Pacific International Insurance Co Ltd v Walsh

Court of Appeal (NSW)|2017-10-20|Before: Macfarlan JA, Leeming JA, White JA, Kirby P, MacFarlan JA

Background to obtaining insurance

The litigation proceeded on the basis that Pacific was notified of the claim in the first half of 2014, such that the October 2013 renewal was the relevant contract of insurance.
On 21 October 2013, Mr Walsh sent an insurance renewal proposal form, signed and dated 18 October 2013, to Rapid Solutions Pty Ltd, which was described as Pacific's agent in Australia. That document included a summary of the existing policy due to expire on 31 October 2013 as follows: "General & Public Liability Limit of Cover is $5,000,000 in any one claim and in the aggregate during the period of insurance. Excess: $3,000 each and every claim. Including costs and expenses. The Policy Wording is: Claims Made Professional Indemnity Limit of Cover is $1,000,000 in the aggregate and $500,000 in any one claim during the period of insurance. Excess: $5,000 each and every claim. Including costs and expenses. The Policy Wording is: Claims Made Cover is Provided for the following Business Activities and/or Extensions: Commercial Building Inspections - AS4349.0-2007 (PPI) Timber Pest Inspections - AS4349.3-2010 Other Building Inspections/Consultancy Work (PPI) Residential Building Inspections - AS4349.1 - 2007."
The form required Mr Walsh to set out the business activities for which he required cover by checking boxes, and he did so as follows: "(a) Do You require cover for i. (PPI) Residential Building Inspection Reports AS4349.1 - 2007 Yes ☑ No ☐ Inspections/Reports AS 4349.0-2007 ii. Commercial Building Inspections Yes ☑ No ☐ iii. Building Defect / Dilapidation / Maintenance Inspections Yes ☑ No ☐ iv. Building Progress Inspections Yes ☑ No ☐ v. Building Scope of Works Yes ☑ No ☐ vi. Estimating Yes ☐ No ☑ vii. Expert Witness Yes ☑ No ☐ viii. Final/Handover Building Inspections Yes ☑ No ☐ ix. Home Owner Warranty Building Inspections Applicable to NSW, Vic and WA only Yes ☑ No ☐ x. Insurance Assessment Inspections Yes ☑ No ☐ Other Inspections/Reports/Consultancy xi. Energy Rating Reports Yes ☐ No ☑ xii. Arbitration Inspections (Accredited Registed Arbitrator) Yes ☐ No ☑ xiii. Building Dispute Resolution / Conciliation / Mediation Yes ☐ No ☑ xiv. Local Authority Record Searches Yes ☐ No ☑ xv. Strata Scheme Sinking Fund Reports Yes ☐ No ☑ xvi. Strata Record Inspection Reports Yes ☐ No ☑ Xvii Sustainability Declarations (Qld Scheme Only) Yes ☐ No ☑ xviii. Tax Depreciation Inspections Yes ☐ No ☑ xxix. Department of Housing Reports Yes ☐ No ☑ xx. Consultancy Services (put details in the table below) Yes ☐ No ☑

You will need to send in a completed copy of the following reports prior to cover being provided Do You carry out any other consultancy work or inspections/reports for which you require cover under this policy?" Yes ☐ No ☑

In section two of the form, Mr Walsh stated that timber pest inspections constituted approximately 60% and residential building inspections approximately 40% of Complete Building Inspection Services' annual turnover.
Section four of the form, entitled "Declaration", contained a statement as follows: "I/We agree that this Proposal is for insurance in the normal terms and conditions of the Policy and shall be incorporated into and form the basis of the Contract(s) of insurance."
On 29 October 2013, Rapid Solutions wrote to Mr Walsh enclosing a policy schedule. It was common ground that Mr Walsh also received documents entitled "Certificate of Currency", "Professional Indemnity Policy Wording", "General & Public Liability Policy Wording" and "Building Inspection Endorsement" at some stage and that these documents governed the legal relations between the parties, although it is unclear whether these documents were enclosed together with the Policy Schedule.
The Certificate of Currency stated: "This is intended for use as evidence that the cover summarised below has been effected and shall be subject to all terms of and conditions and exclusions of the Policy document and Schedule."
The Policy Schedule set out basic details of the contracting counterparties and the terms of the insurance contract, and stated: "Except as advised otherwise in this Schedule the following Limits of Indemnity, Sub-Limits, Excess and Retroactive Dates will apply. General & Public Liability: $5,000,000 any one claim and in the aggregate during the period of insurance. Excess: $3,000 each and every claim. Including costs and expenses Retroactive Date: Except as advised otherwise in this Schedule the retroactive date for this Policy is: 31-October-2002. Professional Indemnity: $1,000,000 in the aggregate and $500,000 in any one claim during the period of insurance. Excess: $5,000 each and every claim. Including costs and expenses. Retroactive Date: Except as advised otherwise in this Schedule the retroactive date for this Policy is: 31-October-2002 or; the commencement date of continuous cover with your previous insurer(s). Schedule attached to and forming part of the policy No: AUS-135234 Business Activities covered by the General/Public Liability and Professional Indemnity Policies. Subject to the limitations, terms, conditions and endorsements of both the GENERAL/PUBLIC LIABILITY and PROFESSIONAL INDEMNITY POLICIES, except where the same may be varied by this schedule, cover has been extended for the following Business Activities and/or Extensions. The inclusion of any Business Activity and/or extensions shall not increase the limit of indemnity. Commercial Building Inspections-AS4349.0 - 2007 Other Building Inspections/Consultancy Work This Policy covers all inspections/reports as requested in your proposal unless excluded in your Premium Advice. (PPI) Timber Pest Inspections - AS4349.3-2010 Excess $3000 (PPI) Residential Building Inspections - AS4349.1 - 2007 VERY IMPORTANT The conditions of cover as detailed on your Premium Advice and accepted by you on the 28 October 2013 are attached and form part of the Policy Schedule and Policy Wording."
The Policy Schedule concluded with details of the premium and was signed on behalf of Rapid Solutions and had the common seal of Pacific affixed to it.
In its submissions on appeal, Pacific emphasised the words "Subject to" which commenced the statement in the Schedule as to the extent of the cover granted, while the respondents emphasised the italicised words which followed: "This Policy covers all inspections/reports as requested in your proposal unless excluded in your Premium Advice."
The Insurance Premium Advice provided as follows: "INSURANCE PREMIUM ADVICE Your reference number is: AUS-13-5234 COMMENCING: 31-Oct-2013 EXPIRING: 31-Oct-2014 Client Name: Nigel Walsh Company/Trading Name: Complete Building Inspections Services Pty Ltd Address: PO Box 78 THIRROUL NSW 2515 Contact Phone: xx xxxx xxxx Fax xx xxxx xxxx Limit of Indemnity: General and Public Liability in any one claim and in the aggregate during the Period of Insurance inclusive of costs and expenses: $5,000,000 Professional Indemnity Limit of Cover in the aggregate: $1,000,000 and $500,000 in any one claim during the Period of Insurance inclusive of costs and expenses, Excess applicable each and every claim inclusive of costs and expenses: General and Public Liability $3000 Professional Indemnity $5,000 Premium $7,946.65 Premium GST $794.67 State Stamp Duty $492.27 *Agent Fee (Incl. Gst) $200.00"

