems to be implied in John Cory & Sons v Burr (1883) 8 App. Cas. 393, especially from what Lord Blackburn said at pp. 400, 401. That case was submitted, as used by Mr R.A. Wright K.C. arguing in Leyland Shipping Co. v Norwich Union fire Insurance Co. [1918] A.C. 350, 353, for the proposition:

“. . . where there are two perils both of which are proximate causes of the loss and in an open policy the shipowner could have recovered on either, then, if one of those perils is excepted by the warranty the underwriters are not liable.”.” (emphasis added)

It is clear from the judgment that the Court of Appeal accepted that where damage is brought about by two equal or nearly equal causes, the insurer would be excepted from liability if one falls within the specific exceptions in the policy.

[15] Confronted with such eminent authority Mr Beyleveld, on behalf of the first and second respondents, urged us however not to follow the aforesaid approach of the English courts. The reasoning of the learned Master of the Rolls is jurisprudentially sound and I can think of no reason why the approach of a South African court should be any different.

[16] In the light of the aforegoing I am satisfied that the court a quo was wrong in concluding that it had failed to discharge the onus resting upon it and finding that the appellant was liable to compensate the first and second respondents for the resultant damage.

[17] During the course of argument, counsel for the third respondent was invited to address the question of whether, in the event of the appeal succeeding and we were moreover satisfied that the first and second respondents had made out a case against the third respondent, this court, sitting as an appellate tribunal, could order the third respondent to compensate the first and second respondents for the loss suffered by the trust. Although counsel indicated that there could in principle be no legal impediment to this court making such an order we nonetheless, in view of the fact that this issue had neither been addressed in the heads nor in argument, invited counsel to submit further written argument hereanent.

[18] Counsel have been unable to point to any such legal impediment and I can discern none. In my judgment such an order is competent. The third respondent made common cause with the first and second respondents in opposing the appeal on the basis adverted to earlier. Had the court a quo found in favour of the appellant on the first issue, it would then have been obliged to determine the second issue raised in the

pleadings viz., the liability of the third respondent. That issue was fully canvassed in the pleadings and in evidence adduced by the first respondent to establish the pleaded case. The court a quo rightly omitted to consider this aspect of the matter as it was rendered nugatory given the decision on the first issue. Where the issues have however been fully canvassed at the trial it would be manifestly unfair to non suit the first and second respondents. In Cole v Government of the Union of South Africa 1910 AD 263 Innes C.J. stated the following at pp. 272-273:-

“The duty of an appellate tribunal is to ascertain whether the Court below came to the correct conclusion on the case submitted to it. And the mere fact that a point of law brought to its notice was not taken at an earlier stage is not in itself a sufficient reason for refusing to give effect to it. If the point is covered by the pleadings, and if its consideration on appeal involves no unfairness

to the party against whom it is directed, the Court is bound to deal with it. And no such unfairness can exist if the facts upon which the legal point depends are common cause, or if they are clear beyond doubt upon the record, and, there is no ground for thinking that further or other evidence would have been produced had the point been raised at the outset. In presence of these conditions a refusal by a Court of Appeal to give effect to a point of law fatal to one or other of the contentions of the parties would amount to a confirmation by it of a decision clearly wrong.” (emphasis added)

Although the aforementioned case concerned a point of law not taken in the court a quo, the principle remains the same. In my judgment therefore I am satisfied that this court is obliged, given our conclusion on the

first issue the trial court was called upon to consider, to determine the second issue raised during the trial.

[19] The nature of an insurance broker’s duty to an insured was succinctly expressed by Potgieter A.J. in Lenaerts V JNS Motors (Pty) and Another 2001 (4) SA 1100 (W) where the learned judge said the following at p. 1109H-J:-

“I consider that in our law, as in English law, the duty to exercise reasonable care and skill in appropriate cases extends to the duty to take reasonable steps to elicit and convey material information both from and to the insured. This includes information about terms of the policy which, if contravened, might leave the insured without cover. It is part and parcel of the broker’s general duty to use reasonable care to see that the insured is covered.”

That approach was ratified by the Supreme Court of Appeal in Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd 2004 (2) SA 1 (SCA) where Lewis J.A., after quoting the above passage referred with approval to the remarks of Diamond J in Harvest Tracking Co. Ltd v P.B. Davies t/a P.B. Davis Insurance Services [1991] Lloyd’s Rep. (QB) where the learned judge said:-

“The ordinary function of the insurance broker or other intermediary is to receive instructions from his principal as to the nature of the risk or risks and the rate or rates of premium at which he wishes to insure, to communicate the material facts to the potential insurers and to obtain insurance for his principal in accordance with his principal’s instructions and on the best terms available. The liability of an insurance agent to his employer for negligence is comparable to that of any agent. He is bound to exercise reasonable care in the duties which he has undertaken. In no case does the law require an extraordinary degree of skill on the part of the agent but only such a reasonable and ordinary degree as a person of average capacity and ordinary ability in his situation and profession might fairly be expected to exert.

