A policy provision capped liability at USD10 million for “direct physical loss or damage caused by heat from molten material, which has been accidentally discharged from equipment”. The court found on the facts that the words were ambiguous as to what was “direct” damage and what was “caused by heat” so that some of the losses were not capped.
A major incident occurred at an aluminium facility. During routine maintenance, a small quantity of molten aluminium went up approximately 10 metres and then landed on a roof support beam which started a fire by igniting combustible aluminium dust on the beam. The spreading fire, the shutting off of power and gas lines and water damage, led to a total loss around USD35 million. Shutting off gas and power caused molten aluminium to harden inside other equipment, and falling debris damaged structures and equipment.
The appeal court found ambiguity in the quoted words in that the various causes of loss might not be “direct” causes and might not be “caused by heat from molten metal”. Indirect loss or damage not caused by heat from molten metal would not fall within the USD10 million cap. The appeal court referred the matter back to the lower court to determine what damage fell within the cap.
The reasoning of the lower court had been that all the harms arose out of and were caused by one event, namely the accidental discharge of molten metal. The case illustrates how easily well-intended wording can be seen differently by a court.
Two other interesting issues are dealt with in the short judgment.
The insurer suggested that the term “direct physical loss or damage” is an insurance coverage “term of art” and refers to coverage for material loss in contrast to economic loss like business interruption. The court said that even if that were the case, it did not remove the ambiguity of the phrase “heat from”. That “term of art” argument will not succeed in South Africa.
The policy defined “Occurrence” and said that “words and phrases which begin with a capital letter have a special meaning”. In the capping provision however it referred to “a limit of $10 000 000 per occurrence” without a capitalised letter. The court said, “the insurers do not explain why we should read “occurrence” to mean “Occurrence””. This shows how carefully that kind of drafting must be done.