Suncorp Metway Insurance Ltd v Landridge Pty Ltd [2005] VSCA 223

"About a month after the plaintiff moved into the premises she complained about the hole in the floor in the garage and asked if it could be covered over. The plaintiff went to the office of the (agent) and made the request to a receptionist at the office.

Over the course of the next five or six months the plaintiff made three or four complaints to the office of the (agent), in particular to the receptionist to whom she paid the rent."

3 Each defendant claimed contribution from the other. The agent also made a third party claim against the appellant ("the insurer") claiming indemnity against the tenant's claim pursuant to a professional indemnity policy of insurance issued by the insurer to the agent.

4 The proceeding by the tenant against the landlord and the agent and the claims between the defendants for contribution were settled. The terms of settlement provided, inter alia, that there would be judgment for the tenant against the agent in the sum of $85,000 and costs, that the claim against the landlord would be dismissed and that the claim for contribution between the agent and the landlord would be struck out. The agent was encouraged by the insurer to enter into the settlement. The insurer asserted that the offer of settlement was reasonable and threatened that failure by the agent to agree to the offer would constitute a breach of terms of the policy of insurance.

5 The agent's claim against the insurer for indemnity remained to be resolved by the Court.

6 The insuring clause in the policy of insurance provided:

"Suncorp Metway agrees to indemnify the Insured up to the Limit of Indemnity against legal liability for Claims for compensation first made against the Insured during the Period of Insurance and reported to Suncorp Metway during the Period of Insurance, for breach of a professional duty by reason of any act, error or omission committed or alleged to have been committed by the Insured in the conduct of the Business."

The "Business" was identified in the schedule to the policy as that of a real estate agent. In a proposal, which, pursuant to a clause in the policy, became part of the policy, the agent gave the following description of the agent's "business and professional activities":

"Established residential sales & new home sales.

Residential property management.

Finance applications."

In response to another question in the proposal as to the "approximate percentage of income derived" from each of the business and professional activities described in answer to the last question, the agent stated:

"Residential sales 85%.

Residential property management 10%.

Finance applications 5%."

7 The only issue between the agent and the insurer was whether the agent's legal liability to the tenant was "for breach of a professional duty by reason of any act, error or omission committed or alleged to have been committed by the Insured in the conduct of the Business" within the meaning of the insuring clause. For the purposes of determining the third party proceedings the parties agreed that the allegations pleaded against the agent by the tenant constituted the breach of duty owed by the agent to the tenant. It was also agreed that the receptionist employed by the agent had failed to record and pass on the tenant's complaints to the appropriate persons employed by the agent and that the agent had failed to either cover the hole or refer the tenant's complaints to the landlord. The property manager employed by the agent, charged with the responsibility of inspecting the premises and assessing the need for any repairs, had failed to observe the hole in the garage floor or to recognize the danger it posed to users of the garage.

8 The only witness called in the proceeding was the sole director of the agent, who said that he was a licensed real estate agent. He said that the agent was employed to collect the rent and to arrange any repairs required at the premises in order to maintain them. The agent was authorized to arrange for minor repairs up to an amount of approximately $50. Repairs requiring expenditure of a higher amount had to be referred to the landlord for approval. The witness said that he left the day-to-day running of the property management business to his staff. The property manager employed by the agent had been educated to Year 10 and had completed a traineeship in the course of her employment by the agent, which included education in property management. He agreed that the amount of knowledge and skill required to act as property manager was "embarrassingly enough, on behalf of the industry, not much."

9 The trial judge held that the duties owed by the agent to the landlord to properly inspect the premises, assess their condition and repair defects or report them to the landlord were professional duties of an estate agent. The failure of the receptionist to pass on the tenant's complaints formed part of the agent's breach of its professional duties. The trial judge also held that, as the omissions founding the liability of the agent to the tenant arose from and also constituted breaches of the agent's contractual duties to the landlord, the liability of the agent to the tenant answered the description of a "breach of a professional duty". Accordingly, her Honour held that the insurer was bound to indemnify the agent against the tenant's claim.

