Insurance is designed to protect an insured from losses caused by their inadvertence or events outside their control. A critical challenge for insurers is assessing when the insured’s conduct has gone beyond mere inadvertence and evolved into recklessness.
This challenge is illustrated in two recent decisions of the Queensland and New South Wales Courts of Appeal, Matton Developments Pty Ltd v CGU Insurance and Barrie Toepfer Earthmoving1 and Land Management Pty Ltd v CGU Insurance Ltd2.
In Barrie Toepfer, significant damage was caused to a bridge, when the arm of an excavator that was being transported on a vehicle owned by Barrie Toepfer Earthmoving (Earthmoving) struck a number of the bridge’s transverse spans. The vehicle was being driven by an employee of Earthmoving, Mr Luck.
Earthmoving’s claim for indemnity under its commercial motor vehicle policy was denied on the basis of (amongst other things) an exclusion in respect of damage caused by recklessness.
The New South Wales Court of Appeal reversed the decision of the primary judge, and found that Mr Luck was not reckless, noting that recklessness requires more than a failure to take precautions to avoid an accident, but rather a failure to take precautions with actual recognition by the insured that a danger exists and not caring whether it is averted.3In this case, there was evidence that Mr Luck did not think the excavator would exceed the minimum clearance height for the bridge, because the excavator had been repositioned at the direction of an RTA inspector prior to reaching the bridge. Mr Luck had also driven the vehicle onto the bridge without slowing, which was consistent with his belief that the load was safe to travel across the bridge.
In Matton, a 100 tonne mobile crane was significantly damaged when the boom of the crane collapsed while carrying a 39 tonne panel on a 7° slope in contravention of the manufacturer’s manual and the Australian standards. The crane operator, Mr Hitaua, had used concrete rubble to level the area over which the crane was to pass to deliver its load, consistent with industry practice. However, the rubble did not compress as anticipated.
Indemnity under the insurance policy in respect of the crane was denied. The Queensland Court of Appeal allowed Matton Developments Pty Ltd’s appeal against the indemnity decision. The mere fact that Mr Hitaua was negligent and caused the structural overloading and resulting damage was not determinative. Mr Hitaua’s conduct in preparing the ground, anticipating that the rubble would compress to near level, could not be said to be courting the risk of the mishap which eventuated. Accordingly, the Court of Appeal concluded that the operation of the crane on a slope, was “accidental, non-deliberate and clearly unintentional” and fell within the scope of the insuring clause.
A critical factor in both decisions was the fact that the insureds could point to some reasonable basis for their actions, namely a prior inspection by an RTA officer or a reasonable belief that rubble would compress into a level surface.
These decisions are a useful demonstration of the factors to be taken into account in assessing whether an insured’s conduct has strayed beyond inadvertence and into recklessness. The decision in Barrie Toepfer also demonstrates that, when relying upon an exclusion clause for recklessness, insurers will face a high bar in discharging the onus of proving that an insured’s conduct amounted to ‘courting the risk’.
This article was written by David Muir, Partner, James McIntyre, Special Counsel and Catherine Allen, Solicitor.
1[2015] QSC 72
2[2016] NSWCA 67
3Citing Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57.