General Insurance Insights – Key Judgments – September/October 2023

16 November 2023

Welcome to our General Insurance Insights newsletter, bringing you the latest case notes on key judgments from September and October 2023 affecting general insurers in Australia.

Pinnacle Living Pty Limited & Anor v QBE Insurance (Australia) Limited [2023] VSC 621

The second plaintiff, a wholly owned subsidiary of the first plaintiff, owned and operated a retirement village. In May 2013, the second plaintiff contracted with a builder to carry out improvement works to the retirement village’s community centre. During the course of the works, the community centre was destroyed by a fire.

The plaintiffs held an industrial special risks policy with the defendant. The policy provided cover for physical loss and destruction or damage in accordance with the cost of reinstatement to the retirement village. It excluded liability for damage to the contract works when their value exceeded 10% of the limit of liability or $500,000. It was not in dispute that this exclusion applied. However, cover was available to the plaintiffs in respect of damage to the contract works under a separate policy of insurance taken out by the builder.

In the proceeding, the plaintiffs initially advanced a claim for indemnity under the defendant’s policy and, in the alternative, a claim for debt or damages owed pursuant to two separate releases entered into by the plaintiffs in 2014 (known as the First Release and the Second Release). The First Release, which comprised a claim form, provided for payment by the defendant of $2.6 million, with an additional allowance of $100,000, subject to further investigations. The Second Release, which was a partial form of release, provided for payment of $2.65 million. The defendant ultimately paid the plaintiffs $2.29 million under its policy. The plaintiffs also received approximately $420,000 from the builder’s insurer. After a conclave of experts agreed that the cost of reinstatement was $1.8 million, the plaintiffs amended their pleadings to claim the amount outstanding under the First Release of approximately $420,000, as well as claims preparation costs.

The main issues in dispute were:

  1. Whether the First Release constituted a legally enforceable agreement or the defendant was otherwise estopped from withholding the outstanding payment under it.
  2. Whether the plaintiffs, through their conduct in the proceeding, had lost their entitlement to enforce the First Release by way of waiver, election or abandonment.

The Court accepted that the First Release was a legally binding agreement whilst rejecting the claim for estoppel. However, it also found that amendments to the plaintiffs’ pleadings in August 2019 (before the conclave of experts), which involved new allegations that the First Release was not binding and a new prayer for relief (to claim an amount in excess of that owing under the First Release), inferred an intention to abandon the plaintiffs’ rights under the First Release. On that basis, the Court dismissed the plaintiffs’ claim. It also rejected the plaintiffs’ claim for claims preparation costs, as they were non-claims related costs incurred a number of years after indemnity was granted.

Click here to view the full case.

Karaoglu v Fitness First Australia Pty Ltd [2023] NSWCA 229

The respondent owned and operated a gym. The appellant was training at the gym when he loaded an incline leg press machine with 240kg. After using the leg press, the footplate dropped and collided with the appellant’s head, knocking him unconscious.

The primary judge rejected the appellant’s claim in negligence on the basis that the incident was most likely caused by the appellant’s inattention, rather the absence of any safety features on the leg press.

On appeal, the appellant argued that the leg press was defective due to the absence or maladjustment of a spring and that the respondent had breached its duty to warn him of the need to fully engage the lever of the leg press to fully engage the lockdown mechanism.

The Court of Appeal found no evidence that the leg press was or should have been fitted with a spring to act as a fail-safe mechanism. It also rejected the contention that the respondent was under an obligation to warn, as there was clear evidence that the appellant was both aware of how to properly re-rack the weights on the leg press and would not have acted any differently if a relevant warning or instruction along those lines was provided.

Click here to view the full case.

Sydney Trains v Argo Syndicate AMA 1200 (No 2) [2023] NSWDC 381

The plaintiff brought a claim against the defendant pursuant to s.601AG of the Corporations Act 2001. The defendant was the public and products liability insurer of a deregistered building contractor. The plaintiff alleged that the building contractor had a liability to it for breach of contract in relation to an incident on 24 August 2016 when a commuter slipped and fell on staircase tiles laid by the building contractor at the Penshurst Station as part of upgrade works.

The defendant disputed the basis for the plaintiff’s breach of contract claim against the building contractor, including the terms of the contract, breach and causation, and that the policy held by the building contractor responded to that claim.

Although the Court was not satisfied that the pleaded written agreement was entered into between the plaintiff and the building contractor, it accepted that there was some form of contract in place between the parties and an implied obligation on the building contractor to complete its works with due care and skill and to supply and install tiles that were fit for purpose with adequate slip resistance. A breach of the latter, but not former, obligation was made out. However, the Court found that the plaintiff’s decision to open the staircase despite knowledge that the tiles were not fit for purpose and the significance of the risk this posed to commuters, was sufficient to constitute an intervening act and break the chain of causation. Accordingly, the plaintiff’s claim against the building contractor and, in turn the defendant, failed.

The Court otherwise commented that, if the building contractor’s liability was made out, the defendant’s policy would have responded.

Click here to view the full case.

Vincent v Victorian WorkCover Authority [2023] VCC 1667

The plaintiff worked as a dental nurse for a sole practitioner dental practice. The practice was deregistered and, therefore, the defendant was responsible for its liability under s.601AG of the Corporations Act 2001.

