JSM Management Pty Ltd v QBE Insurance (Australia) Ltd [2011] VSC 339
Introduction
In this case, an appeal from the Victorian Civil and Administrative Tribunal ('VCAT'), Osborne J of the Supreme Court of Victoria was required to consider the meaning of phrase 'wear and tear' in an exclusion clause and a condition requiring the insured to take reasonable precautions to prevent loss in an industrial special risks policy issued by QBE.
Background
JSM Management Pty Ltd ('JSM') leased a trucking depot / warehouse distribution centre to a company ('the Tenant') for a term of five years commencing in October 2007. Before going into possession, the Tenant was advised by a representative of JSM that the hardstand at the premises had a load bearing rating of 40 tonnes and that the Tenant would not be able to use its container forklift (with a potential weight of 100 tonnes) on the hardstand because it would cause it to fail. The Tenant went into occupation prior to the commencement of the lease and brought the container forklift onto the site . The Tenant was again warned by JSM's agent that the forklift should not be used on the hardstand.
The forklift was however utilized for unloading containers over subsequent months and the hardstand was damaged by its weight and continued use.
JSM did not terminate the lease but attempted to negotiate with the Tenant to reinforce the hardstand. JSM made a claim for the damage to the hardstand upon its industrial special risks policy. JSM's insurer, QBE, rejected the claim on the basis of an exclusion in respect of 'wear and tear'.
Proceedings
JSM unsuccessfully pursued a declaration that the policy responded in the VCAT. It then appealed to the Supreme Court of Victoria.
JSM appealed on the ground that the VCAT member had erred in law by interpreting the phrase 'wear and tear' in the policy as including damage caused by other than ordinary or normal use.
On appeal, QBE sought to rely on the additional ground for refusing cover that JSM had breached a condition of the insurance policy that it 'take all reasonable precautions' to prevent loss, destruction, or damage to the insured property.
After considering a number of authorities dealing with the meaning of the words 'wear and tear' in the context of leases and insurance policies, Osborne J allowed JSM's appeal. His Honour found that 'wear and tear is regarded as a consequence of ordinary usage and ordinary weather' and that it was not necessary that the words be qualified by words such as 'normal' or 'fair'. He said further that he did not accept that the present use, namely the continued operation of a massively overweight container forklift on the hardstand over a period of approximately eight months, could be described objectively as 'ordinary use'.
With regard to the 'reasonable precautions' condition, QBE argued that JSM had breached the condition by failing to terminate the lease and instead entering into negotiations intended to persuade the tenant to undertake works to increase the load bearing capacity of the hardstand. QBE also argued that negligence on the part of JSM was sufficient to trigger the clause.
Osborne J held that the correct test was whether the insured had been reckless in failing to take precautions in accordance with the following passage from the judgment of Diplock LJ in Fraser v BN Furman (Productions) Ltd [1967] 1 WLR 898:
His Honour remitted the matter back to VCAT for reconsideration of this issue in accordance with the law.
Comment
The decision provides a helpful restatement of the law in relation to the interpretation of 'wear and tear' exclusions and 'reasonable precautions' conditions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
