About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Kwazulu-Natal High Court, Pietermaritzburg
SAFLII
>>
Databases
>>
South Africa: Kwazulu-Natal High Court, Pietermaritzburg
>>
2011
>>
[2011] ZAKZPHC 22
|
|
Chemical Specialities Ltd v Hollard Insurance Company Ltd (16164/08) [2011] ZAKZPHC 22 (26 May 2011)
IN THE KWAZULU-NATAL HIGH COURT
PIETERMARITZBURG
REPUBLIC OF SOUTH AFRICA
CASE NO.16164/08
In the matter between
CHEMICAL SPECIALITIES LIMITED
….....................................................
Plaintiff
and
HOLLARD INSURANCE COMPANY LIMITED
…..........................
Defendant
J U D G M E N T
Del.26 May 2011
WALLIS J.
[1] The plaintiff manufactures paint. In 2007, when the
events giving rise to this litigation occurred, it did so from three
separate
manufacturing facilities in the Durban area, two in
Rossburgh and one in Phoenix. Apart from those facilities it had two
warehouses
in the Durban area and one in the Western Cape. The plant
and machinery and stock and materials in trade situated at these
various
premises were insured by the defendant against,
inter
alia
, the risk of loss by fire.
[2] On 30 August 2007 a fire occurred at the Phoenix
plant and substantial quantities of stock and materials were
destroyed or damaged.
The plaintiff made various claims under the
policy and has been paid a little over R24 million in respect of
these claims. Only
one item remains outstanding. It is an amount of
R1 340 684 being the balance of the claim in respect of
stock and materials
and clean-up costs. In refusing to pay this
amount Hollard relies upon the average clause in the policy.
[3] The issue between the parties is not one of
valuation. When the policy was issued the sum insured for fire risks
in respect
of stock and materials at the Phoenix plant was
R12 million. The value of the stock and materials on the
premises of the Phoenix
plant at the time of the fire is agreed at
slightly less than R12 million. The problem arises in respect of
a warehousing
facility situated in Aberdare Drive, Phoenix, where
further stock emanating from that plant was being stored at the time.
If the
value of this stock is included then the plaintiff was
underinsured and average applies. If it is excluded then the
plaintiff is
entitled to be paid the balance of its claim.
[4] When the policy was issued the plaintiff’s
operations did not extend to the Aberdare Drive warehouse. On 30 July
2007
the then managing director of the plaintiff, Mr Wood, telephoned
the company’s insurance broker, Mr Deon Schoeman,
and
asked him to arrange to extend cover to the Aberdare Drive
premises. These were premises rented by the plaintiff for storage
purposes. The difficulties that have arisen between the parties flow
from the manner in which Mr Schoeman carried out his instructions.
[5] Mr Schoeman is an experienced insurance broker. At
the time he had worked in the field for 29 years and the plaintiff
had been
a client for 22 years. At 12h43 on 30 July 2007 he sent an
e-mail to Mr Malcolm Marshall, the technical manager of Factory &
Industrial Risk Managers (Pty) Limited who represented Hollard. Mr
Marshall is, if anything, even more experienced in the insurance
field, where he has been working for some 50 years. The e-mail refers
to the plaintiff’s policy and is copied to Mr Bruce
MacKinnon,
the financial director at the time of the plaintiff. It reads as
follows:
‘
Hi Malcolm,
Please extend the situation of risk with immediate effect.
The client has rented warehouse space to accommodate primarily
finished product from the Phoenix factory (mostly decorative paints).
Situate 230 Aberdare Drive, Phoenix, Durban,
Kindest regards,
Deon.’
A little over an hour later, and without query or
further communication with Mr Schoeman, Mr Marshall forwarded this
e-mail to an
underwriter in order to prepare the addendum to the
policy. When that was issued it recorded in the memorandum to the
fire section
of the policy:
‘
SITUATION ADDED
230 ABERDARE DRIVE, PHOENIX, DURBAN.’
[6] The plaintiff pleaded its case in relation to the
insurance policy and the events of 30 July 2007 in the following
terms:
‘
4.6 At the time of the conclusion of the
said agreement a group of properties were included in the list of
premises set out therein
to which the agreement applied, including
plaintiff’s factory.