The precise extent of the insurance intermediary’s duties must depend in the last resort on the circumstances of the particular case, including the particular instructions which he has received from his client. . . . It is normally not a part of the broker’s . . . duty to construe or interpret the policy of his client, but this again is not of course a universal rule. . . . (I)f the only insurance which the intermediary is able to obtain contains unusual, limiting or exempting provisions, which, if they are not brought to the notice of the assured, may result in a policy not conforming to the client’s reasonable and known requirements, the duty falling on the agent, namely to exercise reasonable care in the duties which he has undertaken, may in those circumstances entail that the intermediary should bring the existence of the limiting or exempting provisions to the express notice of the client, discuss the nature of the problem with him and take reasonable steps either to obtain alternative insurance, if any is available, or alternatively to advise the client as to the best way of acting so that his business procedures conform to any requirements laid down in the policy.”

Apropos the aforegoing I turn to analyse and evaluate the evidence adduced.

The evidence adduced

[20] The first respondent testified that since the initial engagement of the third respondent’s predecessor in title to act as its insurance broker he dealt personally with Mr R.B. Mertsch (Mertsch). When the motor dealership commenced business he contacted the latter to set up an appointment. When Mertsch came to see him at the premises he instructed the latter to comprehensively insure the stock in the form of the vehicles. After

the collapse of the wall and the appellant’s repudiation of liability he consulted his attorney who advised him that in his view, the policy did not provide cover for the damage suffered and suggested that he impress upon Mertsch to accompany him for a further consultation in an attempt to resolve the matter. At that meeting at his attorney’s office, Mertsch apologised for his remissness in not ensuring that proper and adequate insurance cover was obtained and placated the first respondent with the assurance that he was insured for such negligence.

[21] Under cross-examination by the third respondent’s counsel, it was suggested to the first respondent that the form, structure and content of the policy was precisely in accordance with the first respondent’s instructions but the latter remained steadfast

that what was communicated to Mertsch was that the stock in trade had to be comprehensively insured. Although it was put to him that Mertsch would deny apologising for any dereliction of duty at the attorney’s office it was never put to the first respondent that Mertsch would dispute that he i.e. the first respondent had instructed the stock to be comprehensively insured. The third respondent led no evidence to rebut the first respondent’s allegations hereanent and I accept not only that Mertsch was instructed to comprehensively insure the stock but that he moreover apologised for not having properly performed his mandate to do so. In my view, Mertsch clearly did not discharge his duty to the trust by ensuring that the trust’s stock in trade was adequately insured. It follows that the first and second respondents proved on a balance of probabilities that the third respondent negligently breached the terms of the mandate and that it is liable to compensate the first and second respondents for the loss suffered by it.

Costs

[22] The question of costs remains. The appellant is of course entitled to its costs both on appeal and in the court a quo. The question which remains however is which of the first and second respondents on the one hand and the third respondent on the other is liable for the appellant’s costs on appeal. The appellant has achieved success against both in resisting the claim for indemnification and staving off the award of costs ordered in respect of the third respondent. Does the fact that the third respondent had made common cause with the first and second respondents in the latter’s quest to hold the appellant liable in the court a quo and on appeal not justify that it bear not only the appellant’s costs on appeal but moreover that of the first and second respondents given the conclusion reached by us.

[21] In terms of Rule 10 (4) in any action in which more than one party has been joined the court may-

“(b) If judgment is given in favour of any defendant or if any defendant is absolved from the instance, the Court may order:

(i) . . .

(ii) the unsuccessful defendants to pay the costs of the successful defendant jointly and severally, the one paying the other to be absolved, and that if one of the unsuccessful defendants pay more than his pro rata share of the costs of the successful defendant, he shall be entitled to recover from the other unsuccessful defendants their pro rata share of such excess, and the court may further order that, if the successful defendant is unable to recover the whole or any part of his costs from the unsuccessful defendants, he shall be entitled to recover from the plaintiff such part of his costs as he cannot recover from the unsuccessful defendants.”

In my view, the first and second respondents cannot be faulted for having instituted action against the appellant and the third respondent. It was convenient and proper to do so to avoid a duplication of actions. The appellant’s success on appeal has however engendered success for the first and second respondents and it would be entirely inequitable that the third respondent alone bear the appellant’s costs on appeal. In my view it would only be fair to order that the respondents jointly and severally be ordered to pay the appellant’s costs on appeal.

[22] In the result the following order will issue:-

The appeal is upheld.

The first, second and third respondents are ordered jointly and severally to pay the appellant’s costs on appeal.

The order of the Court a quo is set aside and substituted by the following:

“1. The plaintiffs’ claim against the first defendant is dismissed.

The second defendant is ordered to pay the plaintiffs the sum of R249 746, 29 together with interest on the aforesaid amount at the prevailing legal rate a tempore morae.

The second defendant is ordered to pay the costs on trial of both the plaintiffs and the first defendant.

Such costs are to include:

The qualifying fees of Messrs Loots, Bolton, Daniels and Van Niekerk;

The costs of the inspection in loco held on 21 October 2004 including those of counsel and the expert witnesses.”

________________________

D. CHETTY

JUDGE OF THE HIGH COURT

Froneman, J

I agree.

_______________________

J. FRONEMAN

Dambuza, J

N. DAMBUZA

Obo the Appellant: Adv G. Goosen

(ref: Mr Nettleton: Nettleton Attorneys)

Obo the 1st and 2nd Respondents: Adv A Beyleveld

(ref: Mr Stone: Dold & Stone)

Obo the 3rd Respondent: Adv B Pretorius

(ref: Ms Bosman: N.N Dullabh & Co)