This 2012 judgment in which Norton Rose Fulbright successfully acted for the insurer, is worth revisiting in the context of the unprecedented levels of flooding being experienced in South Africa (and around the world).
The insured had been engaged by the Government of Botswana to construct a dam and was required to design and construct water diversion works.
The works were insured with the following conditions of cover:
”All diversion works must be designed to withstand 1 in 100 year flood water”, and the ‘Munich Re Endorsements 110in safety measures were to apply (a) 110.
The policy included the same requirements.
The Munich Re Endorsement 110 (which until that time had never been judicially considered anywhere in the world) read:
”It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the insurers shall only indemnify the insured for loss, damage or liability caused directly or indirectly by precipitation, flood or inundation if adequate safety measures have been taken in designing and executing the project involved.
For purposes of this Endorsement adequate safety measures shall mean that, at all times throughout the policy period, allowance is made for precipitation, flood and inundation up to a return period of 100 years for the location insured on the basis of the statistics prepared by the meteorological H agencies ... .” (emphasis by the court)
Several months into the project there were unusually heavy rains in the area, and flooding exceeded the diversionary safety measures in place with resultant damage to the works and loss of materials.
The insured’s claim was rejected on the basis that the diversionary works had not been designed to meet the 1 in 100 year flood which occurred.
The insured argued that it had complied with the obligation in that the measurement of the design strength was on a seasonal, not a yearly approach.
Competing factual and expert evidence was led regarding the design of the diversionary works and the understanding of the flood return periods.
In interpreting the policy, the court said it was not for it to make contracts for the parties. Nor was its function to depart from the clear policy language on equitable grounds. Where terms used in a document have a specialised or technical origin or use, the meaning must on the face of it be sought from such specialised or technical concepts but not from a different concept or a layperson’s understanding.
To the extent that expert witnesses were called the court reiterated that interpretation is a matter of law and not fact. And interpretation is a matter for the court, not for the witnesses, even if they were experts. The experts’ evidence was useful to put the agreement in its factual matrix or context.
The court had to consider whether the expression “up to a return period of 100 years” meant a 1:100-year flood based on an annual peak flood as contended by the insurer or a 1:100 year dry season or monthly peak season as contended by the insured. The question was whether the literal meaning of the technical term was the one to be adopted or whether the court in interpreting the clause had to take into account the international practice of strategies adopted in large dam construction and designing of diversion works for dams.
The court said that an approach which seeks to read into the relevant phrase the words “seasonal flood” was fraught with difficulties. There was no consensus as to what months constituted that period. And even the recognised methods of analysing and computing the data gave markedly varying yields.
In any event, even if regard was had to the dry season computed from May to the end of October, the insured would still have failed to meet the relevant safety measures.
The court found that, if the parties had intended the return period to take into account the dry and wet seasons, the language of the policy would have been specific in that regard.
The court said that the construction of the clause had to be interpreted having regard to the language of other documents constituting parts of the policy and proposals. The Munich Re endorsement wording was relevant where the 1:100 year flood was unqualified.
The court held that the hydrological technical term meant what it said. It referred to a 1:100 year return flood based on an annual peak flood regardless of the time of the year.
While all the experts agreed that would have been more expensive for the insured to comply with the requirement, it was for the insured to negotiate terms which it could meet without undue financial hardship.
The court echoed the sentiments expressed by a South African court of appeal: “The position for him is no doubt hard; but those who enter into onerous or one-sided agreements have only themselves to thank. A court of law cannot assist them merely because the results are harsh.”
This decision was based on South African authorities and a similar decision would be reached here, especially having regard to current concepts of policy interpretation.