Structural survey — Allegation of negligence against surveyors which they denied — Inspection carried out by assistant with less than three and a half years of practical experience — Report read and approved by qualified partner — Claim by defendant surveyors against insurers under professional indemnity policy — Whether insurers could rely on exclusion — Whether assistant who carried out survey had been properly ‘supervised’ within the meaning of the policy — Question decided in favour of insurers — Some attendance by a qualified person essential in the absence of exceptional circumstances
the present proceedings related to the liability of the third party, the
insurers, under the professional indemnity policy — The facts were that the
plaintiffs had instructed the defendants to carry out a structural survey of a
house at 77 Barrowgate Road, Chiswick, London W4 — The property was inspected
by an assistant surveyor, Mr Paul Taylor, who had just under three and a half
years of practical experience after graduating from Liverpool University — He
worked under a partner in the defendant firm, Mr Horner, a chartered surveyor,
who, it was claimed, provided the supervision mentioned in the indemnity policy
— That policy excluded the insurers’ liability to indemnify unless the survey
was carried out by a qualified member of one of several professional
institutions or a person with not less than five years’ experience of the work
or a ‘person nominated’ by the assured to carry out the work ‘subject always to
supervision of such work by a person qualified in accordance with’ the policy —
It was contended by the defendants that Mr Taylor was a person so nominated and
so supervised — Whether he was so supervised was the main question in the
present proceedings — The partner in the defendant firm, Mr Horner, who was the
qualified person, did not himself attend the inspection of the subject property
— He had confidence that Mr Taylor was by that time capable of carrying out
inspections on his own — Mr Taylor had been provided with a detailed check
sheet — He prepared a draft report which was submitted to Mr Horner and was
then discussed in detail with him and finally approved by him — It should be
mentioned that although Mr Horner was not present at the inspection of the
subject property, he had recently surveyed a neighbouring property, 101
Barrowgate Road
decision was that the supervision by a qualified person contemplated by the
indemnity policy had not been satisfied — The work which had to be supervised
comprised four elements: (1) preparation for the visual inspection, (2) the
visual inspection, (3) Evaluation of what had been seen at the inspection, and
(4) the report — Although it was clear that Mr Horner did not have to carry out
the inspection himself or be present throughout the whole of the time when Mr
Taylor was carrying it out, the judge found that, in the absence of exceptional
circumstances, some attendance by Mr Horner was essential — Such exceptional
circumstances might include a substantial video film by the nominated person or
might be satisfied by the attendance of the qualified person before or after
the inspection — No such exceptional circumstances existed in the present case
— Hence the exclusion in the indemnity policy applied and the third party was
not liable to indemnify the defendants if a claim against them were to succeed
The following case is referred to in this
report.
Roberts v Littlewoods Mail Order Stores Ltd
[1943] KB 269; [1943] 1 All ER 271; 112 LJKB 221; 168 LT 253; 107 JP 81; 59 TLR
158
The present proceedings arose from a
third-party notice which the judge gave leave to the defendants to serve in the
action by the plaintiffs, Grahame and Rosemary Elizabeth Summers, against the
defendants, Congreve Horner & Co, a firm of chartered surveyors, alleging
negligence and breach of contract — The third party was the Independent
Insurance Co Ltd, which had refused to agree to indemnify the defendants
against a claim by the plaintiffs.
Simon Goldblatt QC and Colin Edelman
(instructed by Davies Arnold Cooper) appeared on behalf of the defendants;
Augustus Ullstein (instructed by Davies-Lavery, of Maidstone, Kent) represented
the third party.
Giving judgment, JUDGE FOX-ANDREWS QC
said: On February 21 1989 the defendants, a firm of chartered surveyors,
pursuant to an agreement made with the plaintiffs, submitted a written
structural survey report on 77 Barrowgate Road, Chiswick, London W4. The
plaintiffs allege that on the strength of that report they contracted to
purchase the property for £500,000.
The plaintiffs allege that the property
contained a number of defects which a proper survey should have revealed but
which it failed to do. In July 1989 the plaintiffs gave notice to the
defendants of their intention to make a claim against the defendants.
By a renewal contract of insurance made
in about March 1989 between the defendants and the third party and contained in
a policy of insurance signed on behalf of the third party on July 7 1989, in
consideration of the premium paid by the defendants to the third party, the
third party agreed to indemnify the defendants against any claim or claims
first made against the defendants during the period of insurance from March 3
1989 to March 2 1990 inclusive, in respect of any civil liability whatsoever
and whensoever arising (including liability for claimant’s costs) incurred in
the course of any professional business carried on by or on behalf of the
defendants.
