This December 2022 Australian judgment of Ritchie v Insurance Australia [2022] NSWCA 278) considered an event where two employees of the insured were engaged in installing reinforced steel into trenches as part of a residential building works and used a power cutter fitted with a cutting blade to cut reinforcing steel. The use of the cutter involved frictional abrasion between the blade and the steel. That produced sparks. Those sparks were directed unwittingly to nearby dry grass and resulted in a bush fire.
After the insured went into liquidation, the claimants proceeded directly against the insured’s insurer.
The policy contained a Welding Endorsement.
The Endorsement provided that cover would not extend to liability arising out of or in any way connected with lists of activities including the use of “spark-producing equipment” unless the activity was conducted in strict compliance with the relevant Australian Standard.
Both the trial and appeal court held that the words “spark-producing equipment” were to be read as referring not only to equipment which itself generated sparks for the purpose of the cutting or other process but also as referring to equipment which produces sparks when used in a particular way as did the relevant power cutter.
The court said that the commercial object of the Endorsement was to exclude cover for listed activities which carried a risk of fire unless they were carried out in compliance with the safety standard.
How and when the fire risk arose was not relevant to the achievement of that object, which was directed to any fire risks arising from the activity. Unlike the list of activities which proceeded them in the Endorsement the words “spark producing equipment” did not describe any activity. The appeal court said that for the inclusion to make grammatical sense it was necessary to read the Endorsement as applying to “… [the use of] spark-producing equipment by or on behalf of the Insured.”
The activity, being the use of the equipment, did not describe a process and was satisfied by the use of any piece of equipment which produced sparks. The words “spark-producing equipment” were agnostic as to how and when in any cutting or welding or other process the sparks might be produced.
The court said that construction was congruent with the requirement for strict compliance with the Standard.
The definition of “Hot Work” in the Standard was apt to capturing grinding, welding and other “heat producing or spark-producing operations irrespective of the way in which or when in the relevant process sparks were produced.”
The indemnity was denied.
The outcome should be no different in South African law on the same wording.
