Welcome to our General Insurance Insights Newsletter, bringing you the latest case notes on key judgments from August, September and October 2024 affecting general insurers in Australia.
Transit Pty Ltd v Arch Underwriting at Lloyd’s (Australia) Pty Ltd & Ors [2024] VSC 485
The plaintiffs operated a range of hospitality venues in Melbourne during the COVID-19 lockdowns in 2020. The proceedings related to two separate COVID-19 business interruption claims made under their Industrial Special Risks Policies issued by the defendants.
The policies provided coverage for:
- physical loss, destruction or damage during the period of insurance at the plaintiffs’ respective venues (Section 1); and
- business interruption in the event that a building used by the plaintiffs at the venues was physically lost, destroyed or damaged during the period of insurance and, as a result, the businesses carried on by the plaintiffs was “interrupted or interfered with” (Section 2).
Further, the policies contained a ‘CLOSEXB4 Closure by Order of a Public Authority’ endorsement, which covered business interruption losses suffered by the plaintiffs arising from the closure or evacuation of the plaintiffs’ venues (or other premises in the vicinity) by an order or a competent public authority directly arising from infectious or contagious human disease.
The plaintiffs’ claims under the CLOSEXB4 endorsement were made solely on the basis that their losses resulted from interruption or interference with their businesses due to the presence of COVID-19 at premises in the vicinity of their venues (not due to the closure of other premises in the vicinity or COVID-19 at their venues).
Ultimately, the Court held in favour of the defendants on the basis that:
- For the policies to respond there must have been an order for the closure or evacuation of other premises in the vicinity of the plaintiffs’ venues.
- ‘Vicinity’ referred to an area in the near or about, or in the neighbourhood of the plaintiffs, and could not refer to the jurisdictional areas e.g. the state of Victoria or a local government area.
- There was no evidence that the relevant directions made by the Victorian Government arose directly or indirectly from the occurrence of COVID-19 at other premises in the ‘vicinity’ of the plaintiffs’ venues. Rather, they were made as a result of a general concern and threat of the spread of COVID-19 state-wide.
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Mallonland Pty Ltd v Advanta Seeds Pty Ltd [2024] HCA 25
The respondent was a producer and national distributor of sorghum seeds. It packaged and supplied those seeds in bags bearing a prominent disclaimer stating that it would “not be liable for any injury, loss or damage… arising out of or related to the use of the product in this bag”.
The appellant had purchased bags of the respondent’s sorghum seeds from an authorised distributor. Those seeds were planted by growers for the purpose of grain sorghum cultivation. Months later, it became apparent that the seeds were contaminated and, as a result, the appellant suffered loss and damage.
At first instance, the Supreme Court of Queensland dismissed the appellant’s claim against respondent in negligence, finding that:
- As the contaminated seed had not caused damage to the relevant property (i.e. the soil and the crop), the harm alleged by the appellant was pure economic, being the reduced value of the harvested crop and the increased cost of harvesting the impure crop.
- The respondent did not owe the appellant a duty of care to avoid the risk of economic loss.
That position was upheld by the Supreme Court of Appeal. The appellant, together with the growers, subsequently appealed to the High Court.
The High Court unanimously upheld the lower Courts’ findings that the respondent did not owe a duty of care in its production process to avoid the risk of pure economic loss. In doing so, the High Court reiterated the established common-law principle that a party will not be liable for causing pure economic loss where they have not assumed a responsibility to the relevant person and there are no other special circumstances that warrant a finding of liability, and that “something more” than reasonable foreseeability is required to support a duty of care in those circumstances.
In this case, the main factors weighing against a finding of the existence of a duty of care were:
- The disclaimer evidenced that that the respondent had not assumed responsibility for avoiding the relevant risk of contamination to third parties, as opposed to its direct customers it contracted with.
- The respondent was not aware of the identity of the particular growers that eventually purchased the contaminated seed and, therefore, did not have knowledge of the particular risk and vulnerability of those persons.
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Cook v Riding for the Disabled Association (NSW) & Anor [2024] NSWSC 1332
The plaintiff was a 10 year old girl, who suffered from cerebral palsy, severe global development delay and autism. She attended a community school run by the second defendant. It provided specialised care and teaching for children with complex disabilities. The first defendant was a not-for-profit association that operated an equestrian complex and employed coaches and unpaid volunteers to conduct horse riding activities.
In 2019, the plaintiff suffered a right femoral neck fracture when she fell from a horse at the first defendant’s complex.
The Court found that the first defendant was negligent on the basis that it failed to provide two ‘side walkers’ in close proximity to the plaintiff to ensure they could react quickly enough to prevent a fall if the plaintiff showed any signs of loss of balance. That was particularly so, given the nature of the plaintiff’s disabilities, which meant that, when she became upset she lost her concentration on the need to keep her feet in the stirrups, to maintain a secure seat in the saddle and correct posture and balance.
In relation to the second defendant and particularly whether it owed a duty of care, the plaintiff relied upon the principle that a school owes a non-delegable duty to ensure that “reasonable measures are taken for the safety of pupils while they are in the school’s care”.
Whilst the Court accepted that general proposition, it rejected the argument that the horse riding program, at the first defendant’s complex, was conducted “in conjunction with” the second defendant. Rather, it held that the program was conducted “entirely independent” to the school and, more specifically, that the teachers from the school “had relinquished care of the plaintiff, passing her into the hands of the first defendant’s coach and volunteers for the duration of the riding session“. On that basis, it was held that the school-pupil relationship was not operative at the time of the incident and, therefore, no duty of care was owed by the second defendant to the plaintiff. Accordingly, the plaintiff’s claim against the second defendant was dismissed.