10 In this Court the insurer argued its case, as it did below, in two parts. In the first place it contended that the omissions of the agent founding its liability to the tenant were not breaches of a professional duty within the meaning of the insuring clause of the policy. Secondly, it contended that the only professional duty of the agent was that owed to the landlord, its client, and accordingly the policy did not respond to indemnify the agent against liability owed to the tenant.

11 The construction of the policy is an exercise to be carried out in the context of the circumstances in which it was formed, so as to give effect to the intention of the parties.[1] The activities which could give rise to liability requiring protection were those of an estate agent selling houses, managing the letting of houses and arranging finance. In order to make commercial sense of the policy, in my view it is necessary to regard those core activities of the agent's business as carrying on a profession, while at the same time recognizing that not everything done by an estate agent is to be described as carrying on a profession. If the word "professional" in the insuring clause is limited to the conduct of a learned profession,[2] the cover afforded by the policy will be restricted to probably no more than some incidental aspects of the business of an estate agent. Put another way, unless the agent was to be regarded as under a professional duty to monitor the condition of leased premises and ensure that they were kept in good repair, it is difficult to see that any professional duties were owed by the agent in respect of property management, a major component of the agent's business.[3]

12 Counsel for the insurer submitted that a professional duty was one which concerned the provision of services of a skilful character according to an established discipline. This definition was derived from the judgment of Kirby, P. in GIO General Ltd. v. Newcastle City Council.[4] In that case his Honour was engaged upon the construction of the term "professional" in a professional indemnity policy of insurance written for a local government authority. He said:

"The term 'professional' ... involves, in the context of a policy written for a local government authority, no more than advice and services of a skilful character according to an established discipline."[5]

His Honour held that the policy covered the examination and analysis of building proposals with a view to granting consent.

13 The definition adopted by Kirby, P. was appropriate to a professional indemnity policy issued to a local government authority.[6] Such an authority typically carries out a large number of functions, some of which are the activities of orthodox professions. On the other hand, there is very little work done by an estate agent which answers the description of the provision of advice or services of a skilful character according to an established discipline, save perhaps advice as to property values and rental rates. Unless the core activities of the agent's business, arranging the selling of property and managing property leases, are regarded as carrying on a profession, the policy will afford no significant protection.

14 The conclusion that the essential business activities of the agent are to be viewed as the carrying on of a profession for the purposes of the policy is supported by the terms of the policy. Clause 6.1 of the policy provided that "Business means the professional occupation, practice or business specified in Item 1 of the Schedule." The business identified in the schedule was "Real Estate Agent". The proposal, which, pursuant to clause 6.16 of the policy was part of the policy, described residential property management as one of the agent's "business and professional activities".[7]

15 Counsel for the insurer placed considerable emphasis upon the low level of expertise possessed by the receptionist and the property manager and the simplicity of the tasks which they failed to carry out. He compared their failure to pass on the tenant's complaints and to detect and appreciate the need to repair the hole in the garage floor with a council clerk's description of the position of a trench in relation to a property boundary, which was held not to be a breach of a professional duty,[8] and a clerk's statement that a town council had no interest in a particular piece of land, which was held not to be concerned with the provision of a professional service.[9]

16 In my view the analogy which counsel sought to draw was false. Local councils carry out a large number of activities, a number of which, such as engineering, property valuation and surveying, are orthodox professional activities. Other activities of councils, such as garbage collection and record-keeping, have no professional content. The question whether a breach of duty answers the description of a breach of a professional duty depends upon characterisation of the overall activity in the context of which the breach occurs, and is not answered by concentrating on the specific task which has not been performed or badly performed so as to give rise to liability. The relatively simple tasks of the council clerks the subject matter of the cases relied upon by the insurer were not part of the councils' professional activities. The breaches by the agent's employees in the present case, on the other hand, occurred in the course of carrying out the activity of property management, which in my opinion is to be regarded as a professional activity for the purposes of the policy of insurance. Similarly, the failure of a solicitor's clerk to deliver an appearance to the Prothonotary's office, while a failure to perform a task requiring little or no skill, in my view is properly described as a breach of the solicitor's professional duty.[10]

17 For the foregoing reasons I am of the opinion that the omissions of the agent's employees founding its liability to the tenant occurred in the course of carrying on the agent's profession. The next question is whether the liability for breach of a professional duty covered by the insuring clause of the policy is limited to liability owed to the agent's client, in this case the landlord, or extends to strangers to the contract between the agent and landlord, such as the tenant.

