REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE DIVISION – GRAHAMSTOWN)

In the matter between: Case No: CA 119/2007

MUTUAL AND FEDERAL INSURANCE

COMPANY LTD Appellant

and

GAVIN MURRAY INGRAM N.O. 1st Respondent

RHODERICK GAVIN INGRAM N.O. 2nd Respondent

R B MERTSCH INSURANCE BROKERS 3rd Respondent

Coram: Froneman, Chetty and Dambuza JJ

Date Heard: 22 September 2008

Date Delivered: 2 October 2008

Summary: Contract of Insurance – exception clause –

interpretation – directly or indirectly – broker’s

duty

_______________________________________________________________

JUDGMENT

_______________________________________________________________

CHETTY, J

[1] This appeal, with leave of the court a quo, Sandi J, is primarily

concerned with two issues, firstly, a contract of insurance concluded

between the appellant and the OGC business trust (the trust) and

secondly, the duty of care owed to the trust by its insurance broker,

the third respondent. As its name indicates, the appellant is an

insurance company and the first and second respondents, the trustees

of the trust which traded as Auto Executive, a pre-owned motor vehicle

dealership (the dealership) situate at 27 Grahamstown Road, North

End, Port Elizabeth.

The contract of insurance

[2] On 9 July 2002 a portion of a parapet wall at the top of the dealership

collapsed inwards onto the roof, plummeted through the ceiling and

caused extensive damage to a number of motor vehicles on display in

the dealership showroom. The third respondent, on behalf of the trust,

lodged a damage claim form with the appellant in respect of the loss

suffered by the trust. The appellant however repudiated liability on the

basis of one of the specific exceptions to liability contained in the policy

of insurance.

[3] The trust duly instituted an action for the damages suffered against

the appellant as the first defendant and its broker as the second

defendant. At the conclusion of the trial the learned judge found that

the appellant had not discharged the onus of proving that it was

exempted from liability by reason of the specific exception (clause 4.8)

contained in the motor dealers section of the policy and held the

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appellant liable for the damages suffered by the trust. The court a quo

thereupon concluded it was consequently released from determining

the lis between the appellant and the third respondent and ordered the

appellant to pay the costs incurred by both the trust and the third

respondent.

The collapse of the wall

[4] The crucial issue the court a quo was called upon to determine was

whether the parapet wall collapsed as a result of weather conditions. If

it did, caedit quaestio. The appellant’s repudiation would be lawful. It is

apposite therefore to note the provisions of clause 4.8. It is contained

in section 4 of the motor traders section of the multimark III policy and

reads as follows:-

“4. Specific exceptions

The company will not be liable under this sub-section

for: . . .

4.8 damage to the vehicles defined in Definition 1.1

and 1.3 whilst in or on the premises if the loss or

damage is caused by or arises directly or

indirectly from fire, explosion, lightning, theft or

any attempt thereat, weather conditions,

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earthquake or earth tremor or volcanic

eruptions.”

Typically, clauses such as clause 4.8 which have been inserted in a

policy for the purpose of exempting an insurer from liability for a loss,

which, but for the provision, would have been covered, are construed

against the insurer with the utmost strictness because of the duty on

the part of the insurer, in framing the policy, to exempt its liability in

clear and unambiguous language.

[5] It would appear from the judgment that in finding against the

appellant the court a quo however considered clause 4.8 to be

ambiguous. Consequently, it applied the contra preferentem rule and

construed the clause against the appellant to avoid what it regarded as

an apparent absurdity. With respect to the learned judge his approach

and conclusion was clearly wrong. The offending clause, in my

judgment, admits of no ambiguity read in the context of the policy as a

whole. It clearly states that one of the particular risks which the insurer

wishes to exclude is loss or damage which is caused or arises, whether

directly or indirectly, from a number of specific perils including weather

conditions which ordinarily would connote a plethora of meteorological

phenomena. Insurance cover for the eventuality of damage caused by

such perils resorts under the fire section of the multimark III policy

which, it is common cause, was not held by the trust.

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[6] The uncontested evidence of both insurance expert witnesses called on

behalf of the appellant, Andrew Selby Bolton and Trevor Daniels, was

that in assessing insurance cover for accidental damage to stock in

trade in the case of a typical motor trader, viz., the motor vehicles, the

assessment of risks in relation to such damage differs from the

assessment of risk in relation to the major perils. Different

considerations apply under both the motor traders and fire section of

the multimark policy respectively.

