The plaintiff purchased a property in early December 2011. Prior to the purchase, she engaged the defendants to prepare a building inspection report. On 17 December 2011, the plaintiff’s 7-year-old daughter was playing on the balcony when she fell through a baluster and landed on the concrete pavement below.
The trial dealt with liability against the building inspector. The inspector brought a cross-claim against his insurer who had denied coverage under a combined professional indemnity/liability insurance policy. The NSW District Court Judge found in favour of the plaintiff against the defendant and for the defendant against their insurer.
The plaintiff’s evidence was that whilst she only ‘skim read’ the property inspection report, she was looking out for any major defect with the property. Her evidence, which was accepted, was that she would have viewed an issue with the balustrade as a major defect.
The defendant inspector could not recall the inspections he had conducted at the property. He gave evidence that his usual practice was to visually inspect the balustrades, which included attempting to shake the rails and apply some force to some of the balusters. He conceded that photographs that were taken by the police after the incident showed a balustrade that was hazardous and that the screws attaching the balusters were rusted.
The Court accepted that the evidence led to an ‘unavoidable’ conclusion that the balustrade was hazardous and this would have been detected by a prudent inspection conducted by a certified building inspector.
The defendant denied that he owed a duty of care to the daughter. The Court concluded that, as the risk was foreseeable and not insignificant within the meaning of section 5B of the Civil Liability Act 2002, but for the negligence, the plaintiff most likely would have repaired the balustrade or would not have purchased the property and therefore, the negligence caused the daughter’s injuries.
The insurance dispute
From the description of cover in the schedule and the insuring clause, it was found that the clear intention was to provide the insured with cover for the Business Activity of residential building inspections and ‘work carried out in that activity’ which would include the subject report and any ‘legal liability relating to actual or alleged breach of the defendants’ professional duty in connection with the provision of the report’.
The insurer relied on the Professional Liability exclusion under the General and Public Liability Policy which excluded liability for ‘provision of or failure to provide professional advice or services… or advice, design or specification given by you for a fee or otherwise in carrying out any Business Activities’.
‘Professional’ was not defined under the policy, making it difficult for the insurer to prove the intended scope of the exclusion.
The Court considered the purpose of the contract was to cover any liability arising from the provision of inspection and report services. The intention was to cover those business activities but to exclude cover for professional advice beyond those activities. On that basis, the insurer’s submitted construction of the contract was not commercial and would inappropriately limit the cover to the point of ‘virtually defeating it’.
Doosey v Walsh & Complete Building Inspection Services Pty Ltd  NSWDC 8
|The decision is a reminder to insurers that the Courts apply the same principles of interpretation to commercial insurance policies as for other commercial contracts. In order for exclusion clauses to be effective, they must make sense when read as part of the contract as a whole, and all key terms need to be defined to avoid uncertainty.|