4.7 On or about 30 July 2007 the parties agreed that the premises to
which the agreement would apply would include the plaintiff’s
warehouse at 230 Aberdare Road (sic), Phoenix, KwaZulu-Natal.
4.8 The variation agreement referred to in paragraph 4.7 was
concluded orally by the said Schoeman, duly authorised by plaintiff
and M Marshall of Factory & Industrial Risk Managers (Pty)
Limited defendant’s duly authorised agent in Durban,
KwaZulu-Natal.’
Hollard admitted these allegations save that it averred
that the variation agreement was embodied in Schoeman’s e-mail
and
the revised policy schedule issued in response thereto.
[7] In its replication the plaintiff alleged the
following:
‘
3.1 Schoeman, duly authorised by the
Plaintiff, requested an extension of the policy to include a
situation of risk being a warehouse
at 230 Aberdare Drive, Phoenix,
Durban which would be used as a store for finished product made at
the Phoenix factory at 31 Hunslett
Road, Durban.
3.2 This request was made by email and sent to Defendant’s duly
authorised agent, Malcolm Marshall by Schoeman (referred
to as
“Deon”) on 30 July 2007.
3.3 This request was accepted by Defendant impliedly or by conduct by
an advice to “Sandra” in underwriting by forwarded
email
dated 30th July 2007 in which Defendant instructs the underwriting
department to process the request made by Schoeman on
Plaintiff’s
behalf. This email is Annexure “P1” to Defendant’s
Plea.
3.4 The amended policy schedule which is annexed to Defendant’s
Plea marked “P2” was purportedly signed by Defendant
on
23
rd
August 2007, seven days before the fire, and was not
sent to Plaintiff or its agent until after the said fire on the
request of
Schoeman.
3.5 The said amended policy schedule:-
3.5.1 does not correctly reflect the agreement of variation concluded
on 30
th
July 2007;
3.5.2 was not made known to Plaintiff before the fire which gave rise
to the disputed claim;
3.5.3 is not the agreement between the parties.
3.6 The said agreement added a situation of risk to the policy only
and had no effect on the agreement relating to average.’
[8] On the pleadings the plaintiff’s case was that
the effect of Mr Schoeman’s e-mail and of Mr Marshall
acting
thereon was to vary the terms of the policy of insurance by
providing fire cover in respect of the contents of the warehouse at
230 Aberdare Drive. It alleged that the basis of the cover
was that the goods stored in this warehouse would be finished
product
emanating from the Phoenix factory. The plaintiff’s pleaded
case is that Hollard was at risk in respect of stock
and materials in
trade stored at this warehouse. It did not, however, allege that an
additional premium was paid for this cover
nor did it allege that the
extent of the cover in respect of these premises was separately
specified.
[9] These allegations create an obvious difficulty for
the plaintiff. On the one hand it is accepted that cover was sought
and granted
in respect of the stock and materials in trade stored at
the Aberdare Drive warehouse. On the other hand no separate value was
ascribed thereto and no separate premium was paid for this cover. The
logical and only inference is that the additional cover was
an
extension of one of the existing heads of cover under the policy. In
that way the parties could achieve their manifest intention
of
insuring the contents of the Aberdare Drive warehouse, without paying
an additional or fixing a sum insured in respect of the
warehouse.
The only problem lies in identifying that head of cover. It is not
expressly stated in the revised policy schedule because
the reference
to the Aberdare Drive property is not linked to any of the properties
in respect of which cover already existed in
the fire section of the
policy.
[10] In those circumstances both counsel agreed that it
was legitimate to have regard to the request for cover addressed by
Mr Schoeman
to Mr Marshall. That takes one back to the e-mail of 30
July. As one would expect it is a request that the existing
situations
of risk be extended. The e-mail identifies
230 Aberdare Drive as warehouse space rented by the
plaintiff. Its purpose
is ‘to accommodate primarily finished
product from the Phoenix factory (mostly decorative paints)’.