Relevant provisions of the Professional Indemnity wording

Clause 1 of the Professional Indemnity wording provided: "1. Insuring Clause 1.1 Subject to the terms of this Policy, We will pay to You or on Your behalf all sums which You become legally liable to pay for Claims: (a) first made against You, and notified to Us, during the Period of Insurance; and (b) in relation to actual or alleged breach of Your professional duty in connection with the Business Activities."
Section 7 was headed "Exclusions". Clause 7 relevantly provided: "This Policy does not provide indemnity or cover for any liability, Costs and Expenses, loss, damage or destruction, or costs, charges and expenses, directly or indirectly caused by or arising out of or in any way connected with: … 7.17 Personal Injury and Property Damage (a) Any Personal Injury or Property Damage. …".
Section 4 was titled "Dictionary". It contained definitions of Personal Injury and Property Damage as follows: "4.24 Personal Injury means bodily injury, sickness, disease, mental injury, death of any person, any consequential loss, mental anguish, nervous shock or emotional distress … 4.28 Property Damage means: (a) physical loss, damage to or destruction of tangible property including all resulting loss of use of that property; and (b) loss of use of tangible property that is not physically damaged or destroyed where such loss of use is caused by physical damage to other tangible property."

Relevant provisions of the Public Liability wording

Clause 1 of the Public Liability wording provided: "1. Insuring Clause 1.1 Subject to the terms of this Policy, We will pay to You or on Your behalf all sums which You become legally liable to pay for Claims: (a) first made against You, and notified to Us, during the Period of Insurance; and (b) for Personal Injury or Property Damage occurring in connection with the Business Activities. 1.2 If You are entitled to indemnity for a Claim under this Policy, We will also pay Costs and Expenses as part of and not in addition to the Limit of Indemnity."
Section 6 of the Public Liability wording excluded certain matters from the operation of cl 1, including as follows: "6. Exclusions This Policy does not provide indemnity or cover for any liability or Costs and Expenses directly or indirectly caused by or arising out of or in any way connected with: … 6.19 Professional Liability (a) Your provision of, or failure to provide, any professional advice or services, or any related error or omission. (b) Advice, design or specification given by You for a fee or otherwise in carrying out any Business Activities."
"Business Activities" was defined in cl 3 as follows: Business Activities means those activities or services nominated as Business Activities by Endorsement and includes Your conduct in: (a) engaging someone other than an Employee to carry out any of those activities or services; or (b) referring a person who enquires about any of those activities or services to someone who is not You, but only where those activities or services are being performed, or that conduct is, in the course of the Business.
"Business" was defined to mean "the business carried on by a person named as an Insured in the Schedule or by a company or entity named as an Insured in the Schedule, or its Subsidiary."
Conditions included in an Endorsement had the potential to assume particular importance. Clause 4.5 provided: "4.5 Conditions, Exclusions, and Definitions (a) Save for clauses 4.2(a) and (b), where a Specific Condition, Exclusion, or Definition is in conflict with a General Condition, Exclusion or Definition, the Specific Condition, Exclusion or Definition will apply. (b) We reserve the right, upon written notice, to apply Specific Conditions, Exclusions or Definitions to any Business Activities."
"General Conditions, Exclusions and Definitions" were defined in cl 3.15 to mean "a condition, exclusion or definition contained within the terms of this Policy, but not in the Schedule or Endorsement". "Specific Conditions, Exclusions and Definitions" were defined in cl 3.33 to mean "a condition, exclusion or definition that is contained in an Endorsement or the Schedule to this Policy." The uncapitalised terms "condition", "exclusion" and "definition" were undefined, but the capitalised terms "Endorsement" and "Schedule" were defined. "Schedule" was the "attached schedule signed by Our authorised representative". It was common ground that the Policy Schedule, the substance of which is reproduced above, was the "Schedule".