[7] It follows from the aforegoing therefore that in determining whether

the appellant had discharged the onus of establishing that it was

exempted from liability by clause 4.8, the enquiry must perforce

commence with an analysis and evaluation of the evidence adduced by

reason of the trial court’s omission to do so. Although the learned

judge referred to the fact that various witnesses had testified, it is

evident from the judgment that by reason of his conclusion as to the

ambiguity of the clause, his treatment of the evidence adduced was

perfunctory.

[8] Before commencing with that exercise however, it is apposite to

consider the precise ambit, if any, of the words “directly or indirectly”

contextually. The phrase has been judicially considered in a number of

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cases e.g. Agiakatsikas N.O. v Rotterdam Insurance Co Ltd 1959

(4) SA 726 (C) where Van Winsen, J, said the following at p. 730B:-

“The word “indirectly” would seem to absolve the Company

from having to prove that the intoxication of the deceased

was the approximate cause of the injuries sustained by him.

(See Coxe v Employers’ Liability Assurance Co. Ltd., 114

L.T. 1180.) If it could be shown that the state of intoxication

of the deceased materially contributed to the bringing about

of the collision then I think defendant could be said to have

discharged the onus resting upon it.” (emphasis added)

See also Taylor N.O v National Mutual Life Assurance

Association of Australasia Ltd 1988 (4) SA 341 (E).What these

cases illustrate is that it is sufficient for an insurer, who, like the

appellant bears an onus, to show that the weather conditions in some

material way probably contributed to the damage to the stock in trade.

[9] During the course of the trial and once the issues had crystallised the

two experts, structural engineers Mr Johannes Loots (Loots) and Mr

James Cairns (Cairns) met to attempt to reach consensus as to the

cause of the parapet’s collapse. They were in agreement on almost all

material issues save for their divergence of opinion on the critical

question of what ultimately caused the parapet’s collapse. Loots

remained steadfast that the force of the wind coupled to the

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deteriorated condition of the bricks in the parapet wall caused its

collapse whilst Cairns was likewise adamant that the deteriorated state

of the bricks alone caused its collapse. The two experts compiled a

joint report and concluded inter alia that “if the wall had been fully

structurally sound it would have withstood the wind force on the day and all

winds recorded since 1948” (paragraph 6); “the wall would not have fallen

over on its own, in spite of prior deterioration, if there had been no wind”

(paragraph 8) and “a combination of the prior deterioration of the wall and

the prevailing winds on the day caused instability of the wall resulting in its

collapse”. (paragraph 12)

[10] There have been many learned views expressed concerning the correct

approach to expert testimony. It was succinctly articulated in Michael

and Another v Linksfield Private Clinic (Pty) Ltd and Another

2001 (3) SA 1188 (SCA) at para [36] as “what is required in the

evaluation of such evidence is to determine whether and to what extent their

opinions advanced is founded on logical reasoning”.

[11] Cairns’ opinion was premised on the fact that a properly constructed

wall would not collapse. He thus eliminated the wind factor and looked

for other possible causes. His investigations led to the discovery that

the bricks had deteriorated over time hence he concluded that it, and it

alone caused the wall to collapse.

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[12] However, as adverted to earlier in paragraph [9], Cairns had reached

consensus with Loots that the combined effect of the prior

deterioration of the wall coupled to the prevailing winds on the day in

question caused instability of the wall resulting in its collapse. Logically

therefore the wind factor must have had a material bearing on the

collapse of the wall and, a fortiori, the damage sustained to the stock

in trade. I am satisfied that the damage fell within the specific

exception envisaged by clause 4.8 exempting the appellant from

liability.

[13] There is moreover a further reason why the appellant would be

exempted from liability. As adumbrated hereinbefore the experts were

in agreement that the wall collapsed in consequence of the combined

effect of the wind and the state of deterioration of the bricks. In

Lawsa, first re-issue vol. 12, the learned authors at para 280 refer to

the legal position in England that where the loss is caused by two

perils operating simultaneously at the time of the loss, the one being

wholly excluded and the other falling within the risk as described, the

insurer is held not to be liable. In the case cited as authority for the

proposition viz., Wayne Tank and Pump Co. Ltd v Employers’