18 Counsel for the insurer submitted that the agent's duty to the tenant was an ordinary common law duty of care. The only professional duty owed by the agent was the duty which it owed to its client, the landlord. It was said that while a professional duty, at least in the case of solicitors, may on occasion be extended to third parties, that was exceptional and occurred only in respect of those closely related to the client,[11] not in respect of the public at large.

19 It seems to me, however, that the position of the tenant vis-à-vis the agent was equivalent to that of the beneficiary vis-à-vis the solicitor considered in Hill v. Van Erp.[12] In that case it was held that the solicitor, who asked the husband of an intended beneficiary to attest the will, thereby rendering the disposition null and void, was in breach of a duty of care owed to the intended beneficiary. In the present case the agent was engaged by the landlord to ensure the premises were appropriate and safe for the tenant. The solicitor in Hill v. Van Erp was engaged to ensure that the will of the solicitor's client was effective to confer a benefit upon the plaintiff.

20 The insurer's argument would limit the policy to one providing indemnity against claims by those whose contractual relationship with the agent create and define the agent's professional duty. In my view, such a limitation is neither expressly nor implicitly present in the insuring clause of the policy. I think it sufficient that the claim for compensation against which the insurer promised indemnity was for acts or omissions which constituted breaches of a professional duty.

21 The standard of care which the agent was required to exercise with respect to the tenant was the competence and skill that was usual among estate agents practising what, for present purposes, is to be regarded as the profession of managing properties, just as the architect in Voli v. Inglewood Shire Council[13] was bound to "bring to the task he undertakes the competence and skill that is usual among architects practising their profession",[14] and was liable to a person injured as a consequence of the collapse of a stage designed by the architect if he did not exercise such competence and skill. The content of the duty of care owed by the agent to the tenant was supplied by the professional task upon which the agent was engaged at the request of the landlord. Accordingly, in my view, the policy responds to cover the agent's liability for acts and omissions constituting breaches of the agent's professional duty in managing the premises for the landlord. It matters not that the liability is owed to someone other than the landlord.

22 I would dismiss the appeal.

23 I have had the considerable advantage of reading in draft the reasons for judgment of Buchanan, J.A. and I agree with his Honour that the appeal should be dismissed.

24 As Buchanan, J.A. notices in paragraph 11 of his reasons for judgment, the principles of construction which apply generally to the construction of contracts apply equally to the construction of insurance policies. Consequently, words and phrases used in the policy must be construed in the context in which they appear;[15] it is necessary to take account of the main object or commercial purpose of the policy, even if sometimes that requires words to be given a strained meaning;[16] and the policy should be interpreted having regard to the surrounding circumstances.[17]

25 Construed in accordance with those principles, I think it plain that the expression "breach of a professional duty by reason of any act, error or omission committed by the Insured in the conduct of the Business" was calculated to include the negligent performance by the Insured of the sorts of services which it was the Business of the Insured as an estate agent to offer to its clients. As Buchanan, J.A. demonstrates, they included "Residential property management" services.

26 I further agree with Buchanan, J.A. that it is irrelevant that some or all of the "Residential property management" services may have demanded little in the way of intellectual activity or skill in performance. The fact is that there may be little in the way of intellectual activity or skill in many of the activities that constitute part of the practice of a profession. But negligence in their performance would undoubtedly constitute a breach of professional duty. To take but one example, of which this court may be expected to know something, it takes very little skill or cerebral activity to file a return in the time required by statute or to serve a pleading within the time limited by the rules of court. Yet it cannot be supposed that the negligent failure of a solicitor to file or serve in time would not be covered by a policy of the kind described. No one would sensibly suggest that negligent performance by a solicitor of such things was not be covered by a policy of insurance for "breach of a professional duty by reason of any act, error or omission committed by the [solicitor] in the conduct of [his] Business."

