A prospective purchaser of a house in Bulli, NSW engaged the insured to undertake an inspection of the property. The resulting report described a timber balustrade on a balcony to be secure and in fair condition.
However six months later one of the balusters gave way when the owner’s daughter and her friend were playing on the balcony. The daughter fell 2.5 metres onto the pavement and lost consciousness.
Both the owner and her daughter brought claims against the insured alleging post-traumatic stress disorder from witnessing the accident and its aftermath. The insured was found to be liable for failing to notice obvious corrosion of the screw restraining the baluster.
The insured had both public liability and professional indemnity cover with the same insurer. The insured business was essentially described as ‘building inspections’. There was an extensive endorsement entitled ‘Building Inspection Endorsement’. So having issued cover tailored for a building inspector to a building inspector, you would expect the insurer to cover the claims.
The insurer argued that there was no cover under public liability because of an exclusion in respect of the provision of any professional advice or services, or advice given for a fee in carrying out any Business Activity. The insurer argued that the building inspection report constituted professional advice. In relation to the professional indemnity cover, the insurer relied on an exclusion in respect of personal injury claims.
The endorsement was important. It specifically stated that the insured’s Business Activities included pre‑purchase building inspections, subject to certain conditions, one of which required that inspection reports be computer‑generated and sent to the customer and another one of which required that if any external timber structures were observed the ensuing report must recommend certain inspections and precautions.
The NSW Court of Appeal noted the conflict between the endorsement, which specifically incorporated inspections in the definition of Business Activities and which specifically required provision of inspection reports, and the exclusion in respect of advice given for a fee in carrying out any Business Activities. The Court resolved that conflict by finding that the exclusion did not apply to advice given in the course of the defined Business Activities of the insured. The Court placed reliance on a provision in the policy which stated that where a specific condition, exclusion or definition was in conflict with a general condition, exclusion or definition, then the specific one would apply.
The Court was clearly conscious that the consequence of the insurer’s arguments was that the insured was caught between two stools, covered neither by public liability nor professional indemnity. The leading judge noted:
Not lightly would I conclude that, as a matter of construction, the policy documents did not respond to that class of claims. From the perspective of an insured, the possibility of liability for personal injury or property damage was a central component of the risk against which insurance has been taken. Indeed, the obligation in the endorsement to recommend ‘if people are likely to use the External Timber Structure, that care is taken not to overload the External Timber Structure’ illustrates not only that personal injury damage was regarded as central to the risk, but also that the risk extended to personal injury occurring as a result of the advice.
Pacific International Insurance Co Ltd v Walsh
It was not surprising that an insured who had taken out both public and professional liability cover in respect of both his practical and advisory business activities would be covered for a claim arising out of those activities. The Court had regard to the purpose of the cover but was able to find the answer in the policy wording, and in that respect the endorsement concerning the extended definition of Business Activities was critical.