Liability Assurance Corporation Ltd [1974] QB 57 (CA) a resume

of the facts as it appears in the headnote were as follows:-

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“The plaintiffs, engineers, designed and installed equipment

for storing and conveying liquid wax in a factory making

plasticine. The pipeline was made of a plastic material

wrapped by heating tape with a thermostat to control the

temperature. The plaintiffs had a public liability policy with

the defendant insurers indemnifying them against all sums

which they became legally liable to pay as damages

consequent upon . . . damage to property as a result of

accidents happening in the course of their business causing

damage on premises described in the policy, which included

the factory. By exceptions to the policy the defendants were

not liable to indemnify the plaintiffs in respect of liability

consequent upon “damage caused by the nature or

condition of any goods . . . sold or supplied by or on behalf

of the insured.” The installation was switched on and left

unattended overnight before it had been tested, and early the

next morning it caught fire and the factory was destroyed.”

The evidence adduced at the trial established that there were two

causes for the fire, firstly the unstable and dangerous plastic material

used in the installation and the useless thermostat and secondly, the

conduct of the plaintiff’s servant in switching on the heating tank and

leaving it unattended overnight when the installation had not been

tested.

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[14] The one cause fell within the general words of the policy and the

other, within a specific exception to liability. The court of first instance

held the defendant liable to indemnify the plaintiff for the loss suffered.

On appeal, Lord Denning M.R. found that the court a quo was wrong in

law in concluding that on the evidence adduced the insurer was liable

to indemnify the plaintiff. Commencing with the supposition that there

was not one but two causes for the fire, he stated as follows at 67C:-

“That is enough to decide the case. But I will assume, for the

sake of argument, that I am wrong about this and that there

was not one dominant cause but two causes which were

equal or nearly equal in their efficiency in bringing about

the damage. One of them is within the general words and

would render the insurer liable. The other is within the

exception and would exempt them from liability. In such a

case it would seem that the insurer can rely on the exception

clause. There is not much authority on it, but it seems to be

implied in John Cory & Sons v Burr (1883) 8 App. Cas. 393,

especially from what Lord Blackburn said at pp. 400, 401.

That case was submitted, as used by Mr R.A. Wright K.C.

arguing in Leyland Shipping Co. v Norwich Union fire

Insurance Co. [1918] A.C. 350, 353, for the proposition:

“. . . where there are two perils both of which are

proximate causes of the loss and in an open policy

the shipowner could have recovered on either, then,

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if one of those perils is excepted by the warranty

the underwriters are not liable.”.” (emphasis

added)

It is clear from the judgment that the Court of Appeal accepted that

where damage is brought about by two equal or nearly equal causes,

the insurer would be excepted from liability if one falls within the

specific exceptions in the policy.

[15] Confronted with such eminent authority Mr Beyleveld, on behalf of the

first and second respondents, urged us however not to follow the

aforesaid approach of the English courts. The reasoning of the learned

Master of the Rolls is jurisprudentially sound and I can think of no

reason why the approach of a South African court should be any

different.

[16] In the light of the aforegoing I am satisfied that the court a quo was

wrong in concluding that it had failed to discharge the onus resting

upon it and finding that the appellant was liable to compensate the

first and second respondents for the resultant damage.

[17] During the course of argument, counsel for the third respondent was

invited to address the question of whether, in the event of the appeal

succeeding and we were moreover satisfied that the first and second

respondents had made out a case against the third respondent, this

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court, sitting as an appellate tribunal, could order the third respondent

to compensate the first and second respondents for the loss suffered

by the trust. Although counsel indicated that there could in principle be

no legal impediment to this court making such an order we

nonetheless, in view of the fact that this issue had neither been

addressed in the heads nor in argument, invited counsel to submit

further written argument hereanent.

[18] Counsel have been unable to point to any such legal impediment and I

can discern none. In my judgment such an order is competent. The

third respondent made common cause with the first and second

respondents in opposing the appeal on the basis adverted to earlier.

