HIH Casualty & General Ins Ltd v Turner & Anor No. Scgrg-98-873 Judgment No. S6966

HIH CASUALTY & GENERAL INSURANCE LTD
v TURNER and ANOR
[1998] SASC 6966

Magistrates Court: Civil

PERRY J. This appeal arises out of an action in the Magistrates Court (Civil Division) sitting at Adelaide.
At the relevant time, the respondent Turner White & Partners Pty Ltd (“the respondent company”) carried on business under the business name “Elders Real Estate Kensington” as licensed real estate agents and auctioneers at an address at The Parade, Kensington. The respondent Robin G. Turner was a director of the respondent company. Turner and the respondent company were joined as defendants to the proceedings by the plaintiff Natalie Overall. Pursuant to s82 of the Trade Practices Act 1974, or alternatively s7 of the Misrepresentation Act 1971, she claimed damages in the sum of $19,465.
Her claim arose out of the purchase by her in July 1994 of a house property situated at 29 Maesbury Street, Kensington. The respondents acted as agents for the vendor. As for the respondent Turner, the plaintiff alleged, inter alia, that he:
“1.3.. Held himself out to be and was a general builder trading as or in the employ of ‘the respondent company’.”
The plaintiff alleged that in the course of inspecting the property before she signed a contract to purchase it, the respondent Turner, for whose actions the respondent company was said to be vicariously liable, made certain misrepresentations.
The first misrepresentation was alleged to have been made orally by the respondent Turner on an occasion shortly before the execution of the contract of sale of the property. The respondent Turner and the plaintiff were together at the house property, in the course of the plaintiff’s inspection of it. That representation was alleged to have been conveyed by the words “the house is well built”.
The second misrepresentation was alleged to have been a further oral statement by the respondent Turner made on the same occasion when he was alleged to have said to the plaintiff, “I am a valuer and a builder. I can give you a letter because I have worked as a building inspector and a valuer. The letter will state that the house is a sound building and is a good buy”.
The next day the plaintiff attended at the respondent’s office. When the respondent Turner produced a contract for the sale and purchase of the property, the plaintiff asked, “What about the letter?”. The respondent Turner then left the room and shortly afterwards returned with a letter which he had signed, addressed to the plaintiff, in the following terms:
“Elders Real Estate  ELDERS REAL ESTATE KENSINGTON
Kensington  324 THE PARADE
  KENSINGTON SA 5068
TELEPHONE: (08) 331 4755
FAX: (08) 364 2575
  LICENSED AGENTS, AUCTIONEERS, MREI                     Directors:
  R.G. Turner AVLE (Val) AVLE (Econ) ASAA
  P. White FCPA, ABIA
28 July, 1994
Mrs N M Overall
477 Kensington Road
ROSSLYN PARK SA 5072
Dear Mrs Overall

29 Maesbury Street, Kensington
I have inspected the above property and am of the opinion that it is very well built and generally sound for its age. I know of no reason whatsoever, from a structural viewpoint, that would deter a prudent person from purchasing this property.
My considered opinion of the market value at the above date is $190,000 (one hundred and ninety thousand dollars).
Yours faithfully
(signed)
Robin G Turner
Licensed Valuer
General Builder
THIS BUSINESS IS INDEPENDENTLY OWNED AND OPERATED BY TURNER WHITE & PTNRS PTY LTD CAN 050 021 442”

