Liability at the end of the tunnel

In the Zurich Insurance Company South Africa Ltd versus the Gauteng Provincial Government [2022] ZASCA 127 (28 September 2022) case, the Supreme Court of Appeal found that the rock mass surrounding the tunnel was property insured, and that the claim, instituted after six years of the damage, had not prescribed.

The matter dealt with an appeal concerning a claim for the enforcement of a contract of insurance (the policy) concluded by the appellant, Zurich with, inter alia, the respondent, the Provincial Government.

Obliged to indemnify

After the Provincial Government had discovered what it believed to be damage to parts of the tunnel system in which the Gautrain rapid rail system operates, and Zurich had repudiated a claim made in terms of the policy, the Provincial Government issued summons in which it claimed declaratory relief to the effect that Zurich was obliged to indemnify it in respect of the repair, replacement or making good of the damage to the tunnels. The High Court ordered that Zurich was obliged to indemnify
the Provincial Government for the costs of repair, replacement or making good of the damage to the tunnels, and that the Provincial Government’s claim against Zurich had not prescribed.

The pertinent issues on appeal were (i) whether the Provincial Government’s claim had become prescribed and (ii) whether the rock surrounding the void formed part of the property insured.

It was common cause, first, that the tunnels did not meet the specifications that had been set, as to the maximum permissible levels of water ingress. The second is that the construction of the tunnels was covered by the policy, although what was meant by the term ‘tunnel’ remained in dispute. The third is that no pre-grouting work was performed in the construction of the tunnels in question. Fourthly, that the damage in respect of which the Provincial Government sought to be indemnified, occurred because of the construction of the tunnels.

The prescription defence

First, the court dealt with the prescription defence. Zurich pleaded that the Provincial Government’s claim against it had prescribed on the basis that the construction of one of the tunnels was completed by 4 January 2009, and of the second tunnel, by 2 July 2009. If there had been damage caused to them, no further damage could have been caused by the contractors after these dates. Zurich contended that the Provincial Government was, at all times, aware of the identity of the defendant. It was also aware of the facts giving rise to the debt from these dates on, or it ought reasonably to have had this knowledge from these dates on.

Zurich led no evidence to establish its defence of prescription. Instead, it relied on an inference that, if damage had been caused, it was the result of the drilling and blasting method of excavation. Zurich also contended that the Provincial Government must have been aware of the damage, because it had a support team in place to monitor the construction of the tunnels, and that this team, made up of suitably qualified people, must have observed the damage at the time of the construction.

The court’s view

The court remarked that to have a complete cause of action, the Provincial Government had to have knowledge that damage to the tunnels had occurred. The chronology of events showed that it may have suspected, for some time, that damage to the tunnels had been caused. It could, however, not quite identify the damage or its cause, and neither could Zurich’s assessors when they investigated on the strength of the Provincial Government’s concerns. It was only in May 2014, when Dr Barton (rock mechanics engineer) expressed an opinion that the failure to pre-grout when blasting had caused damage to the rock mass surrounding the void of the tunnel, and this was not physically detectable during an inspection.

Firstly, the court held that the Provincial Government acquired actual knowledge of the damage in 2014, but it was not possible for it to have had knowledge attributed to it any earlier, because of the specialised knowledge and expertise necessary to establish that damage had occurred. Secondly, when it was deduced that the damage had been caused, the Provincial Government established a fact, rather than an inference of negligence or a conclusion of law. Only then could it be said that the Provincial Government had a complete cause of action. The court held that prescription began to run in May 2014 and was interrupted by the service of summons in February 2015, some nine months later. Consequently, the Provincial Government’s claim had not prescribed.

The court went to determine whether the rock mass surrounding the tunnels formed part of the property insured. The court remarked that it was common cause that damage occurred and that the damage was caused to the rock mass that surrounds the tunnels. Consequently, the correctness of Zurich’s argument that the rock mass is not part of the property insured depends, ultimately, on an interpretation of the policy, and an answer to the question, “what is a tunnel?

Interpretation of the policy

In arriving at its decision, the court considered the insuring clause, the definition of “damage” and “tunnel” in civil engineering terms, and the terms and conditions of the policy. The court remarked that the policy was intended to give extremely wide cover to the Provincial Government. The cover operates in respect of damage to the property insured howsoever caused, subject to various limitations and exclusions. In this scheme, several terms that have been defined in the policy, such as ‘property insured’, ‘tunnel works’ and ‘civil works’, tend to overlap; what emerges clearly enough, however, is that tunnel works, being permanent works, fall within the definition of the property insured, and tunnel works specifically include tunnels. Tunnel works are also the subject of specific exclusions and limitations. They would only be subject to those exclusions and limitations, if they were part of the property insured.

Consequently, the court held that the property insured by the policy included the rock mass that surrounds the void created by the process of excavation. The damage caused by the failure to pre-grout the tunnels was covered by the policy.

The judgement is significant in two respects. One, in respect to engineering claims to determine knowledge of harm in relation to prescription it may be necessary to place reliance on specialised expertise to establish harm to the insured. This is consistent with the findings made in Links’ judgment, which dealt with medical negligence claims. Secondly, and evidently, Zurich intended (as it is the norm in these types of policies) to exclude liability for the harm suffered by the Provincial Government, however, the policy did not speak to such an intention.

Source: FANews – November 2022 – Edition 152.pdf Visit www.fanews.co.za/

Article by Ayanda Nondwana, Director and Zinhle Mokoena, Associate Director