Had the court a quo found in favour of the appellant on the first issue,

it would then have been obliged to determine the second issue raised

in the pleadings viz., the liability of the third respondent. That issue

was fully canvassed in the pleadings and in evidence adduced by the

first respondent to establish the pleaded case. The court a quo rightly

omitted to consider this aspect of the matter as it was rendered

nugatory given the decision on the first issue. Where the issues have

however been fully canvassed at the trial it would be manifestly unfair

to non suit the first and second respondents. In Cole v Government

of the Union of South Africa 1910 AD 263 Innes C.J. stated the

following at pp. 272-273:-

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“The duty of an appellate tribunal is to ascertain whether

the Court below came to the correct conclusion on the case

submitted to it. And the mere fact that a point of law brought

to its notice was not taken at an earlier stage is not in itself

a sufficient reason for refusing to give effect to it. If the point

is covered by the pleadings, and if its consideration on

appeal involves no unfairness to the party against whom it is

directed, the Court is bound to deal with it. And no such

unfairness can exist if the facts upon which the legal point

depends are common cause, or if they are clear beyond

doubt upon the record, and, there is no ground for thinking

that further or other evidence would have been produced

had the point been raised at the outset. In presence of these

conditions a refusal by a Court of Appeal to give effect to a

point of law fatal to one or other of the contentions of the

parties would amount to a confirmation by it of a decision

clearly wrong.” (emphasis added)

Although the aforementioned case concerned a point of law not taken

in the court a quo, the principle remains the same. In my judgment

therefore I am satisfied that this court is obliged, given our conclusion

on the first issue the trial court was called upon to consider, to

determine the second issue raised during the trial.

[19] The nature of an insurance broker’s duty to an insured was succinctly

expressed by Potgieter A.J. in Lenaerts V JNS Motors (Pty) and

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Another 2001 (4) SA 1100 (W) where the learned judge said the

following at p. 1109H-J:-

“I consider that in our law, as in English law, the duty to

exercise reasonable care and skill in appropriate cases

extends to the duty to take reasonable steps to elicit and

convey material information both from and to the insured.

This includes information about terms of the policy which, if

contravened, might leave the insured without cover. It is

part and parcel of the broker’s general duty to use

reasonable care to see that the insured is covered.”

That approach was ratified by the Supreme Court of Appeal in

Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group

(Pty) Ltd 2004 (2) SA 1 (SCA) where Lewis J.A., after quoting the

above passage referred with approval to the remarks of Diamond J in

Harvest Tracking Co. Ltd v P.B. Davies t/a P.B. Davis

Insurance Services [1991] Lloyd’s Rep. (QB) where the learned

judge said:-

“The ordinary function of the insurance broker or other

intermediary is to receive instructions from his principal as to the

nature of the risk or risks and the rate or rates of premium at which

he wishes to insure, to communicate the material facts to the

potential insurers and to obtain insurance for his principal in

accordance with his principal’s instructions and on the best terms

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available. The liability of an insurance agent to his employer for

negligence is comparable to that of any agent. He is bound to

exercise reasonable care in the duties which he has undertaken. In

no case does the law require an extraordinary degree of skill on the

part of the agent but only such a reasonable and ordinary degree as

a person of average capacity and ordinary ability in his situation

and profession might fairly be expected to exert.

The precise extent of the insurance intermediary’s duties must

depend in the last resort on the circumstances of the particular

case, including the particular instructions which he has received

from his client. . . . It is normally not a part of the broker’s . . . duty

to construe or interpret the policy of his client, but this again is not

of course a universal rule. . . . (I)f the only insurance which the

intermediary is able to obtain contains unusual, limiting or

exempting provisions, which, if they are not brought to the notice of

the assured, may result in a policy not conforming to the client’s

reasonable and known requirements, the duty falling on the agent,

namely to exercise reasonable care in the duties which he has

undertaken, may in those circumstances entail that the intermediary

should bring the existence of the limiting or exempting provisions to

the express notice of the client, discuss the nature of the problem

with him and take reasonable steps either to obtain alternative

insurance, if any is available, or alternatively to advise the client as

to the best way of acting so that his business procedures conform to

any requirements laid down in the policy.”

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Apropos the aforegoing I turn to analyse and evaluate the evidence

adduced.

The evidence adduced

[20] The first respondent testified that since the initial engagement of the

third respondent’s predecessor in title to act as its insurance broker he

dealt personally with Mr R.B. Mertsch (Mertsch). When the motor

dealership commenced business he contacted the latter to set up an

appointment. When Mertsch came to see him at the premises he

instructed the latter to comprehensively insure the stock in the form of

the vehicles. After the collapse of the wall and the appellant’s

repudiation of liability he consulted his attorney who advised him that

in his view, the policy did not provide cover for the damage suffered

and suggested that he impress upon Mertsch to accompany him for a

further consultation in an attempt to resolve the matter. At that

meeting at his attorney’s office, Mertsch apologised for his remissness

in not ensuring that proper and adequate insurance cover was

obtained and placated the first respondent with the assurance that he

was insured for such negligence.

