Timetech Chemicals Limited v QBE Insurance (International) Limited HC Auckland CIV 2009-404-2194

[2011] NZHC 262

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-2194

BETWEEN  TIMTECH CHEMICALS LIMITED Plaintiff

ANDQBE INSURANCE (INTERNATIONAL) LIMITED

Defendant

Hearing:         7, 8, 9 June 2010

Appearances: P J McDonald & N R Campbell for Plaintiff

P M Fee & M D Atkinson for Defendant

Judgment:      28 March 2011

JUDGMENT OF KEANE J

This judgment was delivered by Justice Keane on 28 March 2011 at 2pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

P J McDonald, Auckland

Jones Fee, Auckland

TIMTECH CHEMICALS LIMITED V QBE INSURANCE (INTERNATIONAL) LIMITED HC AK CIV 2009-

404-2194 28 March 2011

[1]      In   August   2007   Timtech   Chemicals   Limited,   a   supplier   of   timber preservatives that also offers advice as to their optimum use, embarked on a new venture; a contract with Carter Holt Harvey Limited under which its associated company, Treated Timber Company Limited, was to treat CHH’s timber, at CHH's Kawerau facility, using new technology, a Uniplant held under licence from an Australian Commonwealth Research Consortium, CRC Wood Innovations.

[2]      The UniPlant, which comprises two linked chambers, a pressure chamber in which timber is treated and another from which the preservative is drawn and to which any excess is returned, treats timber in packages extremely rapidly, within minutes instead of hours, using considerably less preservative than has been traditional. All is contingent however on three settings: the vacuum within which preservative is injected into the timber, the pressure, and the vacuum within which any excess is withdrawn.

[3]      Between  October  2007  - March  2008  those  settings,  as Timtech  became obliged to accept, proved not to be accurate for most if not all of the the timber processed, in the main 90 x 45 radiata pine. Once treated, the moisture content of the timber exceeded that specified by CHH, 26 percent, and the timber’s dimensions ceased to comply with CHH's own branded specification and with three industry standards.  The timber treated had ceased to be, Timtech had to accept, suitable for its intended purpose. CHH could only sell it offshore.

[4]      On  12  June  2009 Timtech  entered  into  a  deed  of  settlement  with  CHH Limited  in  which  it  accepted liability to  pay CHH $1,462,500;  $1,275,000  and

$187,500 GST. Timtech in turn then looked to QBE under its professional indemnity policy. The set points, Timtech contended, had been set incorrectly by a consortium consultant, Dr Hann, a scientist at the University of Melbourne, whom Timtech had engaged and on whom it had relied. Timtech's loss, it contended, resulted from his professional error.

[5]      QBE denied any liability to meet the claim. Timtech, QBE contended, was only entitled to indemnity for a loss arising from a breach of professional duty on its own part; principally if not exclusively, as Timtech had said itself in its proposal, any

liability arising from Timtech having given incorrect advice. Timtech's loss, QBE contended, resulted rather from the failure of Timtech's associated company to treat CHH’s timber to contract specification. That this might have resulted from the error of a professional consultant, on whom Timtech had relied, was beside the point.

[6]       QBE does not now, as it first did, put in issue that Timtech settled CHH's claim without approval. QBE accepts, for the purpose of this case, that Timtech was justified in settling CHH's claim and that the cause of Timtech's breach of contract lay in the consultant’s error. There are only two issues. Is Timtech’s claim a ‘valid claim’ eligible for indemnity under Timtech's professional indemnity policy, whether under the principal insuring clause or an extension or endorsement? If it is, is it nevertheless excluded?

Treatment at Kawerau

[7]      Initially, Timtech and CHH envisaged that Timtech would supply to CHH, and would commission, a number of UniPlants at a number of CHH facilities; the first at CHH's Kawerau facility. They negotiated but never entered into a detailed contract. Instead in August 2007, and on more immediate terms, never seemingly documented, Timtech installed and commissioned its own UniPlant at Kawerau and began to treat CHH’s timber for an agreed reward.

