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[2007] ZASCA 174
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Allianz Insurance Ltd v RHI Refractories Africa (Pty) Ltd (616/06) [2007] ZASCA 174; [2007] SCA 174 (RSA); 2008 (3) SA 425 (SCA) (3 December 2007)
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THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
NOT REPORTABLE
CASE NO: 616/06
In
the matter between
:
ALLIANZ
INSURANCE Ltd ................................ Appellant
And
RHI
REFRACTORIES AFRICA (Pty)Ltd ................................
Respondent
____________________________________________
CORAM:
HOWIE P, BRAND JA,
LEWIS JA, COMBRINCK JA and KGOMO AJA
Date of hearing: 12
November 2007
Date of delivery: 3
December 2007
Summary:
Short-term
insurance, ordinary rules of interpretation of contracts applicable.
Special exclusion clause providing that the insurer
will only
indemnify the insured should ‘unintended damage’ result
from a particular defect. Insurer held liable.
Neutral
citation: This judgment may be referred to as
Allianz
Insurance Ltd v RHI Refractories Africa (Pty) Ltd
[2007] SCA 174 (RSA)
JUDGMENT
KGOMO
AJA
[1] The appellant, a
company conducting business as a short-term insurer in terms of the
Short Term Insurance Act 53 of 1998, approaches
this court with the
leave of the court
a
quo
(Mathopo
J of the Johannesburg High Court) against a determination of a point
in
limine
made
in favour of the respondent, as the insured, relating to the
interpretation of an exclusion clause contained in a contract of
insurance. Also before us is a conditional cross-appeal by the
respondent against the court
a
quo’s
ruling
that proposed evidence by Mr D J Chisholm, the respondent’s
expert, would constitute inadmissible evidence because it
would be
irrelevant in determining the meaning of the exclusion clause.
[2] The material facts
are as follows. On 8 June 2001 the respondent, as contractor, entered
into a written construction contract
with Indian Ocean Fertilizer
(Pty) Ltd. Broadly stated, the work undertaken by the respondent in
terms of the construction contract
was to effect an epoxy lining to
various parts of Indian Ocean’s acid plant in order to protect
the underlying concrete from
acid erosion. Pertinent for present
purposes, is that the construction contract also provided that the
respondent would remain liable
for all physical damage to the
construction works during the course of its completion.
[3] To safeguard itself
against the last-mentioned risk, the respondent entered into the
insurance contract with the appellant, which
forms the subject matter
of this appeal. According to the provisions of the policy, the
appellant
inter
alia
undertook
to indemnify the respondent against ‘physical loss or damage to
the property insured’, which essentially comprised
the works
under construction. In terms of the policy this indemnity is subject
to certain exemptions. The one relied upon by the
appellant in this
case appears in what is referred to as exception clause 1 (‘exclusion
1’). In the context of the introduction
pertaining to all the
exception clauses, it reads:
‘
The
insurer will not indemnify the insured for:
1. The
costs necessary to replace, repair or rectify any defect in design,
plan or specification, materials or workmanship, but should
unintended damage result or
ensue from such a defect
,
this Exclusion shall be limited to the additional costs of
improvements to the original design, plan or specification.’
[4] The dispute between
the parties turns on the interpretation of exclusion 1. It arose
from the fact that the epoxy lining
applied by the respondent had
failed, or delaminated, resulting in physical damage that had to be
repaired. The respondent’s
claim in the court
a
quo
was
for the expenses incurred to repair this damage which allegedly
amounted to about R9m. The basis of the respondent’s claim
was,
of course, that these expenses were covered by the policy. The
appellant’s contention, on the other hand, was that they
were
excluded by the provisions of exception 1.
[5] At the trial the
respondent sought to introduce the expert evidence of an underwriting
manager, Mr Chisholm, in support of its
interpretation of exclusion
1. According to the expert summary relating to his evidence, Mr
Chisholm would explain how, over time,
clauses of like wording to the
one under consideration, evolved in the short term insurance
industry. Against this background, so
the expert summary stated, Mr
Chisholm would express the opinion that the respondent’s claim
is not excluded by exclusion 1.
