Australia: Insurance payout non-refundable - notwithstanding breach of policy condition

Last Updated: 25 June 2012
Article by Robert Samut

CGU Workers Compensation v Panoy Pty Ltd [2012] NTSC 26

Judgment 18 April 2012

An interesting case arising out of tragic circumstances in the Northern Territory.

CGU was the workers compensation insurer of Panoy Pty Ltd. Panoy owned a number of cattle stations in the Northern Territory and Queensland, including Wollongorang Station. On 6 June 2007 Pedro Balading, an employee of Panoy, died when he fell off the back of a utility vehicle being driven by an employee of Panoy.

A claim form was received by CGU in June 2007 with the following details given:-

  • The accident happened at 4.30pm on 6 June 2007 at Wollongorang Station.
  • The deceased fell from the vehicle he was riding in. It had not been determined how.
  • Four people were present but none reported seeing the incident.

CGU retained solicitors to advise on the claim. They informed CGU that the claim should be accepted. Following receipt of that advice the claims handler emailed the deceased's widow and wrote to the defendant informing them that their claims had been accepted. Following this, more information emerged. Inquiry agents produced a report in September 2007 in which they advised, amongst other things:-

"Paul Zoltkowski (a director of Panoy) advised that none of them wanted to travel in the cab of the vehicle obviously all of them wouldn't have fitted, stating that it was common practice that everyone rode in the back of the Ute. No one ever wanted to travel inside the cab of the vehicle".

In July 2009, Panoy was prosecuted for breach of the Work Health Act. It was convicted and fined $60,000. Evidence was given by Panoy directors during the course of the hearing. The CGU claims manager read the transcripts and said that by doing so he ascertained for the first time that:-

  • The practice at Wollongorang Station was for employees to be transported to and from various locations in the back of a utility truck.
  • The employees were not given any instructions in relation to their safety while riding in the back of the utility.
  • The utilities were not fitted with any particular devices to ensure that the occupants were safely accommodated.

The claims manager sought recovery of the money paid under the statutory policy because he saw these facts as establishing a breach of Condition 6. Condition 6 was equivalent to the reasonable care condition found in most liability policies ie. a requirement on the part of the insured to take all reasonable precautions to prevent personal injury and other losses.

CGU had made payments totalling $351,542.21 at the date of the judgement (with payments to the deceased's children ongoing).

Justice Mildren observed that arguments involving breach of reasonable care conditions have long been interpreted by the courts "as requiring proof of a conscious disregard of a recognised risk, otherwise the commercial purpose of the insurance cover will tend to be defeated". His Honour referred to the leading Australian authority Fraser v B N Furman (Productions) Ltd and the relevant test for breach of such a condition:-

The insured when it does recognise a danger, should not deliberately court it by taking measures which he himself knows are inadequate to avert it.

Justice Mildren took into consideration the CGU policy, the commercial and social setting, and its purpose. Panoy's evidence that transportation of station hands on the back of utilities from one place to another on pastoral properties was common practice, and the evidence of one director that "We have been doing it for a long time and no one ever got hurt. I have been doing it all my life, and in my mind there was no risk", was considered to be significant.

His Honour held that there had been a breach of Condition 6.

"In my opinion, the danger was an obvious one, and it beggars belief that Panoy's directors were unaware of it bearing in mind that they knew, as everyone does, that it was illegal to travel in that manner on public roads, and of the requirements for, and purposes of, seatbelt legislation. There were measures available to prevent the danger . . . (and were) serious consequences for an unrestrained passenger, even if the vehicle was being driven sensibly at a speed of 50 – 60kph."

His Honour then considered whether the insurer could recover "money paid out by mistake". The law of restitution allows for recovery of a payment caused by a mistake of law or fact, if to allow the payment to be retained would amount to unjust enrichment.

His Honour had difficulty identifying the mistake contended for. He noted that the claim form and the investigators report were received prior to any payment being made. He also noted that in August 2007 (prior to the first payment) there was an article in The Age, which had been sent to a CGU claims officer, referring to the death and quoting another Filipino worker who claimed that a particular stockman "had his way of giving the Filipinos a hard time. He would load them into the back of a Toyota utility and speed across the dirt tracks, weaving violently to give them a fright".

His Honour said:-

"The evidence discloses that the plaintiff knew that the deceased had fallen off the back of the unregistered utility, while travelling on a dirt road, and that this mode of transport was common practice on the defendant's station. In my opinion there was no mistake about the general circumstances of the accident. The plaintiff must have known that these circumstances gave rise to a breach of Condition 6 of the policy. . . . I find that no mistake has been proved. The action must be dismissed."

In a word of warning to general insurers dealing with similar situations, His Honour said:-

"The facts concerning the liability of the plaintiff under the policy were so glaringly obvious that it is hard to believe that experienced claims officers would not have turned their mind to whether or not the defendant was in breach of the policy. . . . the defendant made an honest claim for indemnity under the policy, and the plaintiff met the claim (a) because it believed, correctly, that it had no choice so far as the dependants of the deceased were concerned and (b) because it was not concerned to ensure about whether the facts gave rise to an obligation to indemnify the defendant. In such a case the mistake, if there be one, did not give rise to a claim for restitution."

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.

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