That links the
new warehouse to the storage of stock emanating from
the Phoenix factory. The natural inference is that some of the
existing stock
at the Phoenix factory, which had an insured value of
R12 million, would be moved to the new warehouse under the
existing
cover extended to include the new premises. Unless there was
reason to believe that the existing sum insured of R12 million
in respect of the Phoenix plant was insufficient to cover the goods
stored in both premises (and no such suggestion was made) there
was
no need to specify a separate sum insured for the new premises. All
that was required was for the existing situation of risk
at the
Phoenix plant to be extended to the Aberdare Drive warehouse. Hollard
contends that this is precisely what the e-mail meant
and that the
cover in respect of the Phoenix factory set out in the fire section
of the policy was extended to include the Aberdare
Drive.
Accordingly, so it contends, the sum insured of R12 million
applied to the combined contents of the Phoenix factory
and the
Aberdare Drive warehouse.
[11] The plaintiff sought to escape this conclusion by
suggesting that the word ‘primarily’ in this e-mail was
not used
to indicate that the goods stored in the warehouse would
consist mainly, but not necessarily exclusively, of finished product
from
the Phoenix factory, but was used to indicate that most, but by
no means all, of the finished product stored in the warehouse would
come from the Phoenix factory. In effect it sought to contend that
this sentence of the e-mail should have read:
‘
The client has rented warehouse space
primarily (but not exclusively) to accommodate finished product from
the Phoenix factory (mostly
decorative paints)’;
or
‘
The client has rented warehouse space to
accommodate finished product primarily (but not exclusively) from the
Phoenix factory (mostly
decorative paints)’.
To this end Mr Schoeman was asked what he meant by the
word ‘primarily’ but it is clear that such evidence is
inadmissible
and Mr Dickson SC for the plaintiff accepted this. Mr
Dickson was on stronger ground when saying that the indications in
the correspondence
were that the warehouse was only to be used for
storing finished products so that there would be no point in
Mr Schoeman saying
that
primarily
finished products would be accommodated thereby leaving
open the possibility that other products might be stored there. His
second
point was that Phoenix factory only produced decorative paints
and therefore by saying that the finished products to be stored in
the warehouse would be ‘mostly decorative paints’ this
conveyed that some of the products would have been automotive
paint
or wood coatings emanating from other factories. For those reasons he
argued that the word ‘primarily’ must be
given a
different meaning not referring to the nature of the products but to
their origin in the Phoenix factory. He stressed that
Mr Schoeman is
not ‘a professor of English’ and that e-mails are a
relatively informal method of communication in which
strict rules of
grammar and syntax are not always followed.
[12]
These points are not without weight but in my view they do not
suffice to justify departing from the natural meaning of the
language
used by Mr Schoeman. There is nothing to indicate that the
e-mail was informally couched and its language belies
that
suggestion. It was a formal request by an experienced broker to an
experienced risk manager setting out in clear and simple
terms the
additional cover being requested. Its language indicated that the
goods to be stored in the warehouse were to emanate
from the Phoenix
factory. The e-mail, as it stands, is entirely appropriate to convey
that goods already covered under the policy
when situated at the
Phoenix factory will remain covered if stored in the Aberdare Road
warehouse. The plaintiff’s case posits
that for all his
experience Mr Schoeman dealt with this matter on behalf of a
long-standing client in a slapdash and incompetent
manner. A simpler
explanation is that as an experienced broker aware of the problems
that could arise if raw materials or some
other items were stored in
the warehouse and a claim arose Mr Schoeman covered that situation by
his reference to ‘primarily
finished products’. Likewise
the reference to the goods being ‘mostly decorative paints’
can be readily explained
as a cautious approach to ensuring that in
the event of a claim Hollard could not repudiate on the grounds that
some of the goods
stored consisted of something other than decorative
paints.