Immediately on receipt of the plaintiffs’
claim in July 1989 (which was the first made by them) the defendants gave
notice to the third party.
On September 12 1989 the plaintiffs
commenced proceedings against the defendants claiming damages on the grounds
that in carrying out the survey and in making the report they acted negligently
or in breach of contract. Following two amendments of their statement of claim
the plaintiffs alleged that it would cost £105,601.70 to remedy defects which
the defendants failed to discover. They allege that the value of the house was
£395,000 not £500,000. On December 12 1989 the defendants served their defence
denying negligence or breach of contract.
Because of the refusal of the third party
to agree to indemnify the defendants, on December 20 1990 I gave leave to the
defendants to issue and serve a third-party notice, which was subsequently
ordered to stand as the third party’s statement of claim.
In their defence the third party set out
their grounds justifying their refusal to agree to indemnify the defendants.
This was based upon certain provisions contained in exclusion 11 of the policy.
The policy was described as one of
professional indemnity. It contained certain definitions of which I should read
two:
‘Professional Business’ is understood to
apply to the advice given or services performed of whatsoever nature by or on
behalf of the firm . . . whatsoever or by whomsoever given or performed and
shall extend to any assured . . .
‘The Assured’ shall mean
(a)
those persons named in the last completed proposal form . . .
The last completed proposal form was
dated March 3 1989. Among the persons named in that form who did not have
professional qualifications was Paul Graham Taylor. Of him it was stated that he
had passed RICS, that he was completing his final year of test of professional
competence and that he had four years’ practical experience.
The policy contained 12 exclusion
provisions. Exclusion 11 read as follows:
The policy shall not indemnify the assured
against any claim or loss arising from survey/inspection and/or valuation
report of real property unless such survey/inspection and/or valuation shall
have been made
(a) by
a fellow or professional associate of the Royal Institution of Chartered Surveyors
(RICS); or
by a fellow
or associate of the Incorporated Society of Valuers and Auctioneers (ISVA); or
by a fellow
or associate of the Faculty of Architects and Surveyors (FFAS); or
by a fellow
or associate of the Royal Institute of British Architects (RIBA); or
by a fellow
or associate of the Royal Institute of Architects of Scotland (RIAS) or
(b) by
anyone who has not less than 5 years experience of such work or such other
person nominated by the assured to execute such work subject always to supervision
of such work by a person qualified in accordance with (a) above.
Trial of the action and the third-party
proceedings is fixed for September 16 1991, but on February 11 1991 I ordered
that certain subtrial issues between the defendants and the third party should
be heard on May 31 1991.
The subtrial issues were agreed between
the defendants and the third party on March 22 1991. These were:
1
What is the proper construction of exclusion 11 of the policy and in
particular the words ‘subject always to supervision of such work’?
2
As a question of fact was there in this case such supervision by a
qualified person as was required by exclusion 11 of such work executed by
Taylor?
3
Upon the foregoing construction of exclusion 11 and findings of fact is
the third party liable under the policy to indemnify the defendants against the
claim made by the plaintiffs arising from the report the subject-matter of the
main action?
At the hearing the defendants called
first Mr Robert Horner FRICS, a partner of the defendants, the person whom the
defendants say was the qualified person who provided the required supervision.
Their second witness was Mr Paul Taylor.
At all material times he had just under three and a half years of practical
experience. He was the person whom the defendants had nominated to execute the
works necessary for the survey report. The defendants called a Professor
Malcolm Hollis [FRICS] as their surveying expert and a Mr John Kidd as their
insurance expert.
The third party called Mr Anthony Poole
[FRICS] as their surveying expert and Mr Barry Atkinson as their insurance
expert.
The written statements of each witness
stood as their evidence-in-chief, with certain supplementary answers being
obtained.
The facts relating to the inspection and
subsequent survey report were not essentially in issue. Mr Taylor was a
graduate of Liverpool University. He had been a trainee building surveyor with
Hillingdon London Borough from November 1985 to June 1987. He had then been
employed as a building surveyor by the Equity & Law Life Assurance from
June 1987 until August 1988. He had joined the defendants’ firm in September
1988.