"Endorsement" was defined to mean "the endorsement(s) to this Policy specified in the Schedule". There were two endorsements. The second concerned timber pest and termite inspections. It is convenient to set out the first endorsement in full. "BUILDING INSPECTION ENDORSEMENT 1. In this Policy, Business Activities includes Pre-Purchase Building Inspections and Non Pre-Purchase Building Inspections on condition that: 1.1 any work undertaken and any paperwork completed in connection with any Pre-Purchase Building and Non Pre-Purchase Building Inspection complies with any applicable requirements of the applicable Australian Standards; and 1.2 any report of a Pre-Purchase Building Inspection must be computer generated and sent. 2. Pre-purchase Building Inspections and Non Pre-purchase Building Inspections are Restricted Business Activities under this Policy. 3. If, in the course of any Pre-Purchase Building Inspection or Non Pre-Purchase Building Inspection, any: 3.1 Magnesite; and/or 3.2 cracks and/or evidence of cracks to masonry walls, concrete slabs or other surfaces indicative of structural damage, are observed, the Building Inspection Report must recommend a structural engineer be instructed to inspect and provide appropriate advice and recommendations. 4. If, in the course of any Pre-Purchase Building Inspection or Non Pre-Purchase Building Inspection, any External Timber Structures are observed, the Building Inspection Report must recommend: 4.1 a detailed analysis of the condition and structural stability of the External Timber Structure by a structural engineer; and 4.2 annual inspections of the External Timber Structure by a structural engineer; and 4.3 if people are likely to use the External Timber Structure, that care is taken not to overload the External Timber Structure. 5. In this Endorsement: 5.1 Pre-Purchase Building Inspection means an inspection of a building in accordance with Australian Standard AS 4349.1-2007, Inspection of Buildings, Pre-purchase inspections - Residential buildings. 5.2 Non Pre-Purchase Building Inspection means an inspection of a building in accordance with Australian Standard AS 4349.0 - 2007, Inspection of Buildings - General Requirements for the purpose of assessing the general condition of the structure and to meet any of the following purposes: Building Detect Inspection/Consultancy Services Local Authority Record Searches/Building Dilapidation Inspection Department of Housing Reports/Mediation or Arbitration Inspection Building Dispute Resolution/Energy Rating Inspection Residential Building Inspection Reports/Building Maintenance Inspection Estimating/Strata Record Inspection Reports Building Progress Inspection/Expert Witness Strata Scheme Sinking Fund Reports/Building Scope of Works Final/Handover Building Inspection/Sustainability Declarations Commercial Building Inspection Reports/Home Owner Warranty Building Inspection Taxation Depreciation Inspection/Conciliation Building Inspection Insurance Assessment Inspection 5.3 Building Inspection Report means a written report from either a Pre-Purchase Building Inspection or a Non Pre-Purchase Building Inspection compliant with the applicable Australian Standard covering building classes 1a and 1b, 2 (excluding common areas and limited to the condition of the interior and immediate exterior of that structure), 10a and 10b. 5.4 Commercial Building Inspection means an inspection of a building that is classified by the Building Code of Australia as a Class 2, 3, 4, 5 6, 7, 8, 9,10a or 10b type building where the entire building floor areas does not exceed 1,000 m2 in total. 5.5 External Timber Structure means timber decks, verandas, pergolas, balconies, handrails, stairs, retaining walls, play equipment, fences, garages, carports, sheds, gazebos or out buildings. 6. Business Activities in this Policy do not include inspections of a building for Asbestos, mould, subsidence, inundation or landfill, or to investigate whether the building is situated in a tidal or flood prone area. If the existence of Asbestos or mould is discovered in the course of a Pre-Purchase Building Inspection or Non Pre-Purchase Building Inspection, it must be noted in the Building Inspection Report."
The versions of the endorsements in the appeal books recorded that they had been amended or replaced on 6 May 2014 and 30 April 2014. It is not clear from the materials in the appeal books when a claim was made on Pacific. The litigation has been conducted on the basis that the endorsements in the form tendered (by the insurer) were the relevant contractual documents.