In her statement of claim the plaintiff alleged that the two oral representations and the statement in the letter “the house is a sound building and is a good buy” were false or misleading, and were actionable under the statutory provisions upon which her claim was based. The statements were alleged to be misleading in that most of the walls of the house were damaged by reason of high levels of moisture which were, in turn, caused by the lack of a damp proof course.
The respondents joined the appellant as a third party to the proceedings. The appellant had insured the respondents (I do not distinguish between the respondent company and Mr Turner as both were effectively covered by the policy) pursuant to a policy of insurance described as a professional indemnity policy. In the third party statement of claim, the respondents asserted against the appellant that the latter was obliged to indemnity the respondents with respect to the plaintiff’s claim and costs. The respondents further asserted that the appellant was in breach of the terms of the policy of insurance by reason of its refusal to grant indemnity. The respondents claimed an order that the appellant indemnify them against the plaintiff’s claim.
In its defence, the appellant pleaded, inter alia:
“11... ...........
11.1. The plaintiff’s claim against the defendants contains an allegation that the first defendant ‘held himself out to be and was a general builder ....’.
11.2 The plaintiff further claims that the first defendant induced the plaintiff to enter the contract by representing that he could provide a report on the building.
11.3. The first defendant did provide such a report dated 28 July 1994 and signed a report, inter alia, in his capacity as a ‘general builder’.
11.4 The policy of insurance .... does not cover the defendants in respect of any activity carried on as a general builder.”
It is the issue raised by that plea, namely, whether or not the respondents’ claim for indemnity was within the policy cover, which is the central issue on the appeal.
By letter dated 11 July 1996 loss adjustors acting for the appellant wrote to solicitors acting for the respondents stating, inter alia:
“It is the underwriter’s view that Mr Turner held himself out to be a ‘general builder’ for the purposes of the opinion sought by Mrs Overall and provided in the letter dated 28 April 1994. As such, it is the opinion of the underwriter that the allegations made do not fall within the insured’s profession as a real estate agent and it follows therefore that the policy in question will not respond.”
Subsequently, the appellant was invited to contribute towards a settlement which was being proposed between the respondents and the plaintiff, but they declined to do so. Not only that, but when it was indicated that the respondents and the plaintiff were prepared to settle the plaintiff’s claim on the basis of payment to the plaintiff of the sum of $5,000 inclusive of costs and interest, the solicitors who were by then acting for the appellant indicated that their instructions were not to consent to the proposed settlement.
Notwithstanding that intimation, the respondents duly settled the plaintiff’s claim for that amount.
The third party proceedings against the appellant subsequently came to trial before the learned trial magistrate in June 1998. The only evidence given was evidence from the respondent Mr Turner, although there were a number of documentary exhibits which included the letter of 28 July 1994 written by the respondent Turner, correspondence which was exchanged between the appellant and the respondents, consulting engineer’s report as to the soundness of the premises in question, a quotation for remedial work directed towards curing the dampness in the walls, and a statement in the nature of a proof of a registered architect, Alan Taylor, to the effect that, despite the dampness in the dwelling, he considered “that the house was sound”.
In the course of his evidence, the respondent Turner confirmed that he held a licence as a land agent, and as well as a valuer and as a general builder. Although he had not carried on business as a general builder, he had held that qualification for about ten years.
He explained in his evidence that he had assured the plaintiff Mrs Overall on the occasion of her inspection that the house was “generally sound for its age”, but he said that he told her that he “did not hold himself out to be a building inspector per se”. He admitted that the next day when she came to see him in his office he gave to her the letter of 28 July 1994. As to the letter, his evidence was, “I think Mrs Overall took it to her solicitor. As a matter of fact, I am certain she did that. At least she told me she did”.
In the course of his cross-examination, Mr Turner admitted that Mrs Overall had insisted that he furnish the letter before she signed the contract. He admitted further that the fact that she insisted on being given the letter, conveyed to him that she regarded it as important to her that he do so, and furthermore, that he had written the letter “on the strength” of his knowledge as a builder. He admitted that he had attempted to impress Mrs Overall by reference to his qualifications as a builder.
The learned trial magistrate reserved his decision. In the written reasons for decision which he subsequently delivered, he dealt with two main issues. The first was whether or not the claim for indemnity was within the scope of the cover afforded by the policy. The second was whether or not the compromise of $5,000 “was reasonable and prudent”.
The learned trial magistrate held:
“If the defendant can show that it was likely that it was liable and the settlement was reasonable and prudent, then it can recover the amount against the insurer if the insurer is liable under the policy.”
In my opinion, that statement of the issues is correct. But for reasons which I will come to, the learned trial magistrate reached an incorrect conclusion as to the second issue, that is, the liability of the insurer under the policy.
Of course, if the insurer is not liable under the policy, it is strictly unnecessary to address the first question. But if the insurer is liable under the policy and has wrongly repudiated its liability, I do not accept the contention that the insured must then defend any proceedings brought by the claimant against it to the bitter end, or if the insured settles, it must then have a trial within a trial in its action against the insurer, and prove its liability to the claimant.
