Recklessness may take the conduct outside the insuring clause – where the onus is on the insured.
Recklessness must be more than mere negligence – which is often the very purpose for the insurance Policy.
Each case turns on its facts, including the event and the policy wording.
The Courts are mindful that a liability insurance policy must have business efficacy, however, there are limits, and recklessness that goes beyond mere negligence is often sought to be excluded via policy terms and conditions.
The tests for recklessness that have emerged include the following:
- deliberately courting the danger; and
- recognising the danger and being indifferent to whether the danger was averted or not.
2016 saw the successful appeal of two cases where indemnity denials had been upheld by the Courts below. Although treading the same ground, the cases approached the issue of recklessness from different angles – one focussing on the insuring clause and the other on the policy conditions/exclusions. One difference that flows from this is that the burden of proof for the insuring clause falls upon the insured, whereas for a policy exclusion or condition breach, the onus is on the insurer.
TOEPFER – THE CONDITIONS / EXCLUSIONS
On 7 April 2016, the insured’s appeal was allowed in Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd  NSWCA 67 (Toepfer), where an excavator under transport had collided with the Hexham bridge near Newcastle and indemnity had been declined by the insurer due to both an exclusion for ‘recklessness’ (that extended to the insured’s employed driver) and breach of a condition to take ‘reasonable care’.
The NSW Court of Appeal accepted that the driver was aware of the risk that the height of the excavator had been increased, however, it held that he believed that the RTA Inspector had been satisfied that the height did not exceed the bridge clearance height. The Court found that this was also consistent with the driver’s conduct in not slowing down as he approached the bridge, as he perceived no realistic possibility of a collision. The Court reasoned that he would not drive at speed towards the bridge, and risk serious injury to himself, if he expected the excavator could collide with the bridge.
The Court upheld the appeal and entered judgment in favour of the insured company against the insurer.
MATTON – THE INSURING CLAUSE
On 23 August 2016, the Queensland Court of Appeal (QCA) (Fraser JA dissenting) allowed the insured’s appeal in Matton Developments Pty Ltd v CGU Insurance Limited  QCA 208 (Matton).
The case involved a crane collapse from structural overload caused by its operation on an incline. The operator was aware of the crane’s limitations and the manner in which it should be operated. Unlike Toepfer, however, the insurer relied on the policy wording to tackle the recklessness issue at the ‘first hurdle’ – the insuring clause – and the Court at first instance was persuaded that the plaintiff had failed to discharge its onus of proof in establishing that the damage was “accidental” in the sense of being both “unexpected” and “unforeseen” from the perspective of the insured.
Morrison JA (in the majority) held that “the method used to advance the crane into position to put panel 30 in place, was appropriate and not risk-taking” and concluded (citations omitted):
“The judgment that the rubble would compress, and the failure to realise in time that it was not compressing, may have been wrong, even negligent, but did not, in my view, reach the point where it could be said:
- the “risk of the mishap was foreseen or courted even though it was thought unlikely that it would occur”; or
- that they were gambling or courting the risk, or taking a calculated risk, deliberately accepting the outcome; or
- that they voluntarily embarked on a foolhardy venture, with the damage an inevitable consequence, by “courting, inviting or wooing” of the risk; or
- that they deliberately incurred the risk.
The overloading was found to be accidental and the damage to the crane “accidental, sudden and unforeseen”. This not only overcame the insuring clause issue but also, due to an accidental overloading extension in the policy, avoided alternative arguments based on exclusions and non-compliance with manufacturer’s guidelines and an Australian Standard.
The insurer has applied for special leave to the High Court to appeal the QCA decision. This is likely to be dealt with in early 2017.
Post by Paul Hendriks and Todd Porman