The judgment of the primary judge

The primary judge considered questions of construction at [257]-[304]. The cross-claims alleged that there were two policies of insurance, and the primary judge recorded at [259] that the parties had referred to the two wordings as separate policies. His Honour declined to determine that there were two separate policies, saying: "They carry the single policy number AUS12-5234, renewal date and single premium. They were agreed pursuant to the single Coverage Summary Brokered, Policy Schedule and Insurance Premium Advice. The wordings were contracted as composite covers. Nevertheless, the cover is described in wording presented in separate parts and, subject only to assistance of interpretation should it be necessary to consider whether or not they form a single contract. The parts are available to be interpretated as describing separate risks of the same defined Business Activity."
Before the primary judge, Pacific had argued that cover was not available under either the Professional Indemnity wording or the General & Public Liability wording. In respect of the former, this was said to be because of the effect of the exclusion in cl 7.17 in respect of "Personal Injury or Property Damage occurring in connection with the Business Activities". Pacific said that the injury suffered fell within the definition of Personal Injury. In respect of the latter, this was said to be because of the effect of cl 6.19, which excluded from cover: "(a) Your provision of, or failure to provide, any professional advice or services, or any related error or omission. (b) Advice, design or specification given by You for a fee or otherwise in carrying out any Business Activities." Pacific submitted that a residential building inspection report constituted "professional advice" within the meaning of this clause and that personal injury arising out of that report was excluded from cover.
The primary judge approached the documents on the footing that there was "a single cover by premium and description provided across the separate Professional Indemnity and General Liability wordings": at [282]. His Honour did not determine the legal effect of cl 7.17 in the Professional Indemnity wording because he determined that cover was available under the Public & General Liability wording. He did so on the basis that: "clause 6.19, when read with the General and Public Liability wording, has a clear effect of prescribing the boundary of the field of cover so as to contain cover to all Business Activities but to exclude cover for professional advice and services beyond Business Activities": at [289].
The primary judge referred to the following considerations to support that conclusion: 1. First, the need to read cl 6.19 in a manner not inconsistent with the commercial object of the insuring clause of the Public Liability wording, which he identified as being to indemnify for Personal Injury as defined: at [284]-[286]. 2. Secondly, the fact that the words "professional advice or services" in cl 6.19 were not capitalised required the Court to give them a different legal meaning to "Professional Service", a term defined to mean "any Business Activity listed in Your Schedule": at [289]-[292]. 3. Thirdly, the use of the word "any" before "professional advice or service" was said to be "inconsistent with exclusion from cover of liability for the very advice or service in this case which falls within the defined Business Activities": at [296]. 4. Fourthly, the exclusion of cover for "advice, design or specification for a fee or otherwise in the course of carrying out any Business Activities" in cl 6.19(b) was said to support the conclusion that cl 6.19(a) did not apply to Professional Advice as defined in the General & Public Liability wording: at [297]. 5. Fifthly, the Building Inspection Endorsement was said to support the construction because it required Pre-Purchase Building Inspections to be completed in accordance with the applicable Australian Standards, and because paragraphs 3 and 4 required that the report make particular recommendations if certain matters were discovered: at [294]-[295].

Submissions

The parties' submissions, particularly their oral submissions, were wide-ranging (in part because the respondents filed a Notice of Contention). There was a debate as to whether there was one contract or two. Save to say that I consider it correct to have regard to the whole of the documentation, and to read each wording as a whole and in conjunction with the other, I see no reason to resolve that issue.
Pacific was critical of what it said was the primary judge's disregard of the words "subject to" in the insuring clause of the General & Public Liability wording, and also in the Schedule and Premium Advice. It said that those words "must be given their contractually intended effect", which was to limit the insurance indemnity to the circumstances, and extent, set out in the policy terms. It emphasised the primacy of the contractual text over the considerations of commerciality upon which the primary judge had relied, and criticised the narrowness of the construction of cl 6.19. In particular, Pacific criticised the construction given by the primary judge to the words "any professional advice" in cl 6.19(a); Pacific said that term extended to the advice given by its insured in the course of its Business Activities, and maintained that his Honour's reliance on the uncapitalised term was misplaced. Pacific was also critical of the construction of cl 6.19(b), and in particular the way in which it appeared that the words "otherwise in carrying out any Business Activities" had been construed so as to carve out from that exclusion clause any liability based on advice given as part of the insured's Business Activities. Pacific submitted that the word "otherwise" was to be construed as part of the phrase "given by You for a fee or otherwise", such that the exclusion extended to gratuitous advice or advice given for consideration which was non-pecuniary.
The respondents drew attention to the "italicised words" in the Policy Schedule. After seeking to defend all aspects of the narrow construction of cl 6.19 adopted by the primary judge, the respondents' submissions concluded with the propositions that "the italicised provision in the Schedule prevailed over clause 6.19", both by reason of cl 4.5 giving priority to Specific conditions, and as a matter of interpretation. The respondents also submitted that the trial judge's analysis of the consistency of the Endorsement with his findings was unimpeachable.
In reply, Pacific contended that the italicised words bore a very narrow meaning, confined to the "other inspections/reports/consultancy" items at xi-xx in the Business Activities, none of which Complete Building Inspection Services had selected. That submission is not without force, in light of the other (non-italicised) activities listed in the Schedule, but is not a natural meaning of the words "all inspections/reports as requested in your proposal". Pacific also submitted that the italicised words in the Schedule followed the words "Subject to...." and therefore "cannot negate the effect of the 'subject to' expression and do not relevantly inform the construction of any of the policy terms and conditions."
The parties' submissions ranged more widely than has been summarised above, but it is not necessary to summarise submissions which are not material to the resolution of the discrete issues of construction presented by this appeal.