27 As Buchanan, J.A. also explains, many of the authorities in this area of the law are concerned with tests for distinguishing between the sorts of acts or omissions which constitute the provision of services to which a policy extends and those which do not. More often than not, however, the problem is not so much in recognising the distinction as in precisely defining the criterion of distinction. Hence the concentration in the authorities on the words "profession" and "professional" and the various attempts made in some of them to define those terms. But as Buchanan, J.A. demonstrates, the criterion of professionalism in one context is virtually bound to be different to that in another, and hence there is little utility in attempts at transposition.

28 Arguably, the decision of the Queensland Court of Appeal in FAI General Insurance Co. Ltd v Gold Coast City Council[18] suggests the contrary. On one view of what was said in that case, something is incapable of being "professional" within the meaning of a professional indemnity policy unless it pertains or is appropriate to one of the learned professions. But, with great respect, that plainly cannot be so. Given that the general principles of contractual construction apply as much to policies of insurance as to any other contract, the conception of "professionalism" within a given policy of insurance must always depend upon the business to which the policy relates and thus upon the "profession" which is in view.

29 Finally, I agree with Buchanan, J.A. that it is not an answer to the Insured's claim for indemnity under the policy in this case that the duty which the Insured was alleged to have breached was one owed to someone other than the Insured's client. Admittedly, it was a duty to take reasonable care to avoid injury to a person who it was reasonably foreseeable might be injured as a result of the Insured's negligence. In that sense it was aptly to be described, as the appellant's counsel was wont to describe it, as a Donoghue v Stevenson[19] duty. But it was nevertheless a professional duty within the meaning of the policy, for it demanded the exercise of the very same degree of skill and care as the Insured owed to its client under its retainer.

30 Windeyer, J. made the point in Voli v Inglewood Shire Council [20] in a case concerning the nature of an architect's duty of care to someone other than the architect's client who was likely to be affected by negligent performance of the architect's retainer. As his Honour put it:

"In this case, however, the primary question does not arise from the duty that an architect has to his employer. It is whether the respondent architect had a duty to someone not his employer, a person with whom he had no contract at all, a person unknown to him personally whose only relationship with him was that he went into a building designed by him and built under his supervision. ...Whatever might have been thought to be the position before the broad principles of the law of negligence were stated in modern form in Donoghue v. Stevenson[21], it is now beyond doubt that, for the reasonably foreseeable consequences of careless or unskilful conduct, an architect is liable to anyone whom it could reasonably have been expected might be injured as a result of his negligence. To such a person he owes a duty of care quite independently of his contract of employment. Therefore it is appropriate to ask, as a preliminary question, whether there was a duty of care to the plaintiff in a particular case. This approach has been criticized. It is, on final analysis, the need for care lest someone be injured that both creates the duty and determines what amounts to a breach of it. Nevertheless the conventional division of the inquiry is sanctioned by high authority. And it is convenient, because whether a duty of care arises from a particular situation or relationship may be, and often is, a question of law; but whether or not that duty was performed is ultimately a question of fact, to be judged by what, in the circumstances of the particular case and in the light of the apparent risks, a reasonable man would or would not do. In some situations the courts have not left the latter question wholly at large. They have indicated what ordinarily a reasonable man must do, or not do, to satisfy the duty of care that the situation of the parties has created. But

the question is really one of fact. And what an architect must do to avoid liability for negligence cannot be more precisely defined than by saying that he must use reasonable care, skill and diligence in the performance of the work he undertakes.

...