[8]      The  inability  to  agree  the  original  wider  arrangement  may  in  part  be explained by the fact that the Uniplant had only recently been devised. It had not been in use before, at least in New Zealand. In commissioning the first UniPlant at Kawerau, that used to treat CHH's timber, Timtech remained reliant on technical support  from  the Australian  consortium,  and  most  especially  the  University  of Melbourne scientist, Dr Hann, who had played a part in designing the plant.

[9]       When the Uniplant was installed at Kawerau it was Dr Hann, who made the three critical settings to  enable Timtech's associated company to process CHH's timber. When, therefore, in October 2002 CHH complained that pink dye, added to the  treatment  solution  to  verify  uniform  penetration,  appeared  unevenly  on  the

surface of the timber, suggesting that the preservative had been absorbed unevenly, Timtech turned to Dr Hann to re-evaluate his initial settings.

[10]     After trying a number of settings, Dr Hann decided that, to eliminate any further possible patchiness, the injection pressure had to increase, and with that the uptake of preservative and the cost.   The original settings still remained, however optimal as to both and Dr Hann concluded that those settings, or settings close to them, might still serve if the timber were secured only by a single loose strap. CHH, quite independently, discovered as well that the timber had been clamped too tightly. These discoveries allowed the injection pressure to be reduced to a lesser but still greater than optimal level.

[11]     On the face of it, the problem had been solved. Patchiness in uptake had been eliminated at a tolerable cost. But by late February 2009 that answer was found to carry problems of its own. At least half of the timber treated after October 2008, when the patchiness was discovered and apparently rectified, proved to be too moist, or to vary unacceptably in dimension, or to be beyond CHH'S specification in both these ways. It proved also to be inconsistent with three Australasian standards.

[12]     CHH concluded that the timber beyond specification could not be brought within it by further drying, because of the amount of chemical with which it was impregnated. Also that it was equally impractical to attempt to abstract from the timber that was within specification the timber that was not. CHH considered that it had no choice but to withdraw from the market all the timber, not yet sold, and to sell it offshore. It exported it to Saudi Arabia at a loss.

[13]     On 12 June 2009 Timtech indemnified CHH for the loss it sustained and QBE no longer puts that decision in issue. The sole issue is as I have said whether QBE is under any liability to indemnify Timtech on the basis Timtech asserts; that its loss resulted  from  professional  error  within  the  scope  of  Timtech’s  professional indemnity cover. In issue is whether Timtech has a 'valid claim' for indemnity in any of the three ways it advances.

Principles of interpretation

[14]     A contract of insurance is, as the Court of Appeal confirmed in Molyneux Holdings Ltd v IAG New Zealand Ltd[1], to be interpreted in the main like any other contract:

The rules of construction for insurance policies are the same as for ordinary contracts. Words are to be construed in context according to their natural and ordinary   meaning   but   with   such   contracts   being   construed   contra proferentum in the event of ambiguity or there being two meanings of equal cogency. It is also correct … that exclusion clauses are normally construed narrowly.

[1] Molyneux Holdings Ltd v IAG New Zealand Ltd [2007] NZCA 254.

[15]     To that Panckhurst J added this gloss in Clasper v Duns:[2]

The words are to be construed in the context of the immediate clause as a whole and such clause must in turn be considered in the context of the policy as a whole. Moreover the contract is to be assessed in its surrounding circumstances (or factual matrix). It is the meaning which the contract … would convey to a reasonable person having all the background knowledge reasonably available to the parties at the time of the contract which is to prevail.

[2] Clasper v Duns [2008] NZCCR 32 at [94].

[16]     This concept has also been expressed in this helpful way:[3]

The ordinary meaning of words is the meaning when read not in isolation but in context. The context is a series of circles: the policy itself (the phrase, the sentence, the paragraph, the part of the policy …) and then outside the policy itself, the past dealings of the parties, the trade context, and the objects which  the  policy was  intended to  achieve  …  the Court  moves  outward through the circles until it is satisfied that it has found the meaning intended by the parties.

[3] Clarke The Law of Insurance Contracts 15 - 3.