Construction

I shall focus attention on the General & Public Liability wording, in light of the reasoning of the primary judge and the prominence of submissions on that wording in the appeal.
The insuring clause in the General & Public Liability wording provides for payments to be made for "Claims … for Personal Injury or Property Damage occurring in connection with the Business Activities." Business Activities is defined by reference to "those activities or services nominated as Business Activities by Endorsement". The Endorsement stated that Business Activities included Pre-Purchase Building Inspections in accordance with Australian Standard AS 4349.1-2007, and provided that Building Inspection Reports "must recommend" certain things, including in respect of External Timber Structures. True it is, as Pacific emphasised, that the insuring clause commenced with the words "Subject to the terms of this Policy", and that "Policy" is defined to include the Schedule and any Endorsements.
It may be accepted that the ordinary use of "subject to" is to establish which provision is dominant and which provision is subservient: see Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 514 at 580-1; [1997] HCA 38. However, the operation of those words in the present case falls to be determined in light of the more elaborate contractual provisions which are directed to the same issue. And indeed, in a case such as the present, where the most important questions of construction involve a conflict between the exclusions within the wording, and the provisions in the Policy Schedule and in the Endorsements, it is natural to give weight to the provisions which are directed to the very issue of creating a hierarchy between those provisions.
In the General & Public Liability wording, cl 4.5 provides that, save for the special case of cll 4.2(a) and (b), where a Special Condition, Exclusion or Definition is in conflict with a General Condition, Exclusion or Definition, then the former will apply.
Clause 4.2(a) concerns approval for employees, and is not presently relevant. Clause 4.2(b) required the insured to use documentation approved by the insurer in carrying on Restricted Business Activities. There was no issue, at trial or on appeal, as to compliance with that clause, and thus whether or not that occurred is not entirely clear from the materials in the appeal books, although Mr Walsh made it clear that his company's reports were generated on computer from a "template" which presented the user with a range of choices for particular features.
The opening paragraph of the report stated: "The purpose of this report is to provide advice and information about this property to a prospective purchaser or other interested party to assist in making an informed decision regarding the functionality and general condition of this building in respect to apparent visual defects as observed by our inspector."
Thus the provision of advice was central to the report, and I think it is reasonable to proceed on the basis that Pacific approved the style of report which its insured used. But in any event, even putting to one side cl 4.2(b), the endorsements obliged the insured to produce reports which contained advice.
I return to the operation of cl 4.5 in the General & Public Liability wording. Conditions, exclusions or definitions that were contained in an Endorsement or the Schedule were defined to be Specific Conditions, Exclusions or Definitions, and enjoyed primacy over other conditions, exclusions and definitions.
The Building Inspection Endorsement was an Endorsement as defined. At one stage, Pacific maintained that the two endorsements were not "specified" in the Schedule within the meaning of the definition of "Endorsement". It was submitted: "TAYLOR: ... [O]ne ends up with the definitional problem that the definition of endorsement in 3.13 seems to limit endorsements to those specified in the schedule, there aren't any specified in the schedule but the policy has endorsements attached to it. MACFARLAN JA: What is the effect of this endorsement? I haven't really understood its operation. TAYLOR: The appellant's submission is that it has no effect at all."
I do not accept that submission, which sits ill with the way the insurer's case was run at trial (the documents including both endorsements were tendered without objection by Pacific, while in closing submissions, Pacific submitted that there was "a single Policy Schedule and two Endorsements which relate to both policies"). The endorsements are closely associated with the items listed in the Policy Schedule, and in the circumstances may fairly be regarded as being "specified" in it for the purposes of the definition of "Endorsement".
The Endorsement required Building Inspection Reports for Pre-Purchase Building Inspections to include certain advice. In the case of "External Timber Structures", the report was required to include recommendations (a) for a detailed analysis of the condition and structural stability by a structural engineer, (b) for annual inspections and (c) if people were likely to use the External Timber Structure, that "care is taken not to overload the External Timber Structure". Because these obligations are found in an Endorsement, they are "Specific Conditions".
Pacific contended that those clauses were an indication that questions of structural integrity were outside the scope of the policy. I disagree. First, the obligation to include a particular recommendation of itself says nothing about the content of the report the building inspector would otherwise produce. Secondly, it is easy to conceive of cases where a building inspector would give advice as to the structural inadequacy of external timber work.
Pacific contended that the advice given to Ms Doosey by the respondents in the Building Inspection Report fell within each of the exclusions in cl 6.19(a) and (b). Pacific said that "any professional advice or services" in cl 6.19(a) included advice given in the course of the insured's Business Activities, and that the primary judge was wrong to construe the exclusion more narrowly. Pacific also said that cl 6.19(b) extended to advice given in the course of the insured's Business Activities, and that the primary judge was wrong to exclude such advice by reason of the word "otherwise".
If either or both of the constructions for which Pacific contends is correct, then there is a conflict between a Specific Condition which requires a class of Building Inspection Reports to include advice, and a General Exclusion which excludes all liability for (a) "provision of, or failure to provide, any professional advice or services", and (b) "Advice, design or specification given by You for a fee or otherwise in carrying out any Business Activities". It cannot be the case that the insurer's policy at the same time required advice to be given, and excluded liability for the provision of that advice.
In my view, such a conflict is resolved in accordance with the express provision in the wording. The Endorsement applies, and the exclusion in cl 6.19 does not apply. The effect of the operation of cl 4.5 is that neither limb of cl 6.19 applies to advice given in the Business Activities of the insured.
That is the result reached by the primary judge. His Honour said at [288] that: "In my opinion, the contractual promise to pay liability, costs and expenses covered by the provisions of the inspection and report services must prevail so that clause 6.19 is not to be inappropriately read as avoiding liability arising out of the provision of the inspection and report services."
The primary judge reached that conclusion by treating "any professional advice or service" in cl 6.19(a) as extending to professional advice other than the activities required for the Business Activities, something which accorded with the Building Inspection Endorsement. That construction avoided the inconsistency of the "exclusion from cover of liability for the very advice or service in this case which falls within the defined Business Activities for which cover is promised": at [296]. I respectfully agree with the result, although in reaching it I would place greater weight upon cl 4.5.
His Honour construed cl 6.19(b) as consistent with cl 6.19(a), so that it excluded advice, design or specification given otherwise than in carrying out the Business Activities: at [297]. I respectfully doubt that that is the correct construction of the clause. When subclause (b) is read as a whole, it appears to extend to all advice, design or specification, given by the insured, whether for a fee or otherwise, so long as that occurred in carrying out any Business Activities. But if that be so, then it is squarely inconsistent with the obligation to provide advice in the Building Inspection Reports in the Endorsement, and thus is rendered inapplicable by cl 4.5.
But nothing in this appeal turns upon the route by which the construction is reached. Either the exclusion is construed narrowly, and does not exclude advice given in the course of Business Activities, or it is construed more broadly, in which case it engages cl 4.5 and, at least to that extent, does not apply.

