In this case, class action proceedings were brought against the insured claiming damages for property loss arising from the release of, or failure to release, water from two dams. The liability of the insured arose out of its agreement to provide flood management services to the dam operator.
The insured had been held vicariously liable for breaches of duty committed by its employee who was the Senior Flood Operations Engineer at the time. The insured sought an indemnity under two separate liability policies.
Insurers relied on an Exclusion 8 to deny indemnity. Exclusion 8 excluded liability arising out of the rendering of or failure to render professional advice or service by the insured for a fee. The court concluded that Exclusion 8 operated to deny indemnity in respect of liability arising out of the class action proceedings.
The insured firstly argued that its liability did not arise out of professional advice or service given by it. The court disagreed. The insured’s essential contractual obligation was to provide flood management services. That was to be done at least in part by providing appropriately qualified and experienced personnel which did not mean that the insured itself did not provide flood management services. The reality was that it did so, among other things done through its employee.
The court’s finding that the insured provided flood management services through its employee was entirely consistent with the finding that the insured was vicariously liable for its employee’s conduct. The employee’s acts were to be regarded as those of the insured, alternatively the insured’s vicarious liability arose because those acts were done in the course of employment with the insured irrespective of whether the particular acts were authorised or directed by the insured.
The insured also sought to argue that the Exclusion did not apply to claims made against the insured by persons who were not the recipients or intended recipients of the advice or service given by the insured.
The court considered whether the broader construction advanced by the insurers would excessively circumscribe the insuring clause and defeat the commercial purpose of the contract of indemnity. The court said that that did not permit rejection of the plain meaning of an unambiguous Exclusion clause simply because another meaning might appear more reasonable in the light of the other terms of the policy.
The insurer’s broader construction would not excessively circumscribe cover. A substantial part of the insured’s activities were non-professional in character. The existence of a separate professional indemnity component meant that cover for professional negligence claims by third parties, even if not complete, remained available under the professional indemnity component of the relevant policy. The court said that, in its natural and ordinary meaning, Exclusion 8 did not contain any limitation on its operation of the type contended by the insured.
The phrase “arising out of”, is a broad one, well capable of capturing the relevant circumstances of the case.
In its natural and ordinary meaning no aspect of the wording of the Exclusion suggested that it should be limited to liability to persons to whom the insured had rendered professional advice or service as distinct from others referred to in the class action proceedings who may have suffered a loss as a consequence of the provision of that advice or service.
The court said that if it had been intended to incorporate the limitation for which the insured contended it would have been easy for them to limit the operation of the words “arising out of” as they have been done in General Exclusion 1 of the policy where the expression “arising out of” was used but the exclusion stated that it nevertheless did not apply to certain identified matters.
The outcome is likely to be no different in South African law on the same wording.