The plaintiff brought a common law claim for damages against the dental practice in relation to psychiatric injuries she alleged she suffered as a result of “repetitive and sustained” bullying perpetrated by the manager of the practice. The defendant denied that the plaintiff was bullied and asserted that the practice manager’s direction, management, supervision, training and disciplining of the plaintiff was lawful and reasonable, and designed to ensure that safety standards were maintained.

The Court commented that, although there is no legal definition of ‘bullying’, it is generally accepted to involve an element of repeated conduct. It also set out what type of activities do not ordinarily amount to bullying by an employer, including providing lawful and reasonable directions to its employees, especially where they jeopardise the safety of other staff and clientele, and exercising its right to warn, correct, supervise, train and discipline its employees if they breach those directions.

The Court made clear that ‘bullying’ is not a separate cause of action and does not involve a different standard of proof or different elements to a claim in negligence. Normal principles apply. That is, it is a question of whether there was an act or omission by the practice manager that created a reasonably foreseeable risk of a diagnosable psychiatric injury.

The Court examined 15 separate incidents alleged by the plaintiff and found that that none of them, in isolation or in combination, amounted to bullying, nor any negligence on the part of the practice manager. Judgment was, therefore, entered for the defendant.

Click here to view the full case.

Elliott-Carde v McDonald’s Australia Limited [2023] FCAFC 162

In this long-awaited decision, the Full Court of the Federal Court of Australia considered whether the Court has the statutory power to make a settlement common fund order pursuant to s.33V(2) of the Federal Court of Australia Act 1976 (the Act).

A common fund order is a court order requiring all group members in a class action to pay the litigation funder a commission from their respective share of a settlement or judgment, notwithstanding the existence of a funding agreement. A settlement common fund order is an order made as part of the settlement approval process. S.33V(2) of the Act provides that, if the Court approves a settlement in a representative proceeding, “it may make such orders as are just with respect to the distribution of any money paid under a settlement or paid into the Court”.

The High Court decision of BMW Australia Ltd v Brewster had created uncertainty regarding the scope of s.33V(2) and, in particular, the ability of the Federal Court to make any common fund orders. However, as noted by the Court, that decision was confined to the question of whether common fund orders could be made early in the proceeding and the “gap filling” power under s.33V(2). Therefore, it was not bound to reach the same conclusion in relation to settlement common fund orders.

To that end, the Court unanimously ruled that the Federal Court does have the power to make settlement common fund orders under s.33V(2) of the Act. That ruling was supported by three separate judgments, each of which carefully considered the wording of the statutory provision. The consensus was that the section afforded the Court a wide discretion in relation to the settlement approval process and the making of a settlement common fund order was sufficiently connected to the Court’s exercise of its judicial powers.

Click here to view the full case.

Ayyoub v BC Services & Maintenance Pty Ltd [2023] NSWDC 419

The plaintiff was the tenant of a residential property. On a night in November 2017, he was investigating a suspicious noise in his backyard when he tripped and fell on a branch that that had been recently lopped off a tree by the first defendant, a builder, at the request of the owners of the property. The first defendant held a business insurance policy with the second defendant. The second defendant denied indemnity in relation to the plaintiff’s claim on the basis that the injury to the plaintiff did not result from an occurrence “in connection with” the first’s defendant’s business.

The plaintiff brought a claim in negligence against the first defendant and a statutory claim pursuant the Civil Liability (Third Party Claims Against Insurers) Act 2017 against the second defendant.

The Court rejected the plaintiff’s argument that the first defendant breached its duty of care on the basis that the plaintiff was aware of the presence of the tree branches in his backyard (and, indeed, had raised issues) and that there was a foreseeable risk that anyone walking around in that area may trip over them. For that reason, the relevant risk of harm was insignificant, which meant it did not warrant any further precautions on the part of a reasonable person in the first defendant’s position to guard against it.

The Court went on to comment that, if the claim in negligence had been made out against the first defendant, a discount of 50% for contributory negligence would have been reasonable, noting that the plaintiff was wearing dark thongs and using an iPhone torch to light his path. In relation to the second defendant, the Court said that, if the claim against the first defendant had been made out, it would have been entitled to be indemnified by the second defendant on the basis that tree lopping was sufficiently incidental to the “business” of the first defendant as described in the policy schedule, ie “residential builder, building/domestic dwelling, apartment, flat and unit construction”.

Click here to view the full case.

Cassidy v Metro Trains Melbourne Pty Ltd [2023] VCC 1866

The plaintiff was a commuter travelling on a metropolitan train service in June 2014. After arriving at a station, she experienced difficulties opening the doors to disembark before she fell heavily onto the platform after the train started to move.

The plaintiff brought a claim in negligence against the defendant, the operator of the train service, on various grounds, including that the train driver failed to press the door release button for a sufficient period of time to allow the doors to open and there was insufficient dwell time at the station. The defendant argued that the plaintiff had attempted to force the doors open whilst the train was in motion.

Based on various lay and expert evidence, the Court found that the reason the plaintiff was unable to open the door and safely disembark the train was due to driver error in depressing the door release button. It also found that the defendant was negligent on the basis that it had a system which enabled doors that closed under pneumatic pressure to be opened whilst the train started to move or was moving, and it had failed to install slim line handles to address that risk, particularly in the context of prior safety concerns being raised.

Click here to view the full case.

This article was written by Ashley Harding, Partner, and Theodore Heretakis, Associate.

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