[17]     Where the insured’s proposal is the basis of the contract, and is incorporated within the contract, it is highly material and more than contextual. But the language of the policy itself is paramount and when the proposal and the policy differ the policy prevails.[4]    Also, the non contra proferentum rule is not a principle of first

resort:[5]

This principle is now regarded as a rule of last resort, and a liberal approach is adopted by resolving ambiguities by reference to other factors that truly indicate the party's intention. It is available only where other rules of construction fail. ... It is strictly a rule for resolving ambiguity. It cannot be invoked with a view to creating doubt.

[4] Derrington & Ashcroft The Law of Liability Insurance (2nd ed) at 201.

[5] Ibid at 383.

[18]     Finally, I should add, and perhaps it goes without saying, what counts is this particular contract of insurance, a professional indemnity policy, Timtech's proposal, as a result of which that policy was issued, and the nature of the liability resulting in the loss for which Timtech claims indemnity. I have been referred to, and reviewed, numerous cases said to be analogous. I have not found any so directly on point as to need to refer to it.

Three material matters

[19]     There  are,  I consider,  three  matters  material  to  the  interpretation  of  this particular indemnity policy and whether the particular claim made lies within it, two of which concern the context within which the contract of insurance was entered into. The first is the extent of Timtech’s insurance cover in October 2007 – March

2008:  the cover that it had and, as significantly, the cover that it did not have. The second is Timtech’s proposal for professional indemnity cover on the faith of which QBE issued this present policy.

Timtech's policies

[20]     As to the first, it is not without significance that in October 2007 – March

2008 Timtech no longer had cover that QBE contends was directly apposite; product liability cover that QBE says met the very risk for which Timtech now seeks indemnity - that a product supplied, manufactured or sold had proved defective. Timtech had enjoyed that form of cover between June - November 2005 and had explored taking it out again first in November 2007, and again in June 2008, but been deterred by the premium QBE required, $54,885. Timtech's premium for this present policy was, by contrast, $7,500.

[21]     Also, and as materially, as QBE contends, at the time when Timtech incurred the liability for which it seeks indemnity it had also a general liability policy insuring

it against the risk of physical damage to a third party's property as a result of accident; and the 'product insured' included goods 'treated' by Timtech. It has not claimed on that policy perhaps because it excluded any liability turning on product efficacy.

[22]      Timtech's  professional  indemnity policy  under  which  it  has  claimed,  by contrast, insured it in essence, as QBE contends and Timtech accepts, against any liability that Timtech came under for the exercise of incorrect professional judgment, most typically but not exclusively expressed in advice. (It could equally have been expressed in a design, for instance, or a specification.) The issue between them is as to the scope of that indemnity.

Timtech's proposal

[23]     It is no less material, as QBE contends, that the cover Timtech anticipated and asked for in its proposal, completed on 15 June 2007, was on its face equally confined.  Here too Timtech  and  QBE  join  issue as  to  its  actual  as  opposed to apparent scope.

[24]     QBE’s proposal form, as is usual, required Timtech to be completely candid, and to be as complete and detailed as it needed to be as to the facts material to the risk QBE was to assume. There are a series of notes at the beginning of the questionnaire that put Timtech on notice as to the full extent of that duty. Then, under the heading, 'Business Details',  question five put Timtech to this task:

Please provide details of the precise nature of activities of the business, including details of advice given. (Please enclose a copy of the company profile and any corporate promotional material describing your activities or services.)

[25]     To this Timtech replied: ‘Manufacture and supply of wood preservatives and associated  plant  equipment.  Technical  advice.’ And  in  answer  to  question  six Timtech confirmed that the supply of chemicals was 98 percent of its business and the supply of plant and equipment two percent. Then, in answer to question seven,

'please define and describe what you consider to be the primary and major loss

exposure for which you are seeking professional indemnity insurance' Timtech again answered 'giving incorrect advice'.