...[N]either the terms of the architect's engagement, nor the terms of the building contract, can operate to discharge the architect from a duty of care to persons who are strangers to those contracts. Nor can they directly determine what he must do to satisfy his duty to such persons. That duty is cast upon him by law, not because he made a contract, but because he entered upon the work. Nevertheless his contract with the building owner is not an irrelevant circumstance. It determines what was the task upon which he entered. If, for example, it was to design a stage to bear only some specified weight, he would not be liable for the consequences of someone thereafter negligently permitting a greater weight to be put upon it. [22]

31 The same holds true in this case. As an estate agent under retainer to a client to act as property manager of a tenement, the Insured owed to the tenant a duty to exercise reasonable skill and diligence in the performance of the retainer. Failure to exercise that degree of skill and diligence in the performance of the retainer would be a "breach of a professional duty by reason of any act, error or omission committed by the Insured in the conduct of the Business."

32 It follows that the claim which the tenant made against the Insured for which the Insured sought indemnity under the policy was a claim for compensation for "breach of a professional duty by reason of any act, error or omission committed by the Insured in the conduct of the Business" and thus in my judgment was within the scope of cover.

33 I would also dismiss the appeal, for the reasons given by Buchanan and Nettle, JJ.A.

[1] Kay Pty. Ltd. v. G.M. Acceptance Corporation [1963] VicRp 66; [1963] V.R. 458 at 463 per Sholl, J.

[2] FAI. General Insurance Co. Ltd. v. Gold Coast City Council (1995) 2 Qld.R. 341 at 344 per McPherson, J.A., Davies, J.A. and Moynihan, J.

[3] Cf. Toomey v. Scolaro's Concrete Constructions Pty. Ltd. [2002] VSC 48; (2002) 12 ANZ Insurance Cases 61-519 at 76,076 per Eames, J.

[4] (1996) 38 N.S.W.L.R. 558.

[5] Above at 568.

[6] Similarly, the Queensland Court of Appeal in FAI General Insurance Co. Ltd. v. Gold Coast Council, above, said that the word "professional" in a policy issued to a municipal authority that it "connotes 'pertaining or appropriate to a profession', 'engaged in one of the learned professions'."

[7] See [6] above. See MGICA Ltd v. United City Merchants (Australia) Ltd. (1986) 4 ANZ Insurance Cases 61-729 at 74,347 per Kirby, P.

[8] FAI General Insurance Co. Ltd. v. Gold Coast City Council, above.

[9] GIO of New South Wales v. Council of the City of Penrith [1999] NSWCA 42; (1999) 102 LGERA 102.

[10] In Baltzan v. Fidelity Insurance Company of Canada (1932) 32 W.W.R. 140, an injury to a patient caused by an X-ray table being improperly locked was held to be within the terms of a doctor's indemnity policy "in the practice of his profession", although the action of locking the table did not involve any professional expertise.

[11] See, for example, Hawkins v. Clayton (1988) 164 C.L.R. 539; Hill v. Van Erp (1995) 188 C.L.R. 159.

[12] Above.

[13] [1963] HCA 15; (1963) 110 C.L.R. 74.

[14] Above at 84 per Windeyer, J.

[15] Maye v Colonial Mutual Life Assurance Society Ltd [1924] HCA 26; (1924) 35 C.L.R. 14 at 26; Wadsley v City Mutual Life Assurance Society Ltd [1971] VicRp 15; [1971] V.R. 140 at 143-4; Ashmore Aged Care Centres Pty Ltd v Cigna Insurance Australia Ltd [1989] 1 Qd. R. 241 at 243 - 244.

[16] Alex Kay Pty Ltd v General Motors Acceptance Corp and Hartford Fire Insurance Co [1963] VicRp 66; [1963] V.R. 458 at 462-3; Johnson v American Home Assurance Co [1998] HCA 14; (1998) 192 C.L.R. 266 at 272 et seq.

[17] Peck v New Zealand Insurance Co Ltd (1986) 4 ANZ Ins Cas |P60-754; Halsbury's Laws of Australia, Insurance, at [235-370].

[18] (1995) 2 Qld. R. 341 at 344.

[19] [1932] A.C. 562.

[20] [1963] HCA 15; (1962) 110 CLR 74.

[21] Ibid

[22] [1963] HCA 15; (1962) 110 CLR 74 at 85, emphasis added.