The italicised words in the Policy Schedule

The foregoing is based on the Building Inspection Endorsement. However, the construction for which Pacific contends is also at odds with the "italicised words" in the Policy Schedule.
I consider that the italicised words apply to "all inspections/reports as required in your proposal", and not more narrowly as Pacific contended. It is difficult to reconcile the 20 species of cover in the proposal form with a narrow construction of the italicised words.
Pacific's principal response to the respondents' reliance on the Policy Schedule was to point to the words "subject to the limitations, terms, conditions and endorsements" of the wordings. I do not consider that that response is sound. First, the Schedule was made by those words expressly subject to the endorsements, which is why I have commenced with the construction of the Building Inspection Endorsement. Secondly, Pacific's submission proves too much. If those words made the entirety of the Schedule subject to the exclusions in the policy wordings, then there is a conflict with cll 4.5 and 5.5 of the wordings, which give elevated status to Special Conditions and Special Definitions and Special Exclusions which are found in the Schedule. The parties did not explore in their submissions the resolution of that irreconcilability, but I think it is to be found in the definition of General and Specific Conditions, Exclusions and Definitions, and the conflict resolution rule in cl 4.5.

Considering the wordings as a whole

The construction upheld by the primary judge leaves work for the exclusion in each wording to do. Plainly enough the policy wordings for "Professional Indemnity" and "General & Public Liability" were made applicable to the cover purchased by the insured. Each of those wordings made provision for "Other Insurance", and in identical terms (cl 5.9 and cl 4.9): "Other Insurance This Policy does not provide indemnity or cover for any loss, liability of Costs or Expenses for which You are, or would be, entitled to be indemnified under: (a) any other contract of insurance required by law or which You did not enter into; or (b) any statutory fund or fidelity fund of any description."
There is clearly a connection between the two wordings. The exclusion in cl 17.17 of the Professional Indemnity wording for "any Personal Injury or Property Damage" dovetails with the insuring clause in the General & Public Liability wording, for claims made and notified for "Personal Injury or Property Damage occurring in connection with the Business Activities".
Conversely, the exclusion in cl 6.19 of the General & Public Liability wording for "Professional Liability", including "Your provision of, or failure to provide, any professional advice or services" and "Advice, design or specification given by You for a fee or otherwise in carrying out any Business Activities" corresponds with the insuring clause in the Professional Indemnity wording for claims made and notified "in relation to actual or alleged breach of Your professional duty in connection with the Business Activities".
It is natural to read those exclusions as being directed to ensuring that claims for breach of professional duty would fall only within the Professional Indemnity Policy (with its higher excess and lower limit) while claims for personal injury or property damage would fall only within the General & Public Liability wording. That explains the close textual connection between the insuring clause and the exclusion in the wording.

The consequences of accepting Pacific's submissions

The endorsements made it plain that the provision of building inspection reports was part of the Business Activities of the insured. Indeed, it may be inferred that the insurer priced the premium by reference to the number and nature of reports, for why else were such details required in the insurance proposal? The insured was required to produce building inspection reports which contained advice (for example, advice recommending that any "External Timber Structures" be inspected by a structural engineer, and that care be taken not to overload such a structure). Thus, if the insured were not to breach the conditions of cover, the reports would inevitably contain advice. It is easy to see that central to the cover purchased by the insured was cover for claims that the inspection reports were deficient. Those claims could be for economic loss - the cost of restumping a dwelling's footings which were rotten from termites, or for other repairs which otherwise could have been the subject of price negotiations with the vendor. But those claims could easily be for physical damage to things or to people. A rotting staircase could collapse injuring a person, or a rotten carport could collapse causing damage to the purchaser's vehicle. It is easy to contemplate a purchaser saying that he or she would not have purchased the property, or alternatively, would have undertaken urgent repair work to the carport and made sure that he or she did not park his or her vehicle there in the meantime, and bringing a claim for damages for physical damage against the inspector.
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.
Further, Pacific permitted its insured to hold out that it had granted professional indemnity cover in the amount of $1,000,000 and general and public liability cover in the amount of $5,000,000. It would be troubling if, on the proper construction of the insurance cover, the $5,000,000 cover was not available whenever a building inspection report contained negligent advice which caused personal injury or physical damage.