[13] The correspondence after the fire supports this
approach. The first e-mail in the bundle is dated 8 September 2007.
It is an
e-mail addressed by Mr Schoeman to a Mr Muller at
Factory & Industrial Risk Managers. Like the earlier e-mail it
was copied
to Mr MacKinnon at Chemical Specialities. Its purpose is
to confirm certain details in regard to the Aberdare Drive warehouse.
It contains the following sentence:
‘
However, as you are aware, the utilisation
of these premises are as a result of overflow from the 31 Hunslett
Road [Phoenix factory]
premises and now also accommodates the
salvaged finished product.’
(My insertion)
This
is a clear statement that the warehouse premises were intended to
overcome storage problems in respect of finished product
from the
Phoenix factory. There is no suggestion that anything else was
intended. It is wholly consistent with the plaintiff’s
pleaded
case as set out in the replication, namely that what was required and
given was:
‘
an extension of the policy to include a
situation of risk being a warehouse at 230 Aberdare Drive, Phoenix,
Durban which would be
used as a store for finished product made at
the Phoenix factory at 31 Hunslett Road, Durban.’
[14] Two months later Mr Schoeman wrote to his own
professional indemnity insurers giving notice of a possible claim
against him.
He said the following:
‘
My client, Chemical Specialities (Pty)
Limited, had a major fire on 30 August 2007 at their factory situate
at 31/37 Hunslett Drive,
Phoenix.
We had extended the policy on 30 July 2007 to include a warehouse
situate at 230 Aberdare Drive, Phoenix, for finished
product emanating from this factory but in our instructions had
neglected to provide a sum insured at the new address.
Our insurers, Factory and Industrial, whilst having provided a
substantial sum in interim payments for the stock lost, are now
wanting to incorporate the actual stock value at 230 Aberdare
Drive … into the stock that was at 31/37 Hunslett Drive
…
We are arguing that, as it was intended to be an interim measure, we
would have provided a stock value at our quarterly stock declaration
at the end of September 2007.
If they are successful in their application of the condition of
average, it will mean a loss to my client of in the region of R880
000.’
Once again Mr Schoeman states expressly that the purpose
of the warehouse was to accommodate finished product emanating from
the
Phoenix factory. There is no reference to any other product.
[15] Lastly on 26 May 2008 after Chemical Specialities
had indicated to Mr Schoeman that they would make a claim
against him
for any shortfall arising from the application of
average, he wrote to his attorneys giving a brief summary of the
events that
took place. That letter contains the following:
‘
On the 30 July 2007 I was contacted by Mr S
M Wood (then managing director) to extend the situations of risk to
provide for 230
Aberdare Drive, Phoenix, Durban.
He explained that there was a congestion of finished product at 31
Hunslett Road and these stocks would need to be moved to alternative
premises in order that Chem Spec could comply with Sprinkler
requirements in Hunslett Road. …
I forwarded an e-mail to underwriters (copy attached) to extend the
situations of risk.’
Once again it is clear that the extension of the risk to
the warehouse in Aberdare Drive related only to the storage of
finished
product emanating from the Phoenix factory. I will revert to
the omitted portion of this e-mail in paragraph [18] below.
[16] To sum up on this aspect neither
the initial e-mail of 30 July 2007 nor any subsequent explanation by
Mr Schoeman relating
to his instructions, contains any suggestion
that it was contemplated that goods other than stock emanating from
the Phoenix factory
would be stored in the Aberdare Drive warehouse.
His evidence that he was aware that there might be overflow stock
from other factories
arising from a conversation with Mr Tracy
Robinson after the fire does not affect this. The principal
contention advanced in argument,
that the extension of risk to
Aberdare Drive was to accommodate goods emanating from all factories
operated by the plaintiff, not
only the Phoenix factory, has no
factual basis. The factual matrix
1
surrounding the request for an
amendment of the policy is wholly inconsistent with this contention.
It is also inconsistent with
the plaintiff’s pleaded case.
