Toomey v. Scolaro's Concrete

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DMC/INS/02/21
Toomey v Scolaro’s Concrete Constructions Pty Ltd (in liquidation  (No 5)
Australia; Supreme Court of Victoria, Eames J: (2002) 12 ANZ Ins Cas 61-519: 7 March 2002
INSURANCE — PUBLIC LIABILITY POLICY — CONSTRUCTION OF CONTRACT — CLAIMANT A SUBSIDIARY COMPANY AND PROJECT MANAGER FOR PROPERTY DEVELOPMENT BY GROUP — COMPANIES IN GROUP OWN PROPERTY WHICH IS SUBJECT OF DEVELOPMENT — WHETHER COVER "IN CONNECTION WITH THE BUSINESS" IS CONFINED TO COMPANIES IN GROUP OWNING AND OCCUPYING PROPERTIES — EXCLUSION CLAUSE — NO COVER FOR "BREACH OF A DUTY OWED IN A PROFESSIONAL CAPACITY" — WHETHER FINDING OF VICARIOUS LIABILITY INCLUDED FINDING THAT PROJECT MANAGER IN BREACH OF ITS OWN DUTY OF CARE — WHETHER PROJECT MANAGER AND/OR EMPLOYEE ACTING IN A "PROFESSIONAL CAPACITY"

DMC Category Rating: Developed

Case note contributed by David Randazzo, lawyer at Ebsworth & Ebsworth Lawyers, Sydney. Ebsworth & Ebsworth Lawyers are International Contributors for Australia.

Summary
This decision sheds some light on the scope of professional duty exclusions in public liability policies. Whether or not conduct will be regarded as professional will depend on the nature of the policy in question. In the case of a professional indemnity policy, the term will be given a broad meaning so as to provide maximum cover to the insured. In the case of a public liability policy, the term will be read narrowly so as to restrict the application of the exclusion clause.

Facts
Mr Toomey suffered injuries following a fall from a balustrade rail in an apartment complex owned by Davidson Hughes Pty Ltd (DH). Hudson Conway Management Ltd (HCML) was appointed Project Manager during the construction of the complex. HCML and DH were both wholly owned subsidiaries of Hudson Conway Ltd (HC). The balustrade over which Mr Toomey fell did not comply with minimum height regulations.

Judgment
Having ruled in favour of Mr Toomey on 17 August 2001, the Court was then asked to consider whether or not HCML was entitled to indemnity under a public liability policy issued by RSA. The policy defined Policyholder as HC and all subsidiary companies. The Business of the policy included the:
"ownership or occupation of, the carrying out of maintenance, alterations or additions to, or the demolition of the policyholder’s premises to which the policy applies".

The Court held that since HCML was not an owner or occupier of the premises, it was not entitled to cover under the policy. In so doing, the Court noted that the separate corporate personality of the companies cannot be:
"ignored so that ownership or occupation of property by one company can provide the basis for coverage by another in circumstances where coverage is dependent on ownership or occupation".

While he did not need to, given his findings in relation to the operation of the policy, Eames J went on to consider whether the policy’s professional duty exclusion clause would apply in the circumstances. The policy provided that the insurer shall not be liable for "claims arising out of any breach of duty owed in a professional capacity..."

As noted, HCML was Project Manager for the apartment complex in which Mr Toomey suffered injury. HCML employed a Mr Jones to oversee various aspects of the construction. Mr Jones, a carpenter by trade, was described as "the lowest in the pecking order of HCML, working on the site as project manager". His duties were to ensure that the builder was doing what he had been contracted to do and was engaging appropriate numbers of sub-contractors.

In his original decision, Eames J had found that Mr Jones had been notified that the balustrade height did not comply with regulations and that, despite this knowledge, he instructed the builder to leave it at the height it was. The decision to do nothing was based on reasons of cost and delay and was in breach of the duty of care owed to Mr Toomey, for which HCML was held vicariously liable. Eames J then went on to consider whether liability arose as the result of a breach of duty owed in a professional capacity.

The judge commented as follows:
"Actions of an entirely unprofessional kind by an employee, which take place in a professional organisation, might nonetheless be held to have arisen in a professional capacity, and likewise, in an organisation which would be regarded as engaged in industrial and not professional pursuits, the activities of an employee at any given moment might well be characterised as constituting a professional service sufficient to demonstrate that liability of the employer arose by breach of duty owed in a professional capacity".

After reviewing the main authorities dealing with this issue, Eames J went on to hold that the question must be answered having regard to "the totality of the circumstances". Where the policy provides cover for breach of professional duty, the term will be given a wide reading so that a range of activities that may not strictly be regarded as professional will fall within the scope of the policy. On the other hand, in the case of a public liability policy that excludes claims arising out of a breach of professional duty, the term will be given a narrow reading, in accordance with the contra proferentem principle:
"Where the insurer is seeking to give a restrictive meaning to the words of its own policy so as to deny coverage under a professional indemnity policy, an attempt to confine liability to the practice of the learned professions might be resisted in favour of a more broad approach".

Interestingly, the judge noted that it would be appropriate to give the term an identical meaning where the insured held both a public liability policy and a professional indemnity policy issued by the same insurer.

On the facts of the case at hand, Eames J held that the duty was not owed in a professional capacity, thus denying the operation of the exclusion clause. In performing his functions as site manager, Mr Jones was not performing professional functions even when a broader interpretation of this term is adopted. As for HCML, the role of Project Manager may well be considered professional in the case of a professional indemnity policy, though an opposite finding was made in the case of the RSA Public Liability policy.

The appeal will be heard in February 2003.

Comments
The Victorian Supreme Court decided not to restrict the definition of professional duty, instead electing to give the term a fluid interpretation depending on the type of policy in which it appears. As a result, insurers should be aware of the limitations that will apply to professional duty exclusion clauses found in public liability policies. Furthermore, insurers should be aware that the term will be given a broad definition in the case of professional indemnity policies.

 

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