[26]     In answer to question eight, which asked Timtech to identify the contract or client  from  which  it  derived  more  than  20  percent  of  its  annual  work  or  fees, Timtech replied without elaborating, '5 year supply contract with Carter Holt Harvey Limited'. Then in answer to question nine, which asked whether it engaged consultants, sub-contractors or agents, Timtech answered 'yes'. It confirmed that it did not insist they carry their own professional indemnity insurance and that it did not enter into hold-harmless agreements with them either.

[27]     Finally, as is usual, Timtech acknowledged that its answers were to form part of any contract of insurance with QBE, that all its statements were correct and complete, that nothing further affecting the acceptance of the proposal existed, and that it understood QBE required this information in order to decide whether to accept its proposal.

[28]     Timtech did not disclose, explicitly, that, later in the year, and not very much later, it was to enter into a contract with CHH to supply UniPlants to CHH, or that, as happened, it was to treat CHH’s timber itself. The import of Timtech's proposal was that it did no more than to supply CHH with preservatives and related advice. That does not raise any issue as to lack of candour. It does go to the nature and scope of the cover Timtech sought in the proposal.

Deed of settlement

[29]     There is a third material matter that goes rather to the nature of the loss for which Timtech claims indemnity. It is the nature of Timtech's liability to CHH, as they identified it in their deed of settlement, dated 12 June 2009.

[30]     In that deed, which settled a number of interrelated cross-claims, CHH gave Timtech  an  unconditional  release  and  discharge,  in  exchange  for  the  payment Timtech agreed to make, in respect of:

all actions, claims, demands, suits, complaints, liabilities, sums of money, damages and costs which CHH has or may in the future have ... in relation to or in any way connected with the Product issues.

[31]     'Product' was defined to be 'the Boron treated product treated by Timtech in the UniPlant located at Kawerau between November 2007 to March 2008 inclusive'.

'Product issues' were defined to be 'the issues experienced with the Product - namely dimensional disparity and moisture content exceeding that in the relevant standards and in CHH's product literature.' Timtech's liability arose, therefore, as it then accepted, from a failure to treat CHH's timber to specification.

Primary, extended and endorsed cover

[32]     Timtech's proposal was highly material to the professional indemnity cover it obtained. The policy begins in this quite usual way:

In consideration of the payment of the premium to QBE Insurance (International) Limited (QBE) and in reliance on the written proposal, declaration and any other underwriting information provided, which shall be deemed to be incorporated into and to be the basis of this Policy, QBE will indemnify the insured as follows.

[33]     The policy then continued to set out in the 'Insuring clauses' the indemnity

Timtech obtained:

1. Civil Liability

QBE shall indemnify the insured for any Valid Claim subject to the terms of this policy.

2. Costs and expenses

In addition, QBE shall pay Costs and Expenses incurred with the written consent of QBE in defence or settlement of any Valid Claim up to the Limit of Indemnity or $1,000,000, whichever is the lesser.

[34]     Amongst  the  automatic  extensions  to  the  policy  that  then  follow  two especially are in point:

The following extensions to the Policy are included automatically, provided always that each extension is subject to the terms of this Policy (unless otherwise stated).

QBE shall, subject to the terms of this Policy indemnify the Insured for any

Valid Claim as follows:

1. Breach of contract

Claim for the actual or alleged breach of a contract for the provision of professional services.

2. Consultants, subcontractors and agents

Claim for any act, error or omission committed by any consultant, subcontractor or agent for whose act, error or omission the insured is legally liable Provided always that this indemnity shall not  extend to any such consultant, subcontractor or agent.

[35]     As well there is an endorsement on which Timtech also relies either as an expression of  the indemnity given principally, or as an extension of it. Under the heading ‘Design and Construct’ it is expressed in this way:

QBE shall indemnify the Insured, in accordance with this Policy, for Valid Claims   arising   from   the   Insured’s   faulty   or   inadequate   design   or specification.

Furthermore, QBE shall not be liable in respect of any Claim alleging or in respect of:

(a)  Faulty or inadequate manufacture, or;

(b) Faulty or inadequate workmanship, construction or fabrication, or;

(c)  Faulty or inadequate supervision of manufacture, workmanship, construction or fabrication, or;

(d) Breach of any express or implied warranty arising out of the sale of goods.