Conclusion and orders

For all of those reasons, I propose that the appeal be dismissed, with costs.
I propose the following formal orders: 1. To the extent necessary, grant leave to appeal in respect of the judgment entered on the cross-claim in proceeding 2014/224296. 2. Appeal dismissed, with costs. 3. Grant the parties leave to apply to a single Judge of Appeal, within 14 days, if they wish to be heard as to the name of the appellant.
WHITE JA: Leeming JA has set out the terms of the relevant General Conditions of the General & Public Liability Policy Wording and the Professional Indemnity Policy Wording. Clause 6.19 of the General & Public Liability Policy Wording provides that the Policy does not provide indemnity or cover for any liability directly or indirectly caused by or arising out of or in any way connected with the insured's provision of, or failure to provide, any professional advice or services, or any related error or omission; nor for any liability caused by, or arising out of, or in any way connected with advice given by the insured in carrying out any Business Activities. Clause 7.17 of the Professional Indemnity Policy Wording excludes cover for any liability caused by or arising out of or in any way connected with any Personal Injury or Property Damage.
If these limitations on the scope of cover are applicable, then Mr Walsh was not covered in respect of his liability to pay damages for the personal injury suffered by Ms Doosey and her daughter as a result of his negligence in preparing the Building Inspection Report. That would not leave the policy with no work to do, but it would mean that the cover provided was very limited in its scope, unless the exclusions could be read down as proposed by Macfarlan JA. To give the exclusions their full effect would not sit easily with the Building Inspection Endorsement referred to at [45] of Leeming JA's reasons. It required a Building Inspection Report to recommend, amongst other things, that if people were likely to use an External Timber Structure (a defined term including verandahs) that care be taken not to overload the External Timber Structure. It also required that a Building Inspection Report include recommendations that the condition and structural stability of an External Timber Structure be assessed by a structural engineer and that an External Timber Structure be inspected annually by a structural engineer. As Mr Rogers who appeared for Mr Walsh submitted, those requirements could only be directed towards minimising the risk of a claim for Personal Injury or Property Damage arising from failure of an External Timber Structure. Yet on Pacific's construction such a claim would not be within the scope of cover.
In my view, which is consistent with the reasons of Leeming JA, the key provisions are clause 4.5(a) of the General and Public Liability Policy Wording and clause 5.5 of the Professional Indemnity Policy Wording. Clause 4.5 of the General and Public Liability Policy Wording is set out at [43] of Leeming JA's reasons. Clause 5.5 of the Professional Indemnity Policy Wording is in materially the same terms. Where there is a conflict between a General Condition and a Specific Condition, Exclusion or Definition, the latter prevails. A Specific Condition, Exclusion or Definition means a condition, exclusion or definition contained in an Endorsement or Schedule to the Policy.
The Schedule to the Policy is set out at [32] of the reasons of Leeming JA. For convenience I repeat relevant terms of the Schedule: "Business Activities covered by the General/Public Liability and Professional Indemnity Policies Subject to the limitations, terms, conditions and endorsements of both the GENERAL/PUBLIC LIABILITY and PROFESSIONAL INDEMNITY POLICIES, except where the same may be varied by this schedule, cover has been extended for the following Business Activities and/or Extensions. The inclusion of any Business Activity and/or extensions shall not increase the limit of indemnity. Commercial Building Inspections - AS4349.0-2007 Other Building Inspections/Consultancy Work This Policy covers all inspections/reports as requested in your proposal unless excluded in your Premium Advice. (PPI) Timber Pest Inspections - AS4349.3-2010 Excess $3,000 (PPI) Residential Building Inspections - AS4349.1-2007 VERY IMPORTANT The conditions of cover as detailed on your Premium Advice and accepted by you on the 28-October-2013 are attached and form part of the Policy Schedule and Policy Wording."
The Proposal included Residential Building Inspection reports AS4349.1-2007.
The Premium Advice was incorporated by reference in the Policy Schedule. Part of the Premium Advice is set out at [35] of Leeming JA's reasons. The Premium Advice also included the following: "IMPORTANT CONDITIONS OF COVER - This Premium Advice is subject to the following Approved Personnel The following Approved Personnel has/have been approved to perform the listed activities. Technician Name: Date Accredited Acc# Nigel Walsh 31/10/2002 0992 Geoffrey Hicks 03/07/2006 3905 Glenn Field 22/09/2011 5781

(PPI) Timber Pest Inspections, Residential Building Inspections and/or Other Building Inspection/Consulting Work. Additional Approved Personnel performing Business Activities must be approved prior to cover being offered for their work. This policy will not respond to claims arising from work performed by persons not holding the appropriate state licences. Retroactive Cover General and Public Liability - Except as otherwise advised in this premium advice the retroactive date for the General and Public Liability section of this policy is: 31-October-2002 This means that cover is only provided for work that has been carried out since the retroactive date. Professional Indemnity - Except as otherwise advised in this premium advice the retroactive date for the Professional Indemnity section of this policy is: 31-October-2002 Or the commencement date of continuous cover with your previous Insurer(s) Cover is not provided for the following: • Physical Building Work • Private/Council Building Certification or Compliance • Surveying • Asbestos Audits This premium advice is subject to: • Pacific International Insurance Limited Policy wording to apply and to be read in conjunction with the relevant Endorsements for the Business Activities covered."

The Premium Advice provided for four exclusions under the heading "Cover is not provided for the following". These related to the nature of the activities that might be conducted by the insured, not to the extent to which cover was provided in respect of liability arising from activities that were within the scope of the cover.
Pacific relied upon the statement in the Policy Schedule that the description of the extension of cover was subject to the "limitations, terms, conditions and endorsements of both the General/Public Liability and Professional Indemnity Policies" and the statement in the Premium Advice that the policy wording was to apply. However, the latter statement was qualified by the requirement that the policy wording was to be read in conjunction with the relevant Endorsements for the Business Activities covered.
The General Conditions, with which the Policy Schedule and the incorporated Premium Advice were to be read, included General Condition 4.5 of the General and Public Liability Policy Wording and clause 5.5 of the Professional Indemnity Policy Wording. The Building Inspection Endorsement, was also a specific endorsement that prevailed over the General Conditions in the event of conflict. It was incorporated into the Policy Schedule by the Premium Advice. It implied that liability for personal injury or property damage arising from the failure of an External Timber Structure was within the scope of cover.
When the Policy Schedule, the Premium Advice, and the Building Inspection Endorsement are read together they provide cover for Mr Walsh's liability to pay damages to Ms Doosey and her daughter following the failure of the verandah. The Policy Schedule expressly states that the Policy covers all inspections/reports as requested in the proposal unless excluded by the Premium Advice. The Premium Advice identifies four exclusions, but not an exclusion for personal injury arising from the conduct of the Business Activities. The Building Inspection Endorsement indicates that the cover is intended to extend to personal injury or property damage arising from the provision of a Building Inspection Report on External Timber Structures. In my view, when read together, these documents conflicted with the exclusions in the General Wording. By virtue of General Conditions 4.5 of the General and Public Liability Policy Wording and clause 5.5 of the Professional Indemnity Policy Wording, the exclusions do not prevail.
For these reasons, which substantially accord with those of Leeming JA, I agree that the appeal should be dismissed.