In reaching that view, I adopt the dicta of Sackville J in Drayton and Ors v Martin and Ors:[1]
“Where an insurer wrongfully repudiates liability under a policy, it cannot rely on a condition requiring it to consent to any compromise of a claim against the insured: Captain Boyton’s World Water Show Syndicate (Ltd) v Employers’ Liability Assurance Corporation (Ltd);[2] General Omnibus Co Ltd v London General Insurance Company Ltd.[3] In Distillers Co Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd,[4] Menzies J cited these cases in support of the proposition that:
‘[t]he insured may make a reasonable settlement where the insurer breaches the contract by denying liability and refusing to defend or settle’.
The other members of the Court implicitly accepted this proposition: see at 12-13 per Gibbs J, at 26 per Stephen J.
In my opinion, this principle applies to the present case. Indeed, it would be curious if the position were otherwise. An insurer could repudiate its contractual obligations and place the insured in a difficult, if not impossible, position. The insured would be forced to defend the proceedings brought by the claimant to a conclusion and to forego all opportunities of a reasonable compromise for fear of losing the indemnity under the policy.”
[1] (1996) 67 FCR 1 at 36.
[2] (1895) 11 TLR 384.
[3] [1936] IR 596 at 608 per Kennedy CJ, at 614-615 per FitzGibbon J.
[4] (1974) 130 CLR 1 at 9-10.
The question of the reasonableness of any settlement reached in such circumstances is only relevant if the insurer is in fact liable under the policy and has wrongly repudiated its liability. If the insurer is not liable on a proper construction of the policy, that is an end of the matter.
In case the matter goes any further, I express the view that the settlement reached here was entirely reasonable. In determining what is a reasonable settlement in such circumstances, assistance may be gained from the views expressed by the majority of the High Court[5] in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd.[6] It is clear from that case that the test of what is reasonable must be addressed by reference to the material which was available at the time the decision to compromise was reached, and is to be assessed objectively.
[5] Brennan CJ, McHugh and Hayne JJ.
[6] (1998) 72 ALJR 937.
On that footing, I have no doubt that on the material before the learned trial magistrate in this case, the compromise was in the relevant sense reasonable. It represented little more than the costs which must necessarily have been incurred by the plaintiff at the stage the compromise was reached.
In expressing that view, I do not overlook the argument put forward by Mr Nicholson for the appellant that in basing her claim on the cost of rectification of the dampness in the walls, the plaintiff was adopting an approach to the quantification of damages which was not consistent with authority.[7] But it seems to me that authorities on that issue in a case such as the present are not so clear cut[8] as to throw doubt on the reasonableness of the settlement reached in this case, which was for an extraordinarily modest figure.
[7] See, for example, my decision in Voss Real Estate and Ors v Schreiner and Ors (1998) ATPR 41-627.
[8] See, for example, Kenny & Good Pty Ltd and Anor v MGICA (1992) Ltd (1997) ATPR 41-476.
The real issue, to which I now turn, is the question of the scope of the policy.
The policy was tendered in evidence. It is headed “Master Policy” followed, rather surprisingly, by a sub-heading “Schedule”, the first paragraph of which reads, without any introductory words:
“Indemnifying the insured or any person whilst employed by the insured in the conduct of the business against any claims for breach of Professional Duty as ESTATE AGENTS, LAND BROKERS, SETTLEMENT AGENTS, AUCTIONEERS, INSURANCE AGENTS (EXCLUDING INSURANCE BROKERS), TRAVEL AGENTS, BUSINESS AGENTS, and STOCK AND STATION AGENTS which shall be first made against the insured within the period set forth in the Certificate of Insurance by reason of any act, error or omission whenever and whenever same was or may have been committed or alleged to have been committed and which shall be notified to Underwriters or their representatives during the period of cover specified in the Certificate of Insurance.”
It does not appear that the words “professional duty” are anywhere defined in the policy. About halfway into the document (which runs, in all, to about fifteen pages) appears a heading:
“REIA TOP UP AND VALUATION SCHEME WORDING
...........
The Company agrees, subject to the following limitations, terms and conditions and subject to any policy endorsements:
1...... To indemnify the Insured against any Claim(s) for actual or alleged breach of professional duty in the Profession (as defined) which are first made against the Insured during the period of insurance as stated in the Certificate of Insurance by reason of any act, error or omission committed on the part of the insured and which are notified to the Company or their representatives during the period of insurance as stated in the Certificate of Insurance; and
2........”
A little further into the document appears another heading, “DEFINITIONS” under which the first definition is:
“Profession means estate agents, land brokers, settlement agents, auctioneers, insurance agents (but not insurance brokers), travel agents, business agents and stock and station agents.”
As to this aspect of the matter, the reasoning of the learned trial magistrate appears the following passage in his judgment:
“The duty of an estate agent or land agent, as I accept that to mean, is to sell the property for the vendor. He or she is to do their best to represent the property as attractive without misrepresenting it. This insurance is taken out to protect the estate agent against the event that the mark is overstepped. Here it was. The property was misrepresented. The status of the misrepresentation was enhanced by the qualification that the agent had as a building inspector. Puffing up a misrepresentation by your status does not change the nature of the activity. Clearly the policy of indemnity lies for what the defendant did in this case.”