However, exclusion (c) of this endorsement shall not apply where it can be shown that the insured failed to supervise subcontractors following the insured’s own design or specification. This cover shall be in excess of any cover available to the subcontractors for faulty manufacture, workmanship, construction or fabrication.

In other respects the Policy remains unaltered.

Claim and response

[36]     Timtech claims to be entitled to indemnity in respect of its liability to CHH, first under the principal insuring clause, because its liability in contract to CHH gave

rise to a 'valid claim', a claim 'in connection with ... (its) professional business practice'; secondly, under the consultant's extension because its liability arose from a consultant's error; and, thirdly, under the design and construct endorsement because its claim arose out of a faulty or inadequate design.

[37]     QBE contends, in response, that before Timtech can qualify for indemnity on any of these bases it must first have a 'valid claim'; and it does not. Timtech's liability, QBE contends, is not one that arose 'in connection with ... (its) professional business practice'. Timtech's liability did not arise from advice given to CHH on the supply  and  use  of  wood  processing  chemicals  and  equipment.  It  arose  from Timtech's failure to treat CHH's timber to the standard specified.

Valid Claim

[38]     To qualify for indemnity in any of the three ways that Timtech advances, most plainly the first under the principal insuring clause, which involves nothing more, Timtech must as it accepts have a 'valid claim'. And in each of these three instances Timtech's 'valid claim' has to be a claim that is valid according to the definition that applies generally unless, in a given context, it is 'specifically stated to the contrary'.

[39]     A ‘valid claim’ first assumes a ‘claim’; a claim on Timtech for damages made in legal proceedings or in any proceeding threatened or intimated, or even 'any allegation of wrongdoing by the insured or for which the insured is legally liable, together with a demand for damages.' As to this there is no issue. QBE accepts that CHH's settled claim on Timtech qualifies.

[40]     Nor is there any issue that CHH's claim on Timtech has the first two of the three attributes necessary for a 'valid' claim. CHH made its claim, and Timtech notified QBE of that claim, within the period of insurance. In issue is the third attribute. Timtech claims, and QBE disputes, that CHH's claim is one 'alleging civil liability, by any act, error, omission or conduct that occurred ... in connection with the Insured's Professional Business Practice.'

[41]     Clause  12  defines  'professional  business  practice'  to  be,  ‘The  business conducted by the Insured as specified in the Schedule’; and the Schedule defines that business to be, ‘Technical advice regarding the supply and use of wood processing chemicals and the associated equipment.’ To succeed in its claim, therefore, as the words plainly say, and as QBE contends, Timtech must demonstrate that CHH's claim arose 'in connection with' that 'professional business practice' as defined.

[42]     Timtech, as I understand its submission, first contends that its claim is valid because it is in respect of a liability incurred in the ordinary course of its business; and that this is all it needs to demonstrate. Its 'professional business practice' and its business, it contends, though not identical, for this purpose sufficiently equate. Alternatively and less ambitiously, Timtech contends, its claim is valid because its liability arose from an error in the course of its 'professional business practice', understood in the most literal sense.

Simple business connection

[43]     To qualify for indemnity under the principal insuring clause and on the two other bases advanced, Timtech contends first, all it has to do is to establish a link between the liability it incurred and the conduct of its business.

[44]     The words 'in connection with', Timtech contends, call only for some tangible link with its business. They do not require the most immediate link conceivable, that the liability have arisen from Timtech's own act or omission. Nor, it contends, need that error even have arisen in respect of the activity that Timtech identified as its

'professional  business  practice'.  That  definition,  it  contends,  is  no  more  than shorthand for its business.

[45]     I accept Timtech's first proposition to this extent. The words 'in connection with' are not prescriptive as to the link called for between Timtech's liability to CHH, as to which there is no issue, and its 'professional business practice'. It will be

enough if the one is 'bound up with' or 'having to do with' the other.[6] I am unable to accept Timtech's second and related proposition.

[6] Drayton & Ors v Martin & Ors [1996] 9 ANZ IC 61 - 322, 76 - 597.