There is therefore no reason to construe the e-mail as relating to
goods emanating from other
factories. It follows that there is no
reason to construe the cover extended to Aberdare Drive as falling
generally under the existing
fire cover for all three factories so
that in applying average the total sum insured for all three
factories of R43 million should
be used. All the evidence
demonstrates that this was not in accordance with Mr Schoeman’s
instructions nor was it what
he had in mind when requesting extended
cover for the Aberdare Drive warehouse. I should add that Mr
MacKinnon, who received copies
of the relevant e-mails to Factory and
Industrial and who was the financial director at the time and is now
the managing director
did not give evidence to support this new
contention.
[17] The alternative approach adopted by Mr Dickson SC
was based upon evidence given by Mr Schoeman that Mr Wood had told
him, when
giving the original instructions, that the value of the
goods to be stored at Aberdare Drive was some R3 million. Building on
that
foundation he submitted that Mr Schoeman’s intention
was to obtain cover in that amount and because he inadvertently
omitted to mention this figure in his e-mail there was no proper
meeting of the minds between the insured and its insurer. In
consequence, so he submitted, there was in fact no valid amendment to
the contract, and the Aberdare Drive premises were in reality
uninsured. Accordingly the contents of that warehouse were not to be
taken into account in determining the question of average.
Once again
this is a novel contention inconsistent with the plaintiff’s
pleaded case, which was that there had indeed been
an agreement to
extend cover to the Aberdare Drive warehouse.
[18] In support of Mr Schoeman’s claim that he had
been instructed by Mr Wood in regard to the value of the stock
to
be kept in Aberdare Road reliance was placed on the following
sentence from the letter of 26 May 2008 addressed by Mr Schoeman to
his attorneys. After dealing with the initial instructions it goes
on:
‘
He confirm (sic) that he estimated an
amount of R3 million worth of stock would be kept in Aberdare Drive.’
…
My email made no mention of a sum insured of R3 million that was to
be kept at these premises.’
[19] I have grave reservations about these statements.
Mr Schoeman did not explain how he, a highly experienced
insurance broker
who had been told to secure R3 million worth of
cover in respect of goods stored at new warehouse premises, could
have omitted
to mention this figure in his e-mail implementing that
instruction. The moment a valuation was ascribed to the goods to be
stored
in the Aberdare Drive warehouse the question would arise
whether there needed to be a downward adjustment of the sum insured
in
respect of the Phoenix factory. In addition it would have been
apparent that this would not simply be to ‘extend the situation
of risk’, but would create a new risk in respect of the new
premises attracting an additional premium. I find it difficult
to
believe that an experienced insurance broker would overlook these
items but include the cautiously qualified statement that
the goods
in storage would consist of ‘mostly decorative paints’.
After all the nature of the insured’s business
was already
known to the insurer. Had he been given this instruction the need to
obtain cover for a specified amount would have
been at the forefront
of his mind. It is hard to see how he could overlook it in what is a
very simple e-mail to the insurer’s
agent.
[20] Mr Schoeman did not produce any note or record of
his conversation with Mr Wood to support this proposition. In
addition
the letter of 26 May 2008 is cautiously worded and the word
‘confirm’ is clearly erroneous and should either read
‘confirms’,
which would refer to the time that the letter
was written, or ‘confirmed’ which would refer back to the
date of the
original instruction and would have no bearing on that
instruction. I asked Mr Schoeman which was intended and his answer
was not
immediate. It was only after a lengthy pause and a careful
consideration of the wording of the letter that he proffered the
answer
that this should read ‘confirmed’. The manner in
which he gave this answer did not inspire confidence in its veracity.