[21] Under cross-examination by the third respondent’s counsel, it was

suggested to the first respondent that the form, structure and content

of the policy was precisely in accordance with the first respondent’s

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instructions but the latter remained steadfast that what was

communicated to Mertsch was that the stock in trade had to be

comprehensively insured. Although it was put to him that Mertsch

would deny apologising for any dereliction of duty at the attorney’s

office it was never put to the first respondent that Mertsch would

dispute that he i.e. the first respondent had instructed the stock to be

comprehensively insured. The third respondent led no evidence to

rebut the first respondent’s allegations hereanent and I accept not only

that Mertsch was instructed to comprehensively insure the stock but

that he moreover apologised for not having properly performed his

mandate to do so. In my view, Mertsch clearly did not discharge his

duty to the trust by ensuring that the trust’s stock in trade was

adequately insured. It follows that the first and second respondents

proved on a balance of probabilities that the third respondent

negligently breached the terms of the mandate and that it is liable to

compensate the first and second respondents for the loss suffered by

it.

Costs

[22] The question of costs remains. The appellant is of course entitled to its

costs both on appeal and in the court a quo. The question which

remains however is which of the first and second respondents on the

one hand and the third respondent on the other is liable for the

appellant’s costs on appeal. The appellant has achieved success

17

against both in resisting the claim for indemnification and staving off

the award of costs ordered in respect of the third respondent. Does the

fact that the third respondent had made common cause with the first

and second respondents in the latter’s quest to hold the appellant

liable in the court a quo and on appeal not justify that it bear not only

the appellant’s costs on appeal but moreover that of the first and

second respondents given the conclusion reached by us.

[21] In terms of Rule 10 (4) in any action in which more than one party has

been joined the court may-

“(b) If judgment is given in favour of any defendant or if

any defendant is absolved from the instance, the Court

may order:

(i) . . .

(ii) the unsuccessful defendants to pay the costs of

the successful defendant jointly and severally,

the one paying the other to be absolved, and

that if one of the unsuccessful defendants pay

more than his pro rata share of the costs of the

successful defendant, he shall be entitled to

recover from the other unsuccessful defendants

their pro rata share of such excess, and the

court may further order that, if the successful

defendant is unable to recover the whole or

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any part of his costs from the unsuccessful

defendants, he shall be entitled to recover from

the plaintiff such part of his costs as he cannot

recover from the unsuccessful defendants.”

In my view, the first and second respondents cannot be faulted for

having instituted action against the appellant and the third respondent.

It was convenient and proper to do so to avoid a duplication of actions.

The appellant’s success on appeal has however engendered success

for the first and second respondents and it would be entirely

inequitable that the third respondent alone bear the appellant’s costs

on appeal. In my view it would only be fair to order that the

respondents jointly and severally be ordered to pay the appellant’s

costs on appeal.

[22] In the result the following order will issue:-

1. The appeal is upheld.

2. The first, second and third respondents are ordered jointly and

severally to pay the appellant’s costs on appeal.

3. The order of the Court a quo is set aside and substituted by the

following:

“1. The plaintiffs’ claim against the first defendant is

dismissed.

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2. The second defendant is ordered to pay the plaintiffs the

sum of R249 746, 29 together with interest on the aforesaid

amount at the prevailing legal rate a tempore morae.

3. The second defendant is ordered to pay the costs on trial of

both the plaintiffs and the first defendant.

4. Such costs are to include:

4.1 The qualifying fees of Messrs Loots, Bolton,

Daniels and Van Niekerk;

4.2 The costs of the inspection in loco held on 21

October 2004 including those of counsel and the

expert witnesses.”

________________________D. CHETTYJUDGE OF THE HIGH COURT

Froneman, J

I agree.

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_______________________J. FRONEMANJUDGE OF THE HIGH COURT

Dambuza, J

I agree.

________________________N. DAMBUZA JUDGE OF THE HIGH COURT

Obo the Appellant: Adv G. Goosen

(ref: Mr Nettleton: Nettleton Attorneys)

Obo the 1st and 2nd Respondents: Adv A Beyleveld

(ref: Mr Stone: Dold & Stone)

Obo the 3rd Respondent: Adv B Pretorius

(ref: Ms Bosman: N.N Dullabh & Co)

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