The Supreme Court of Appeal (“the SCA” hereinafter) recently delivered a judgement in a matter involving Zurich Insurance Company South Africa LTD (“the insurer”) and the Gauteng Provincial Government (“the insured”), bringing to an end litigation that commenced early 2015. This insurance repudiation matter involving highly technical legal and civil engineering components is crucial for many reasons including, inter alia, providing more insights into the approach to prescription and particularly at what point does prescription start running (especially in matters where there has to be thorough due diligence before instituting legal action); providing further guiding tools to the interpretation of insurance policies; and, adding to the jurisprudence of business insurance repudiation law; etc. This piece intends on providing a concise summary of the facts of the case, issues in dispute and the findings together with the reasoning of the court. Lastly, this piece will delineate the key ‘take-aways’ from the judgement.
The parties had entered into an insurance agreement wherein the insurer undertook to provide cover for the Gautrain Rapid Rail System. The construction work relating to the rail system was concluded in 2009 and the insured immediately noticed a problem of excessive water ingress into the tunnels between the stations of Rosebank and Sandton and Sandton and the Marlboro Portal. The purpose of the policy was to indemnify the insured against any damage contemplated by it, and to pay to or indemnify the insured for the full cost of the replacement, repair or making good of the damage. The exact cause of the excessive ingression of water could not be immediately identified. It needed extreme expertise of different kinds of engineers – such as expertise in rock mechanics and a civil engineer in the field of grouting. The insureds (Provincial Government and Bombela) had, prior to lodging their claim with the insurer, undertaken several assessments, investigations, and inspections, but they could not lodge their claim because they could not identify “damage” to which they could attribute to the excessive water ingress – although this had been a serious concern to them. Following several meetings between the Provincial Government and Bombela regarding this issue, a dispute occurred between these two parties which led to hearings by the Dispute Resolution Board and, subsequently, led to arbitration. Once the arbitration award was handed down, the Provincial Government decided to investigate once more whether there was damage to the tunnels as contemplated by the policy. For this purpose, an expert in rock mechanics, Dr Barton, was approached and arrived in South Africa in 2014. He attended joint meetings of Bombela and the Provincial Government. Upon conclusion of all the meetings and necessary assessments, and once Dr Barton had explained the concept of excavation disturbance zones, the Provincial Government realised that there may have been indemnifiable damage caused to the tunnels. On 5 February 2015 the insured lodged a claim, and on 25 February 2015, summons was served on the insurer. The claim was repudiated.
ISSUES FOR DETERMINATION
On appeal to the SCA, there were three issues for determination i.e., whether the insured’s claim had prescribed; whether the rock mass that surrounds the void of the tunnels is part of the insured property; and, lastly, the propriety and effectiveness of the high court’s order. For the purposes of this piece, the last issue will not be entertained any further.
The insured raised a Special Plea of prescription arguing that the insured’s claim had prescribed. The argument was that the works relating to the two relevant tunnels had been concluded on 4 January 2009 and 2 July 2009, respectively. Against this fact, the insurer argued that if there had been damage caused to the tunnels, no further damage could have been caused after these dates. In addition to this, the insurer pleaded that the insured was aware of the identity of the Defendant (the insurer). Further, the insured was aware of the facts giving rise to the debt from these dates on, or it ought to have had this knowledge from these dates. As such, prescription commenced running on 4 January 2009 in respect of the one tunnel, and on 2 July 2009 in respect of the second tunnel. Prescription was not interrupted within 3 years and, as such, the claim had prescribed.
The insurer denied that the damage which may have been occasioned ‘amounts to damage as envisaged in the policy’ and it further denied that any damage was caused to the “INSURED PROPERTY”. As a result, it became pertinent to question whether the rock mass surrounding the tunnels was property insured as per the definition of the policy.
THE LAW, ITS APPLICATION AND COURT’S CONCLUSION
The court conveniently and naturally started with the Special Plea of prescription. The court first considered the provisions of the Prescription Act. For the purposes of this matter, the court stated that the prescription period regarding the debt is three years. It then laid out the general rule that prescription starts to run as soon as the debt is due. It further referred to Section 12(3) of the Prescription Act which states that the debt “shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises” and that “a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care’. The court went further to provide ways in which prescription can be interrupted. The court made reference to various decided cases including that of Truter and Another v Deysel which encapsulated the position as follows:
‘For the purpose of the Act, the term “debt due” means a debt, including a delictual debt, which is owing and payable. A debt is due in this sense when the creditor acquires a complete cause of action for the recovery of the debt, that is, when the entire set of facts which the creditor must prove in order to succeed with his or her claim against the debtor is in place or, in other words, when everything has happened which would entitle the creditor to institute action and to pursue his or her claim.”