The appellant, however, objected to
this evidence and its objection was upheld by the court
a
quo
, on
the basis that Mr Chisholm’s evidence would be ‘inadmissible
and of no assistance to the interpretation of the contract
since it
was not argued by the plaintiff [the respondent] that the agreement
is obscure, uncertain and ambiguous. (See
Dorman
Long Swan Hunter (Pty) Ltd v Karibib Visserye Ltd
1984
(2) SA 462
(C).)’ After this ruling the parties, by agreement,
proceeded in the court
a
quo
to
argue the interpretation of exclusion 1 as a point
in
limine
on
the basis of what was referred to as ‘stated assumptions’.
These assumptions were formulated as follows.
‘
Assumptions:
1. There
was a defect in the design, specification
and/or
workmanship of,
and/or
pertaining to, the epoxy lining.
2. The epoxy lining delaminated and was
damaged.
3. The delamination and damage to the
epoxy lining was caused and brought about the defect(s) referred to
in paragraph 1 above.’
[6] Thereafter the
parties stated the issues to be determined by the court
a
quo,
as
follows:
‘
1.
Does the expression “
unintended
damage
”
in
Exclusion Clause 1 refer to (a) damage to the epoxy lining or (b)
damage to the insured property other than damage to the epoxy
lining?
2. Having
regard then to the finding in respect of paragraph 1 above, is the
risk of delamination of the epoxy lining expressly excluded
in terms
of Exclusion Clause 1
or
is the exclusion limited to the
additional costs of improvements to the original design, plan or
specification?’
As to question 1, the
case was argued on the basis that the defective lining constituted
‘damage’. I revert to this.
[7] The approach to the
interpretation of contracts of insurance, in general, and exemption
clauses in particular, has by now become
well settled. For the
present it can be summarised by the statement of two basic
principles. First, a contract of insurance must
be construed like any
other written contract so as to give effect to the intention of the
parties as expressed in the policy. Thus
the terms are to be
understood in their plain, ordinary sense unless it is evident from
the context that the parties intended them
to have a different
meaning (see eg
Blackshaws
Ltd v Constantia Insurance Ltd
1983
(1) SA 120
(A) at 126H-127A,
Fedgen
Insurance v Leyds
1995
(3) SA 33
(A) at 38A-E). Second, whilst the ordinary rule is that the
insured must prove itself to fall within the primary risk insured
against
by the policy, an exception clause is restrictively
interpreted against the insurer, because it purports to limit what
would otherwise
be a clear obligation to indemnify (see eg
Van
Zyl v Kiln Non-Marine Syndicate Number 510 of Lloyds of London
2003
(2) SA 440
(SCA) at 446A-H).
[8] In order for the
respondent to qualify under the policy, it had to establish that
there had been physical damage to the insured
property. From the
stated assumption it is apparent, however, that the appellant has
conceded this fact. What remains is the issue
whether it was exempted
from liability by exclusion 1. Moreover, it appears from the stated
assumptions and the issues as formulated,
that the dispute regarding
the meaning of exclusion 1 has been narrowed down substantially.
Fortunately we are therefore not required
to determine the general
meaning of the clause. I say ‘fortunately’, because I
find exclusion 1 very difficult to understand.
Maybe this is the very
type of situation where expert evidence as to the background of the
clause, along the lines foreshadowed by
Mr Chisholm’s expert
summary, could be of considerable assistance. But, be that as it may:
as I have said, the question to
be determined in this case falls
within a narrow ambit.
[9] Succinctly stated,
the only question is whether the physical damage resulting from the
failure of the epoxy lining constituted
‘unintended damage’
as contemplated by exclusion 1. Conversely stated, the question is
not whether the expenses necessitated
by the failure of the epoxy
lining would in any event be excluded by the first part of the
exception. If the failure of the epoxy
lining – which the
parties admit constituted damage – was ‘unintended’
the appellant is liable for the costs
of repair. Moreover, the
question is not whether the appellant’s liability would then be
limited by the third part of the clause
as constituting so-called
‘betterment costs’.