[21] My other difficulty in accepting the factual
accuracy of the statements in this letter is that they are
inconsistent with what
Mr Schoeman wrote to his own professional
indemnity insurers on 31 October 2007. He does not say in that
letter that he had
specific instructions to obtain insurance cover in
the amount of R3 million. Indeed he does not refer to his
instructions from
Mr Wood at all. What he says that in the
instructions he gave to Mr Marshall he ‘had neglected to
provide a sum insured
at the new address’. There is no
suggestion that this ‘neglect’ was a breach of his
instructions from Mr Wood
or arose from a failure to include a
reference to the R3 million in the e-mail. What is more the e-mail
goes on to say that he
and his clients were arguing with Hollard that
‘as it was intended to be an interim measure, we would have
provided a stock
value at our quarterly stock declaration at the end
of September 2007’. That is inconsistent with his having been
told that
the sum insured should be R3 million. I asked Mr Schoeman
three times to explain on what basis he and his client could advance
this contention if the truth of the matter was that he had
negligently failed to specify that the plaintiff wanted additional
and
separate cover of R3 million in respect of stock stored in the
Aberdare Drive warehouse. He was unable to give any satisfactory
answer.
[22] There are other difficulties. The e-mail of 30 July
does not refer to an interim situation but to the immediate
establishment
of coverage at the Aberdare Drive premises. Had it been
‘intended’ that a value should be furnished at a later
date
with retrospective effect it seems to me inconceivable that it
could have been omitted from the 30 July e-mail. After all that would
involve asking the insurer to cover a risk of unknown extent for a
period of two months during which period it would not know its
potential liability and for which it would not have received any
premium. It was not suggested to Mr Marshall that Hollard (or
indeed
any insurer) would be willing to assume a risk on that basis.
[23] For those reasons, I hold that Mr Schoeman had no
specific instructions from Mr Wood in regard to the extent of the
cover to
be obtained for the Aberdare Drive premises. That conclusion
disposes of the alternative argument that by virtue of an error on
the part of Mr Schoeman to mention this amount the parties did not
agree on an amendment to the policy, a proposition inconsistent
with
the pleadings. However, even if I am incorrect in making that finding
it does not assist the plaintiff. The reason is that
Mr Schoeman’s
authority to act on behalf of the plaintiff was not in dispute. The
plaintiff is accordingly bound by the terms
of the request that Mr
Schoeman made to Hollard. That request was to extend the existing
cover in respect of stock and materials
in trade at the Phoenix
factory to include the Aberdare Drive warehouse. Hollard agreed to
and implemented that request. Even assuming
that Mr Schoeman erred in
couching his request in those terms and should have asked for cover
in a specified sum, together with
a tender to pay any additional
premium arising therefrom, the fact of the matter is that he did not
do so. Hollard cannot be criticised
for granting cover in accordance
with his request and the plaintiff cannot avoid the consequences of
its having done so.
[24] That brings me back to the ordinary and natural
meaning of the request in the e-mail of 30 July 2007. It was a
request to extend
an existing head of cover under the existing policy
to include the warehouse premises at Aberdare Drive. As the extension
was for
the purpose of storing finished product from the Phoenix
factory it is proper to construe the request as being a request that
this
head of cover should be so extended. That is what happened and
that is in substance the case that the plaintiff pleaded, but sought
to avoid during the trial. The consequence is that the sum insured of
R12 million in respect of the Phoenix factory included the
insured
stock stored at Aberdare Drive. The value of that stock must
therefore be taken into account in deciding whether average
is to be
applied. Once it is taken into account the attitude of Hollard in
applying average in accordance with the policy is plainly
justified.
[25] In the result the plaintiff’s claim is
dismissed with costs.
DATES OF HEARING 23 MAY 2011
DATE OF JUDGMENT 26 MAY 2011
PLAINTIFF’S COUNSEL MR A J DICKSON SC
PLAINTIFF’S ATTORNEYS GEYSER DU TOIT LOUW &
KITCHING INC
DEFENDANT’S COUNSEL MR G R THATCHER
DEFENDANT’S ATTORNEYS DENEYS REITZ INC
Represented locally by Tatham Wilkes
1
KPMG
Chartered Accountants (SA) v Securefin Ltd
2009 (4) SA 399
(SCA)
para 39