The court went further to make greater reference to the case of Minister of Finance and Others v Gore NO which thoroughly delve into the applicable principles relating to the Special Plea of prescription. The insurer, who bore the onus of proving that the claim had prescribed, did not tender any evidence except to provide dates on which works were concluded and counting three years from thereon, and thereafter concluding that the claim had prescribed. It also argued that because the insured had a support team of suitably qualified personnel to monitor construction of the tunnels, it must have observed damage at the time of construction. To rebut the issue of prescription, the insured adduced evidence of a witness who was employed to render commercial and dispute management to the Gautrain Management Agency. This witness testified about the chain of events starting from the conclusion of construction of the tunnels until the service of summons on the insurer. He testified that the support team worked primarily by way of desk-top monitoring. He further explained, in detail, the disputes between Bombela and the Provincial Government and all the dispute resolution attempts that occurred, including approaching an international expert, Dr Barton. It was common cause that the insured had suspected damage to the tunnels for a long time, however, suspicion was not enough. The insured, to have a complete cause of action, needed to have knowledge that damage to the tunnels had occurred. It remained a suspicion until Dr Barton advised the insured of the damage. Dr Barton advised them around May 2014 and, therefore, prescription started running then. The court took into consideration the fact that to establish that damage had occurred, specialised knowledge and expertise was necessary. On this basis, the court concluded that the claim had not prescribed, and the Special Plea had to fail, consequently.
On the second issue, the court first considered the policy wording; the trite legal principles relating to the interpretation of insurance policies; delved into the terminology section of the policy; and thereafter considered the expert opinion. On the legal principles applicable in the interpretation of insurance policies, the court made reference to the SCA case of Centriq Insurance Company Ltd v Oosthuizen and Another where the court acknowledged that insurance contracts must be interpreted like any other written instrument having specific regard to language used, context and purpose in a unitary exercise aimed at achieving a commercially sensible result. In the said case, the court further stated that the policies’ specific purpose activates other considerations too. In addition, it warned that the courts do not have a right to opt for a construction that is favourable to the insured than the language of the contract, properly construed, allows, just because the policy appears to drive a hard bargain. The court in Centriq further stated as follows:
‘But because insurance contracts have a risk-transferring purpose containing particular provisions, regard must be had to how the courts approach their interpretation specifically. Thus, any provision that places limitation upon the obligation to indemnify is usually restrictively interpreted, for it is the insurer’s duty to spell out clearly the specific risks it wishes to exclude. In the event of real ambiguity the doctrine of interpretation, contra proferentem, applies and the policy is also generally construed against the insurer who frames the policy and inserts the exclusion. But, like other aids to interpretation of contracts of this nature, the doctrine must not be applied mechanically, for exclusion clauses, like other contractual clauses, must be construed in accordance with their language, context and purpose with a view of achieving a commercially sensible result.’
The court thereafter thoroughly considered the policy, its preamble and the relevant terms and their definition. Having had regard to the policy wording and, language used, the court found that the policy is intended to provide ‘extremely wide cover to the insured.’ The definition section, however, did not provide for the meaning of a “tunnel”. The dictionary meaning was accordingly considered. The court then considered the experts’ evidence regarding the meaning of “a tunnel”. The court reasoned that expert evidence was necessary as the project under discussion is a massive engineering project involving the excavation of tunnels through rock and therefore the word ‘tunnel’ was used in the policy as a technical, civil engineering term. The experts testified that the rock mass surrounding the actual cylindrical excavation is very much part of a tunnel. The evidence went on to state that rock mass surrounding a tunnel is ‘by far the most essential component of any and all tunnels in rock tunnels. Dr Barton further described the insured’s contrary contention as ‘extra-ordinary’ which he, during his long career involving hundreds of projects in more than three-dozen countries, had never encountered. His evidence further provided the cruciality of the surrounding rock mass to the stability of tunnels. Having had regard to all these instruments and evidence, the court concluded that the rock mass surrounding the tunnel created by the process of excavation is indeed part of the insured property.
This judgement is significant for many reasons. Firstly, the court’s approach to the Special Plea of Prescription. The court had regard to the complexity of the situation with which the insured was faced in that, an extremely specialised knowledge and expertise was necessary for the insured to be in a position to lodge the claim. Thus, context and background is crucial in cases where prescription is raised. Secondly, the court reaffirmed several principles applicable to the interpretation of insurance policy wording including instances where it may be apt to relax the parol evidence rule. Of particular significance is how the court placed emphasis and heavy reliance on the industry expert’s interpretation of the word “tunnel”. Ordinarily, the courts, in cases where a term is not defined in a policy, rely on the dictionary’s definition. In this case, the court again having regard to the peculiarity of the matter, opted to place more reliance on an expert’s definition. Therefore, it is critical to involve an industry specialist in cases that require specialised knowledge and expertise. In this case, the insured involved various highly qualified and experienced experts to give testimony on different specialities – including going across the borders to secure an appropriate expert. Lastly, the judgement reaffirms that courts, where possible, endeavor to reach a conclusion that is commercially sensible.