Earlier, the learned trial magistrate had said:

“He (Mr Turner) believes the statements he made were accurate and still does. The effect of the fact that he was also a general builder was merely to bolster their effect and did not change their character as a statement made as an estate agent. In terms of a similar case of Drayton v Martin,[9] you cannot disentangle the expertise he applied as a general builder from the assertion he made in his capacity as an estate agent.”
[9] (1996) 67 FCR 1.

In my opinion, that reasoning is flawed.
It is true that what might be thought to have been a somewhat similar question was addressed by Sackville J in Drayton v Martin (supra). That case also involved a professional indemnity policy of insurance, the “practice” the subject of the insurance being defined as “the professional business of acting as an accountant ...”. In that case, the insurer denied liability on the basis that the relevant activities were those of investment adviser and were not incurred in connection with the insured’s accountancy practice. During the course of his judgment in that case, Sackville J observed:[10]
“The simple fact of the matter is that, so far as the Draytons were concerned, Mr Martin’s advice to them to invest in the cash flow plan was, to use his words ‘inextricably interwoven’ with his role as their accountant and his business or profession as an accountant.”
[10] Ibid 34.
However, before making that observation, Sackville J had drawn attention to the fact that the wording of the policy in that case extended the liability of the insurer to indemnity with respect to any claim “in respect of any description of civil liability whatsoever in connection with the practice”.
Quite properly, Sackville J refers to a number of authorities which support the view that the phrase “in connection with” is ordinarily a word of wide connotation “requiring merely a relationship between one thing and another”.[11]
[11] See Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 per Wilcox J at 479-480.
In this case, in that part of the policy in which the scope of the indemnity is defined, neither the words “in connection with” nor words of similar import appear. The relevant words are simply “... breach of professional duty as estate agents, land brokers, settlement agents, auctioneers, insurance agents (excluding insurance brokers), travel agents, business agents and stock and station agents .....”.
It is clear from the letter of 28 July 1994 and from his evidence of his dealings with Mrs Overall that Mr Turner held himself out to her as a general builder. Furthermore, the letter of 28 July 1994 was signed off by the respondent Turner, who added the words “Licensed Valuer” and under that “General Builder”.
It is true that in one sense everything that the respondent Turner did was directed towards securing a sale. But I do not think that that consideration alone is sufficient to decide the question at issue. After all, a land salesman might volunteer to repair some cracks in a house in order to facilitate its sale, but it could hardly be suggested that if he or she did so negligently it could give rise to liability under a professional indemnity policy of the kind in question.
In obtaining the letter of 28 July 1994 from the respondent Turner, Mrs Overall was relying on the respondent Turner’s apparent expertise as a builder. The letter was clearly a most material representation, and one which, having regard to the course of events, was regarded by the plaintiff as a prerequisite to her execution of the contract. It was furnished by the respondent Turner in circumstances in which he was drawing on his expertise as a “general builder”.

The situation differs from mere puffing statements made by a land agent or land salesman who might give reassurances as to the structural soundness of the property being sold. In my opinion, the argument put forward by the appellant that in giving his advice in his capacity as a general builder, the respondent Turner was giving advice of a different character from that which the insurer had agreed to indemnify, is sound. The citation which the appellant makes from Derrington and Ashton, The Law of Liability Insurance (Butterworths) (1990)[12] is apposite:
“Limitation of professional indemnity cover by reference to the practice of the insured has the effect that he will not be entitled to indemnity for liability from his activity in some other role. Thus, a policy covering the insured in his capacity as a lawyer does not indemnify him when the nature of his actions and the extent of the fee indicate that he had acted in the capacity of an agent or a broker or a guarantee rather than a lawyer.”
[12] At 565.
I would allow the appeal and substitute for the order under appeal an order dismissing the third party claim advanced by the respondents.

JUDGMENT CITATIONS

LISTED IN ORDER OF APPEARANCE IN JUDGMENT

(1996) 67 FCR 1 at 36.
(1895) 11 TLR 384.
[1936] IR 596 at 608 per Kennedy CJ, at 614-615 per FitzGibbon J.
(1974) 130 CLR 1 at 9-10.
Brennan CJ, McHugh and Hayne JJ.
(1998) 72 ALJR 937.
See, for example, my decision in Voss Real Estate and Ors v Schreiner and Ors (1998) ATPR 41-627.
See, for example, Kenny & Good Pty Ltd and Anor v MGICA (1992) Ltd (1997) ATPR 41-476.
(1996) 67 FCR 1.
Ibid 34.
See Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 per Wilcox J at 479-480.
At 565.

[1998] SASC 6966

25 November 1998