Centriq Insurance Company Ltd v Oosthuizen and Another

• Jurisdiction: South Africa
• Citation: 2019 (3) SA 387 (SCA)

Centriq Insurance Company Ltd v Oosthuizen and Another
2019 (3) SA 387 (SCA)

2019 (3) SA p387

Citation	2019 (3) SA 387 (SCA)
Case No	237/2018; [2019] ZASCA 11
Court	Supreme Court of Appeal
Judge	Cachalia JA, Mbha JA, Mathopo JA, Dlodlo AJA and Rogers AJA
Heard	March 14, 2019
Judgment	March 14, 2019
Counsel	CE Watt-Pringle SC (with CC Bester) for the appellant.; JF Mullins SC (with PJJ Zietsman) for the second respondent.

Flynote : Sleutelwoorde

Insurance — Policy — Interpretation — Professional indemnity policy — Liability exclusion clause — Principles governing interpretation of.

Headnote : Kopnota

When Ms Oosthuizen approached her financial advisor (and registered financial C services provider), Mr Castro, to recommend a safe and high-income investment vehicle, she was advised to invest in a particular property syndication scheme. When that investment failed entirely, she sued Mr Castro in the High Court (Free State) for the R2 million she had invested. In answer to the claim, Mr Castro joined Centriq Insurance Company Ltd (Centriq), submitting that he was entitled to be indemnified under the D professional indemnity insurance policy he had taken out with Centriq protecting him from liability for breach of duty through negligent acts, errors or omissions. In turn, Centriq denied any such entitlement, claiming that Ms Oosthuizen's loss fell within the ambit of provisions of a liability exclusion clause in the policy, excluding Centriq from having to indemnify the insured member, in respect of third-party claims 'arising from or E contributed to by depreciation (or failure to appreciate) in value of any investments' or 'as a result of any actual or alleged representation, guarantee or warranty provided by or on behalf of the Insured as to the performance of any such investments'. The High Court found that Mr Castro was liable for Ms Oosthuizen's loss as he had breached his F fiduciary duties to his client to take reasonable steps to satisfy himself of the safety of the investment and to give her adequate financial advice to meet her needs. However, it found that Centriq was indeed obliged to indemnify him in terms of the policy, and that the exclusion clause was not triggered. Centriq appealed to the Supreme Court of Appeal, where the central task was the interpretation of the above policy exclusion provisions to determine whether Ms Oosthuizen's claims fell within their ambit. (The SCA accepted G that Mr Castro was liable for Ms Oosthuizen's loss.)

Held, that, as an insurance contract was a contract like any other, in interpreting them, general principles of interpretation applied (see [17]). However, because insurance contracts had a risk-transferring purpose containing particular provisions, regard had to be had to principles governing the H interpretation of insurance contracts specifically (see [18] – [21]). These included:

•

Any provision that placed a limitation upon an obligation to indemnify was usually restrictively interpreted, for it was the insurer's duty to spell out clearly the specific risks it wished to exclude.

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In the event of real ambiguity the doctrine of interpretation of I contra proferentem applied, and the policy was generally construed against the insurer who framed the policy and inserted the exclusion.

•

An exclusion clause had to be read in the context of the contract of insurance as a whole, and be construed in a manner which was consistent with and not repugnant to the purpose of the insurance contract, and that was commercially sensible. J

2019 (3) SA p388

•

Despite A the above, courts were not entitled, simply because the policy appeared to drive a hard bargain, to lean to a construction more favourable to an insured than the language of the contract, properly construed, permitted. For, if that was what the insured contracted for, that was what he was entitled to, and no more. It was not for the courts to construe exclusions in favour of the insured simply because it B considered them to be unfair or unreasonable.

Held, that, applying the above principles, the exclusion clause, in referring to claims arising from or contributed to by depreciation (or failure to appreciate) of the investment, meant claims arising from an investment that initially had had a material value but had then declined in value due to C market fluctuations. It did not refer to investments that, like the one under consideration, were not capable of generating an appreciable value from the beginning. (See [24], [27] and [28].)