[46]     In  equating  its  'professional  business  practice',  even  as  defined,  with  its business, writ large, and in thus contending that its practice includes even those parts of its business that are not professional in character, Timtech negates the function of that definition; and that function is basic to the logic and extent of the policy. It serves to demarcate the scope of the indemnity QBE has assured Timtech.

[47]     This  policy  does  not  offer  a  general  indemnity  to  Timtech.  It  offers  an indemnity to Timtech only insofar as Timtech engages in a 'professional business practice'. Everything else is beyond the scope of the indemnity. Whether then the CHH liability was connected with Timtech's professional business activities, as opposed to those that were not, is fundamental.

[48]     In equating its business with its 'professional business practice', moreover, Timtech contradicts and negates its own definition of what its professional business was at the date the indemnity was given. The definition in the Schedule derives directly from Timtech's own proposal. Timtech can hardly expect QBE to indemnify it for a liability arising out of an activity that it did not then in some sense identify.

Professional activity connection

[49]     Timtech is obliged, therefore, as it next does, to contend that its liability to

CHH gives rise to a 'valid claim' against QBE because that liability arose from its

'professional business practice', as defined in the Schedule, the giving of 'technical advice regarding the supply and use of wood processing chemicals and associated equipment'.

[50]     In advancing its claim in that necessarily narrower way Timtech contends, accurately enough, that the Schedule definition of its business practice is no more than a summary re-statement of two answers it gave in the proposal  that QBE

accepted.  It  then  described  its  business  activities,  and  the  advice  it  gave,  as

'manufacture + supply of wood preservatives + associated plant and equipment. Technical advice.' Its relevant business activities, it contends, extended more widely, as became evident when it contracted with CHH to treat CHH's timber with preservative itself. But that does not make those answers any less definitive.

[51]     The proposal form that QBE had Timtech complete called on Timtech, and emphatically,  to  be  as  detailed  as  it  needed  to  be  in  order  to  be  accurate  and complete. Timtech elected to describe its 'professional business practice' as it did and is fixed with its own description. The most that Timtech can do, I consider, is to assert, as it has, that technical advice can be embodied in a design or specification. But that too does not take Timtech far enough.

Timtech's liability and loss

[52]     Timtech's claim becomes unsustainable, I consider, when it contends that its liability to CHH, which arose out of the fixing of the set points to the UniPlant, was a liability deriving from 'technical advice' it gave to CHH regarding 'the supply and use of wood processing chemicals and associated equipment.'

[53]     The contract between Timtech and CHH, under which that liability arose was not  their  usual  contract,  under  which  Timtech  supplied  CHH  preservative  and advised CHH how to use it. Nor was it the contract that they negotiated, but into which  they did  not  enter,  under  which  CHH  was  to  purchase  a UniPlant  from Timtech, which Timtech was to commission for CHH; an exercise that would have required Timtech to fix the set points, in all probability employing Dr Hann as an independent consultant.

[54]     Had the contract been in either of those forms Timtech could well have a claim on QBE under this present policy even though the set points were fixed for Timtech by an independent consultant. But this present contract, a contract never apparently  documented, was  fundamentally  different.  Timtech  did  not  supply preservative to CHH for CHH to use, by whatever means, or offer advice as to how to use it. It undertook contractually to treat CHH's timber with preservative itself, and to CHH's specification.

[55]     Timtech's liability to CHH, a liability that it accepted without demur in the settlement  reached, did not arise from giving CHH incorrect advice as to how to use preservative it had supplied. It did not arise from calibrating a UniPlant for CHH incorrectly. It arose in contract because Timtech failed to treat CHH's timber with preservative  to  the  standard  CHH  had  prescribed  and  rendered  it  unfit  for  its purpose.

[56]     The nature of Timtech's liability to CHH is, I consider, fatal to the validity of its claim on QBE, most immediately and plainly under the principal insuring clause, but no less inevitably under the consultant's extension and the endorsement. It is as well also a claim necessarily excluded by three exclusionary clauses on which QBE relies. I will now say for completeness, and more briefly, why.