His inspection of the property on
February 16 1989 was the 17th with which he had been concerned directly or
indirectly since joining the defendants. He always worked with Mr Horner. Mr
Horner sets out in passages 5, 6 and 7 of his statement the procedures which
were followed:
5
After joining the firm, Paul Taylor accompanied me as an assistant and
observer when I carried out surveys. I explained as I dictated my report, why I
was making the comments I made, and I would point out the areas where the
greatest care had to be taken and where and when it was essential to warn the
client of potential problems. Such surveys took at least 5 hours but often a
whole day. Once I was satisfied he was sufficiently competent, the next step
was to allow him to carry out his own surveys whilst I observed him for the
whole period of the survey. I listened to his dictation and gave guidance.
Again, once I was satisfied, I permitted him to carry out surveys on his own,
but I would visit the property whilst he was there for a period of at least 30
minutes and sometimes longer, to make sure he was having no difficulties and
was generally following my earlier instructions. I recall that Paul carried out
his work competently.
6
Finally once I had the fullest confidence in him, I allowed Paul to
carry out inspections entirely on his own. I think his inspection of 77
Barrowgate Road was in fact the third time that he had been allowed to carry
out an inspection on his own and the seventeenth inspection he had worked on
since joining Congreve Horner. For that survey and his other surveys Paul was
provided with a pro-forma check sheet which set out in detail the matters which
should be considered by him during an inspection. The check list had been
prepared by me approximately fifteen years ago and is used by me when carrying
out inspections. The sheet was given to my supervisees when they carried out
inspections to ensure their inspection and subsequent report followed a logical
order and that nothing which should have been looked at was omitted during the
inspection itself. The sheet also allowed me to check my supervisees’
inspection by reference to a common standard.
7 After
Paul had carried out an inspection he would prepare a draft survey report. It
was my practice to go through the draft report with him and discuss in detail
the structure and condition of the building and the key recommendations made,
bearing in mind the building’s age, construction and location. For example I
would ask him about the type of bricks used since certain types of bricks are
known to be porous and particularly susceptible to frost damage. If Paul had
any concerns about his report, these would be discussed fully and it was my
practice to go back and check the site if an employee was unhappy with or
uncertain about any aspect of his inspection.
The facts relating to the property are
that Mr Taylor carried out the inspection on his own. Mr Horner, did not at any
material time visit the premises. Mr Taylor was engaged for some nine and a
half hours during the inspection. As he went round the property Mr Taylor
dictated various matters. Back at the office he then prepared a draft report
omitting some parts of the dictated matters. The draft report was submitted to
Mr Horner, who considered it and discussed it in detail with Mr Taylor. I have
had no evidence as to what if any difference there was between the draft and
final report. Mr Horner approved the final report, which was then submitted to
the plaintiffs.
It is against that background that I
return to consider the exclusion clause.
The Royal Institution of Chartered
Surveyors has for many years issued a professional indemnity collective policy.
A copy of that policy has been put before me. It contains an exclusion 11 in
identical terms to that in the third-party policy save it contains an obvious
typographical error. That clause has been in use since about 1976. There has
been no reported case upon it.
The law relating to the interpretation of
insurance policies is well settled. I should read certain passages from MacGillivray
on Insurance, 8th ed.
1066 Businesslike Interpretation.
It is an accepted canon of construction that a commercial document, such as an
insurance policy, should be construed in accordance with sound commercial
principles and good business sense, so that its provisions receive a fair and
sensible application. Several consequences flow from this principle. The
literal meaning of words must not be permitted to prevail where it would
produce an unrealistic and generally unanticipated result, as, for example,
where it would absolve the insurer from liability on the chief risks sought to
be covered by the policy.
. . .
1078 Commercial Object. It follows
that in interpreting any clause of a policy, it is correct to bear in mind the
commercial object or function of the clause and its apparent relation to the
contract as a whole. It may then become apparent that the literal meaning of
the clause must yield to business sense or that an ambiguity in the wording can
be resolved, or that the ordinary meaning of the words used may need to be
modified.
. . .
1097 Extrinsic Facts. The
intention of the parties is to be gathered not only from the meaning of the
words in the policy and related documents but also from the sense of the
wording in relation to the facts and circumstances which the parties must be
presumed to have had in mind when making their contract . . .
The commercial object is clear, indemnity
is to be afforded only where there is direct or indirect application of
expertise. There is nothing unreasonable for an insurer to say that in the
absence of the application of such expertise he will not be on risk.
The Shorter Oxford English Dictionary
meanings of survey are: ‘The action, or an act, of surveying, the object or
result of this. The act of viewing, examining or inspecting in detail
especially for some specific purpose . . . a written statement or description
embodying the result of such examination’.