Held, further, that the exclusion clause, in referring to claims arising from an insured's representations as to the performance of an investment, did not mean claims arising simply from an insured's representations as to the D fundamental character of an investment, as was the case in the present instance in which Mr Castro did no more than guarantee the 'safeness' of the investment, as opposed to its performance. (See [30].)

Held, accordingly, that the exclusion clause was not triggered, and that the court a quo correctly upheld Mr Castro's claim to be indemnified in accordance E with the terms of the policy. Appeal dismissed. (See [33].)

Cases cited

Southern Africa

Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA) ([2014] 1 All SA 517; [2013] ZASCA 176): dictum in para [12] applied

Fedgen Insurance Ltd v Leyds F 1995 (3) SA 33 (A): dictum at 38A – E applied

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) ([2012] 2 All SA 262; [2012] ZASCA 13): dictum in para [18] applied

Oosthuizen v Castro and Another 2018 (2) SA 529 (FB): confirmed on appeal.

England G

Crowden v QBE Insurance (Europe) Ltd [2018] Lloyd's Rep IR 83 (Q) ([2017] EWHC 2597 (Comm)): dictum in para [65] approved

Impact Funding Solutions Ltd v AIG Europe Insurance Ltd (formerly known as Chartis Insurance (UK) Ltd) H [2017] Lloyd's Rep IR 60 (SC) ([2016] UKSC 57): dictum in para [7] approved.

New Zealand

Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608: I compared.

Case Information

CE Watt-Pringle SC (with CC Bester) for the appellant.

JF Mullins SC (with PJJ Zietsman) for the second respondent.

An appeal from the Free State Division of the High Court, Bloemfontein J (Daffue J sitting as court of first instance). Appeal dismissed.

2019 (3) SA p389

Judgment

Cachalia JA (Mbha JA, Mathopo JA, Dlodlo AJA and Rogers AJA concurring): A

[1] This appeal concerns the interpretation of a professional indemnity insurance policy underwritten by Centriq Insurance Company Ltd (Centriq). The policy indemnified a financial advisor from liability for 'breach of duty in connection with [his] business by reason of any B negligent act, error or omission'. The advisor had advised his client to invest in a dubious property development scheme in circumstances described more fully below. The investment failed, and she sought to recover her loss from him, who in turn claimed the indemnity from Centriq. It denied liability, relying on an exclusion clause that set out C certain situations in which the indemnity did not apply. The defence failed in the Free State Division of the High Court. [1] Centriq now appeals that order with leave of this court. The issues in this appeal are important for insurers who underwrite financial advice on the one hand, and for financial advisors who seek to indemnify themselves against the adverse consequences of their advice on the other. D

Genesis of the dispute

[2] The first respondent, Mrs Marisa Vogel Oosthuizen, became widowed following her husband's death in a shooting accident, leaving her E with their two and half-year-old son. The deceased was a farmer and his life policy secured for her an amount of R3,4 million. Of this amount she set aside R300 000 as a reserve, purchased calves to the value of R1,1 million and decided to invest the balance of R2 million. To this end she sought the advice of Mr José Francisco Castro, who had previously advised her husband and whom she trusted. He was registered as a F financial services provider and a broker in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. He advised her to invest the R2 million in Sharemax Investments (Pty) Ltd (Sharemax). The investment was in a property development scheme known as 'The Villa Retails Park Holdings 2'. The Villa was a yet to be completed shopping complex, a fact that he did not draw to Mrs Oosthuizen's attention. G

[3] The development failed following a Reserve Bank investigation, which found that Sharemax was contravening the Banks Act 94 of 1990 by taking deposits illegally. With no prospect of recovery from H Sharemax, Mrs Oosthuizen sued Mr Castro for the loss of her capital sum of R2 million, plus mora interest on this amount, less an amount of R1400 she had received from Sharemax a few days after making the investment. Her claim was that Mr Castro had failed to act honestly and fairly in her interests in recommending the investment; that he had not given her objective financial advice appropriate to her needs; and that he I had not exercised the degree of skill, care and diligence expected of an authorised financial services provider.

2019 (3) SA p390

Cachalia JA (Mbha JA, Mathopo JA, Dlodlo AJA and Rogers AJA concurring)

[4] A After the pleadings had closed, Mr Castro joined Centriq as a third party claiming that he was entitled to be indemnified under the...