[10] It is clear that
damage to the epoxy lining itself is not expressly excluded in
exclusion 1. Yet, the appellant contended that
it is so excluded
because the adjective ‘unintended’ in the clause must be
understood as something akin to ‘unforeseen’
or
‘unexpected’. Thus understood, its argument went, the
failure of the epoxy lining, which was an inherent consequence
of the
respondent’s defective planning or workmanship, could not be
regarded as unintended. On the contrary, the appellant
argued, the
delamination of the epoxy lining was a natural and foreseeable
consequence of the respondent’s failure to comply
with its
obligations under the construction contract.
[11] The problem I have
with the appellant’s whole line of argument lies in its point
of departure. I do not think the plain
meaning of ‘unintended’
indicates something akin to ‘unforeseen’ or ‘unexpected’.
To my way of
thinking, consequences can clearly not be foreseen or
expected and yet not intended. According to its plain, ordinary
meaning ‘intended’,
refers to consequences which were
planned or intentionally brought about. But even accepting that
‘intended’ can have
an extended meaning, it would require
something in addition to foreseeability. While foreseeability
suggests no more than contemplation
of the possibility that a
particular eventuality may occur, ‘intended’ must, in my
view, at best for the appellant, entail
something analogous to the
concept of
dolus
eventualis
in
criminal law (see eg
S
v Maritz
1996
(1) SACR 405
(A) at 416e-g) which has in the past been extended to
insurance law (see
Nicolaisen
v Permanente Lewensversekeringsmaatskappy Bpk
1976
(3) SA 705
(C) at 709E-H). This would require: (1) a realisation on
the part of the performer of an act that the foreseen consequence of
the
act is more than a mere contingency: that it is therefore a real
possibility; and (2) a reconciliation by the performer with the
occurrence of the eventuality, in the sense of a deliberate decision
to proceed with the act, with indifference to its appreciated
consequences. ‘Unintended would of course have the opposite
meaning: the damage was not regarded as a real possibility, with
the
consequence that there would be no need to consider steps to avoid
the damage or to contemplate an alternative design.
[12] The appellant’s
further argument appears to have been that if what I consider to be
the natural meaning of ‘unintended’
is attributed to
exception 1, it would render exception 1 nugatory, because no
contractor would intentionally cause physical damage
to the works.
Again, I do not agree. Experience has shown that damage is sometimes
intentionally caused to a perfectly working or
undamaged part of the
works so as to remedy the defective or damaged part. Such intentional
damage to gain access was considered,
for example, in
Standard
General Insurance Co Ltd v Voest-Alpine Industrieanlangenbau
GMBH
1994
(3) SA 356
(A). But even if, at best for the appellant, ‘unintended’
could be interpreted to mean ‘unforeseeable’, it
has
failed to exclude the possibility that the adjective must be afforded
what I consider to be its plain meaning, namely of consequences
which
are intended or planned. And because exclusion 1 must be
restrictively construed against the appellant, this narrower meaning
must be accepted.
[13] Reverting to the
facts, it is not suggested that the delamination and damage to the
epoxy lining was planned or intended by respondent
– even in
the extended sense discussed in para 11 – when it designed or
performed the construction work. On the contrary,
the probabilities
seem to indicate that these were consequences it would strive to
avoid. Hence I agree with the decision of the
court
a
quo
that
the point
in
limine
should
be decided in favour of the respondent. In consequence, the
conditional across-appeal need not be considered.
[14] It is therefore
ordered that the appeal is dismissed with costs, including the costs
occasioned by the employment of two counsel.
____________________________
FD
KGOMO
ACTING
JUDGE OF APPEAL
CONCUR:
HOWIE
P
BRAND
JA
LEWIS
JA
COMBRINCK
JA