Piet van Immerzeel and Another v Santam Limited

The appellants were consulting engineers who held professional indemnity insurance policies with Aegis Insurance Company Limited (whose rights and obligations were assumed by the respondent, Santam Limited). Two relevant policies were issued: (1) the 1991 policy covering 1 March 1991 to 29 February 1992, and (2) the 1993 policy covering 1 March 1993 to 28 February 1994. Both were 'claims made' policies. In May 1991, the appellants became aware that Samancor Limited contended they may have breached their obligations in supervising the construction of a water pipeline that had corroded. On 4 June 1991, the appellants gave written notice to the insurer (via Glenvaal) of a potential claim, stating expressly that the letter served only as notification of a possible claim. In November 1993, during the currency of the 1993 policy, Samancor instituted action against the appellants claiming damages for breach of contract in failing to properly supervise the pipeline construction. The trial court granted judgment in favor of Samancor, and a subsequent appeal to the Supreme Court of Appeal was dismissed. The appellants' total liability to Samancor was R3,646,050.58. The 1993 policy provided more extensive cover than the 1991 policy. Both policies provided R1,000,000 indemnity for damages and claimant's costs, but the 1991 policy included the insured's own defense costs within the R1,000,000 limit, while the 1993 policy provided for these costs in addition to the R1,000,000 limit. The respondent paid R2,072,292.48 in defense costs but contended that only the 1991 policy applied, or alternatively, that its obligations under the 1993 policy had been discharged.

• What constitutes 'a claim first made' within the meaning of a professional indemnity insurance policy?
• Does notification of a potential claim or circumstances that may give rise to a claim constitute 'a claim made' for purposes of determining which policy period applies?
• Where an insured gives notice of a potential claim under one policy period and an actual claim is made during a subsequent policy period, under which policy is the insured entitled to claim indemnity?
• What is the proper interpretation of condition 2(b) which deems claims arising from notified circumstances to be made during the period when notice was given?
• What is the scope of the insurer's liability for costs and expenses under the 1993 policy proviso?

The appeal succeeded with costs. The order of the court a quo was set aside and replaced with an order that the respondent pay R1,000,000 together with interest on that sum calculated at 15.5% per annum from 30 June 1998, plus costs.

The binding legal principles established are: 1. In a professional indemnity 'claims made' policy, a 'claim' means a demand for something as due or an assertion of a right to relief. The notification of circumstances that may possibly give rise to a claim is not itself a 'claim made'. 2. The deeming provision in condition 2(b) of a professional indemnity policy, which provides that claims arising from notified circumstances shall be 'regarded for the purposes of this Certificate as having been made during the Period of Insurance in which so notified', operates only in relation to the specific certificate under which the notice of circumstances was given, not in relation to subsequent or different certificates of insurance. 3. Where an insured gives notice of potential circumstances under one policy period and an actual claim (such as service of a summons) occurs during a subsequent policy period, the claim is 'first made' during the subsequent period for purposes of that subsequent policy, unless that policy contains express language excluding or limiting coverage for circumstances previously notified. 4. Where two professional indemnity policies provide different levels of cover and both potentially respond to the same claim, the insured is entitled to choose under which policy to claim in the absence of express contractual provisions to the contrary. 5. Under a professional indemnity policy providing separate indemnities for (a) liability for damages and claimant's costs up to a specified limit, and (b) the insured's own defense costs and expenses (subject to a proportional reduction proviso), payment by the insurer of defense costs does not discharge the insurer's separate obligation to indemnify the insured for the capital liability up to the policy limit.

Streicher JA observed that it is common for 'claims made' policies to contain conditions that expressly exclude liability arising out of circumstances or occurrences notified under prior policies or known to the insured prior to commencement of the policy. The absence of such a condition in the 1993 policy was significant. His Lordship noted there was no absurdity in the result that appellants could claim under the 1993 policy despite also being able to claim under the 1991 policy. Streicher JA also noted that the reason for condition 2(b) (requiring notification of circumstances that may give rise to claims) is precisely to address the concern that an insured may not be able to secure subsequent insurance cover because of potential claims that must be disclosed. This explains why such 'circumstances notified' clauses are standard in professional indemnity policies. Zulman JA observed that when negotiating the 1993 policy, it was open to the insurer to refuse insurance, increase the premium, or exclude coverage for the previously notified potential claim. There was no evidence the premium was increased when the 1993 policy was issued. His Lordship also noted that condition 8(b) (dealing with non-disclosure) was designed to cater for situations where there was non-disclosure of a claim or potential claim during a prior period, and was not relevant to interpreting condition 2. Zulman JA further observed that it would have been open to the appellants to seek insurance from a different company after expiry of the 1991 policy, and even with disclosure of the previous notification, a new insurer could not invoke a condition like 2(b) to deem the previous notice as 'first claim' under the new policy in the absence of appropriate express wording.

This case is significant in South African insurance law for establishing the proper interpretation of 'claims made' professional indemnity policies. It clarifies that: 1. The notification of a potential claim or circumstances that may give rise to a claim does not constitute an actual 'claim made' for purposes of determining which policy period applies to indemnify the insured. 2. The deeming provision in condition 2(b), which treats notified circumstances as claims made during the period when notice is given, operates only 'for the purposes of' the specific certificate under which notice was given, not for purposes of subsequent or different policies. 3. Where successive insurance policies are issued without express exclusions for previously notified circumstances, an insured may have cover under multiple policies and may choose the more favorable policy under which to claim. 4. The case protects insureds from being locked into less favorable coverage simply because they gave proper notice of potential claims under earlier policies, which is an important principle given that professional indemnity policies typically require such early notification. 5. It reinforces principles of contractual interpretation in insurance law, including that clear words are required to limit an insured's rights and that insurers must use express language if they wish to exclude cover for claims arising from circumstances notified under previous policies.