Amendments 15 February 2018 - [81] paragraph reference amended from [33] to [43]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 February 2018

Solicitors: Moray & Agnew (Appellant) Dribbus Kovacevic Lawyers (Respondents) File Number(s): 2017/65795 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: Cate Doosey v Nigel Walsh & Complete Building Inspection Services Pty Ltd; Evangeline Doosey-Shaw by her next friend Cate Doosey v Nigel Walsh & Complete Building Inspection Services Pty Ltd [2017] NSWDC 8 Date of Decision: 03 February 2017 Before: Montgomery DCJ File Number(s): 2014/224296; 2014/224312

Judgment

MACFARLAN JA: I agree with the orders proposed by Leeming JA and gratefully adopt his Honour's description of the facts and circumstances of this matter. I also agree with his Honour's reasons and add the following additional observations.
Ms Doosey purchased her home in reliance upon Mr Walsh's Building Inspection Report. She suffered mental harm when her daughter was injured by a fall caused by a balcony rail defect that Mr Walsh should have identified in the course of his inspection.
The General & Public Liability insurance policy issued by the appellant to Mr Walsh's company excluded any liability arising out of its negligence in providing professional advice or services (Clause 6.19) whilst the Professional Indemnity insurance policy issued by the appellant to the company excluded any liability of the company arising out of "Any Personal Injury or Property Damage" (Clause 7.17).
In my view the exclusion of liability for personal injury and property damage in Clause 7.17 of the professional indemnity policy should not be read as concerned with liability for injury or damage resulting from third parties relying on advice or services provided by the insured in the course of its property inspection business.
To hold otherwise would be to allow the exclusion clause to make a substantial inroad into the main operation of the policy which was clearly designed to provide the company with insurance against liabilities incurred as a result of performance of its normal business activities.
Authority permits such an approach where a provision in an insurance policy is open to more than one construction. In Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390, Kirby P observed in an insurance context: "If one construction strikes fundamentally at the purpose of the policy, which is to spread the risk insured against, whilst another construction that is reasonably available would effect that purpose, the latter will be preferred … " (at 394).
Likewise, McHugh JA in the same case rejected a construction contended for on the basis that: "It would defeat the commercial purpose of the contract of indemnity if the wording of the condition operated so as to take away an important part of the basis of the indemnity itself" (at 407).
The same approach was taken by McClellan CJ at CL in Transfill Services (Australia) v Hall [2008] NSWCA 294 at [238] (other parts of the judgment being reported at (2008) 75 NSWLR 12).
This approach to Clause 7.17 that I have identified above would not deprive that clause of any operation as the clause would apply to exclude coverage for personal injury or property damage caused incidentally in the course of the inspection company's business. For example, if in the course of an inspection, the inspector caused personal injury by negligently bumping into someone who fell down stairs at the property, or if the inspector negligently damaged property in forcing a door open, Clause 7.17 would apply because the personal injury or property damage would not have flowed directly from default by the company in the performance of its professional duties. Rather, the liability would have been incidental to that performance.
The corollary of this conclusion is that the company's liability for such injury or damage would be covered by the General and Public Liability insurance policy. The exclusion in that policy of liability arising out of the insured's negligence in providing professional advice or services (Clause 6.19) would not apply because the liability would only have been incurred incidentally to the company's performance of its professional duties.
In this way, the two policies issued to the building inspection company would operate harmoniously and provide the insurance cover that it can be inferred was intended.
LEEMING JA: This appeal concerns the construction of the exclusions in Professional Indemnity and Public Liability wordings in insurance granted by the appellant insurer. That company is styled "Pacific International Insurance Co Ltd" in its notice of appeal. However, it is called Pacific International Insurance Ltd in its defence to the cross-claim, and in the contemporaneous documents, and the common seal of "Pacific International Insurance Limited NZ" was affixed to the Policy Schedule tendered at trial. Other documents refer to Pacific International Insurance Pty Ltd. There may well have been a restructure, but even so misnomer is possible. The orders I propose will permit the parties to be heard as to the correct name of the appellant which is bound by this judgment. In what follows, I shall refer to "Pacific".
The appeal arises following a nine day trial in the District Court, in which Ms Cate Doosey and her daughter Evangeline sued Complete Building Inspection Services Pty Ltd and its principal Mr Nigel Walsh for negligence in the preparation of a building inspection report. Complete Building Inspection Services and Mr Walsh cross-claimed against their insurer Pacific, which had denied cover, and they are the respondents to this appeal. The plaintiffs succeeded on their claims for negligence, and no appeal has been brought from the judgments they obtained. Pacific has appealed from judgments holding it liable to indemnify Complete Building Inspection Services and Mr Walsh.

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