The evidence of the surveying experts as
to the meaning of ‘such work’ in exclusion 11(b) is at one and their evidence
accords with common sense. It comprises four elements:
First: The preparation for the visual
inspection.
Second: The visual inspection.
Third: The evaluation of what had been
seen at the inspection.
Fourth: The report.
It is a material fact that Mr Horner had
surveyed 101 Barrowgate Road in March 1988. There is no evidence as to the part
of the dictated material which was omitted from the draft report. Mr Horner was
able to satisfy himself that Mr Taylor had followed the pro forma check sheet.
The evidence established that Mr Horner checked the contents of the draft
report in detail and approved the final report.
It is the execution of the works (that is
to say the four elements to which I have referred) by the nominated person that
must be supervised.
‘Supervise’ is defined in the Shorter
Oxford English Dictionary as: ‘To oversee, have the oversight of,
superintend the execution or performance of (a thing) the movement or work of
(a person)’. ‘Supervision’ is defined as: ‘The action or function of supervising;
oversight, superintendence . . .’. It is accepted by the third party that the
word ‘always’ does not mean that supervision had to be given during the whole
period that the four elements were being carried out.
Reference to the manner in which the word
‘supervise’ has been interpreted in other fields is at best of only limited
value.
In Roberts v Littlewood’s Mail
Order Stores Ltd [1943] KB 269 the Divisional Court considered a section in
the Pharmacy and Poisons Act 1933. That provided that the sale of a poison
which was included in Part I of the Poisons Act 1936 was unlawful unless it ‘is
effected . . . under the supervision of a registered pharmacist’. The findings
of fact were that at the time of sale the registered pharmacist appointed by
the respondent to supervise the sale of poisons was in another room, out of
sight and hearing of the transaction and unaware that a sale was taking place.
The object of the statutory provision
was, and I quote from the judgment of Viscount Caldecote LCJ, ‘The object of
the Act was beyond all other considerations to provide for the safety of the
public’. The decision of the Divisional Court was that there was no requisite
supervision. But in the course of his judgment Viscount Caldecote said at p
272:
It is conceivable, with the mechanical
assistance of a telephone or something of that sort, that a person might be
supervising something although he was not on the spot . . .
In determining issue 1 in this subtrial,
difficulty arises as to what, if any, part of the evidence that has been called
before me is admissible for the purposes of interpreting the final limb of
exclusion 11(b).
Mr Poole referred to two publications of
the RICS. The first was Making Land, Property and Construction Works. It
included this passage: ‘Survey — every house should have one. A detailed
inspection of the structure by a Chartered Surveyor’. The second was Structural
Survey of Residential Property. A Guidance Note, 2nd Ed. Under the rubric
‘Preparing for the Survey’ there appeared ‘[the surveyor] should undertake his
own inspection and should neither delegate responsibilities nor rely upon the
reports of others’.
Somewhat surprisingly, Mr Ullstein did
not consider this to be a matter to which I should have regard, while Mr
Goldblatt QC expressed the opposite view.
I have reached the conclusion that I
should have no regard to these passages.
The only respect in which it is alleged
that there was inadequate supervision is in respect of the inspection, and in
deciding issue 1 I propose to limit my findings to the inspection element of
the work in structural surveys. In determining issue 1 I am entitled to have
regard to the evidence as to the importance of inspection in the overall
surveying where a structural survey is made. I find that the written report is
only as good as the inspection. A proper inspection of the property is, I find,
a matter of crucial importance if there is to be a reliable written report.
It is clear from the wording of exclusion
11 that for the insurers to be on risk Mr Horner did not have to carry out the
inspection itself. Where, however, an inspection for a structural survey is
carried out by a nominated person the insurers will not be on risk unless the
inspection work is supervised. What amounts to a requisite supervision may vary
substantially according to the circumstances. But I find that in the absence of
exceptional circumstances some attendance at the property by the qualified
person is required. Such exceptional circumstances might include a substantial
video film taken by the nominated person.
Again it may be that in exceptional
circumstances the requisite supervision will be provided if the qualified
person attends the property before or after the inspection by the nominated
person.
I make the following findings. As regards
issue 1 the proper construction of exclusion 11 in so far as inspection for a
structural survey is concerned is that some attendance on the property by a
qualified person while the nominated person is inspecting is essential in the
absence of exceptional circumstances.
The answers to issues 2 and 3 are, ‘no’.