Extension and endorsement indemnity

[57]     Under the extension QBE indemnified Timtech for any 'claim for any act or omission committed by any consultant, contractor or agent for whose act, error or omission the insured is legally liable'. But that indemnity, like that conferred by the primary insuring clause with which it was co-extensive, assumed a 'valid claim'.

[58]     Timtech's liability under its contract with CHH may have arisen because its own consultant made a professional error. But that was an error made within the context of a contract between the two distinct from Timtech's contract with CHH. It is not an error that Timtech is entitled to superimpose on the liability it incurred to CHH under their quite distinct contract. Nor, it seems to me, is Timtech any better placed under the endorsement on which it equally relies.

[59]     By the endorsement  QBE agreed  to indemnify Timtech  for 'valid  claims arising  from  faulty  or  inadequate  design  or  specification'.  Here  too,  however, Timtech must first have a 'valid claim'. And though Timtech contends the terms of the endorsement vary the definition of 'valid claim', by necessary implication, and obviate  any  need  for  the  claim  to  arise  from  Timtech's  'professional  business practice', Timtech is no better placed.

[60]     Timtech's interpretation inverts the logic of the policy. The definition of 'valid claim' is not, as Timtech assumes, to be broadened, or relaxed, to conform with the apparent breadth of the indemnity the endorsement offered. Unless the endorsement expressly varied that definition it remained prescriptive; and there is no such express variation. The definition of 'valid  claim' circumscribed, therefore,  the indemnity given by the endorsement, however apparently wide that indemnity was.

[61]     Timtech's  liability,  moreover,  because  it  derives  not  from  a  'faulty'  or inadequate design or specification', but from a failure to treat timber to specification, is inconsistent with three exclusions limiting the endorsement. The endorsement does not extend to:

(a)       faulty or inadequate manufacture, or;

(b)       faulty or inadequate workmanship, construction or fabrication, or;

...

(d)      breach of any express or implied warranty arising out of the sale of goods.

[62]     Even if these exclusions do not apply in the most literal sense, they certainly support QBE's interpretation of the scope of the indemnity offered with which I agree. Broadly the same reasoning holds good, I consider also, as to the general exclusions to which I come finally.

Exclusions

[63]     QBE is, I consider, entitled to rely on three exclusionary clauses, two of which stand in a natural relationship, and the first of which excludes any claim:

alleging or in respect of any promise, guarantee, condition or representation that the insured's services will meet a particular level or standard, or timeframe, or produce a particular result. However, this exclusion will not apply to liability that would have attached in the absence of such promise, guarantee, condition or representation.

As Timtech accepts in the deed of settlement, its liability to CHH derived from its failure to meet particular standards and to produce a particular result. Nor does the proviso to this exclusion apply. The only basis on which Timtech could have become

liable to CHH was by virtue of their contract. The result is that the second exclusionary clause is also engaged and it excludes any claim:

... in respect of liability incurred by or on behalf of the insured arising from an  agreement,  where  liability  would  not  otherwise  have  existed  in  the absence  of  the  agreement. However  this  exclusion will  not  apply to  an agreement by or on behalf of the insured to provide professional services to the customer, except to the extent that the insured has agreed to accept a liability regardless of fault.

Timtech's liability only arose as a result of the contract between them and the proviso does not apply because that agreement was not one under which Timtech provided professional services.

[64]     Finally, the 18th exclusion provides that QBE shall not be liable for any

'supply of goods'; and thus, 'any claim alleging or arising from the sale, supply, installation, efficacy or manufacture of goods'. To the extent that Timtech supplied preservative in the course of treatment, this too applies.

Conclusion

[65]     Timtech  does  not,  I  conclude,  have  any  claim  against  QBE  under  its professional indemnity policy for the liability that it incurred to CHH. There will be judgment for QBE, which is consequently entitled to any award of costs and disbursements. In the event that costs cannot be agreed QBE is to file its submission within 10 working days of the date of this decision and Timtech is to reply within the

succeeding 10 working days.

P.J. Keane J