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Fussell v Pilbara Iron Company (Services) Pty Ltd [2024] WADC 72
The plaintiff was an employee of a labour hire company. He had been driving a haul truck at an iron ore mine when it was struck by the bucket of a loader driven by an employee of the defendant.
The defendant brought third party proceedings against the insurer of the plaintiff’s employer on the basis that it was entitled to an indemnity under its policy in relation to the plaintiff’s claim pursuant to a principal’s extension. That clause extended cover to a principal for whom the plaintiff’s employer performed work under a contractual arrangement and where the injury “arose out of and during the performance of the work required by that contract and was caused or contributed to by the principal’s negligence“.
The Court was tasked with answering the following questions
- Was there a contract between the defendant and the plaintiff’s employer?
- Did the plaintiff’s injury arise out of and occur during the performance of that contract?
- Was the plaintiff’s injury caused or contributed to by “the principal’s negligence”?
In finding for the defendant, the Court answered each of these questions in the affirmative. In doing so, so it observed that the rules pertaining to the interpretation of similar contractual indemnities did not necessarily apply, because, in this case, it was clear that extension was intended to cover the principal’s own negligence (as opposed to any liability it may have for the plaintiff’s employer). That was also consistent with the intent of provisions addressing indemnity against claims made under the relevant workers’ compensation scheme.
The Court did, however, find that indemnity did not extend to the defendant’s defence costs, as the principal’s extension was only worded to cover damages due, claim or paid independent to the Workers’ Compensation Act.
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Manhattan Homes Pty Limited v Burnett [2024] NSWCA 219
In February 2019, a worker was carrying a load of tiles between the first and second ground floors on a construction site. To complete that task, he was required to traverse an incomplete set of stairs that had no handrail. As he crossed the void, he stepped onto an unsupported plank and fell approximately three metres to the ground. As a result, he suffered severe brain and spinal injuries.
The worker originally brought proceedings in the Supreme Court of New South Wales against the appellant, the principal contractor, and the subcontractor. At trial, the Court found in favour of the worker against both the appellant and the subcontractor with liability apportioned 80% to the appellant and 20% to the subcontractor. There was no finding of contributory negligence.
The appellant appealed the Court’s decision in relation to contributory negligence and apportionment.
The Court of Appeal held that the Supreme Court’s assessment of apportionment was appropriate on the basis that the appellant occupied and controlled the site, and exercised overall responsibility for orchestrating the construction works and general site safety. Meanwhile, the subcontractor’s responsibilities were much more limited, having only been present at the site on the date of the incident.
However, the Court of Appeal found in favour of the appellant on the issue of contributory negligence. It did so on the basis that the worker accepted, during cross-examination, that he was aware of the site conditions (i.e. that there were boards partially covering the void that were unsupported) and, therefore, his failure to pay attention whilst traversing the stairs was inexcusable given the risk of injury was obvious. As such, a discount of 20% applied.
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Summit Rural (WA) Pty Limited v Lenane Holdings Pty Ltd [2024] WASCA 122
The respondent was the lessor of a Caterpillar 938K Wheel Loader. The appellant operated a fertiliser plant and was the lessee of the loader. The parties entered into a contract for the hire of the loader for four years. One of the terms of the agreement was that the appellant would turn off the master key every night, which isolated the battery in the engine of the loader.
Whilst the appellant was in possession of the loader, the master key was left in the ‘on position’. The loader caught fire overnight, and the respondent’s premises was destroyed. The respondent brought a claim against the appellant in contract and tort in relation to its losses.
At trial, the primary issue was legal causation, namely whether legal responsibility should be attributed to the appellant for the particular harm given the circumstances in which it occurred (as opposed to factual causation – namely whether the loader would have been damaged but for the failure of the respondent to turn off the master key). The appellant disputed that on the basis that the purpose of the master key was not fire prevention.
The Court, at first instance and on appeal, accepted that legal causation was made out on the basis that the obligation to turn off the master key arose in the context of a contract of hire obliging the appellant to return the loader at the end of the hiring period and in which leaving the loader’s electrical circuitry ‘on’ overnight gave rise to a foreseeable risk that it would be damaged or destroyed. Further, in relation to the claim in negligence, the relevant breach of duty was the failure to take precautions against the very risk that materialised, namely damage to the loader caused by fire. Overall, the Court of Appeal found that the purpose for which the master key formed part of the loader’s electrical circuitry bore little, if any, relevance to the attribution of legal responsibility.
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Bartlett v De Martin & Gasparini Pty Ltd [2024] NSWSC 1172
The plaintiff was a concreter at a construction site in Sydney. He had been hired by the second defendant, a labour hire company, and contracted to the first defendant, the host employer, pursuant to a labour hire agreement.
The plaintiff was instructed by the first defendant to move a concreting hose weighing approximately 50kg with a co-worker. The plaintiff alleged that the coworker picked up the hose and, without warning, moved forward, which caused him to also jolt forward and suffer a lower back injury as a result.
The Court accepted the plaintiff’s version of events surrounding the incident and criticised the first defendant’s witnesses’ recollection. Interestingly, despite the parties’ failure to identify the role of the relevant coworker, the Court determined, based on the plaintiff’s evidence, that:
- the first defendant instructed both the plaintiff and coworker to move the hose;
- the hose was too heavy for only one person to move; and
- the plaintiff’s injuries were caused by the coworker’s negligence.
The Court found in favour of the plaintiff against both defendants, with the first defendant bearing the lion share of liability. In reaching that conclusion, the Court deemed the unidentified coworker an employee of the first defendant as he was under its direction and guidance at the time of the incident. Accordingly, the Court attached vicarious liability to the first defendant for the coworker’s negligent conduct. It also found that the first defendant failed to appropriately coordinate the task.
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This article was written by Ashley Harding, Partner, Theodore Heretakis, Associate and Madeleine Dashiell, Solicitor.
