In Matton Developments v CGU Insurance, the Supreme Court of Queensland upheld CGU's decision to deny indemnity to the Plaintiff owner of a crane for damage caused when the crane's boom collapsed. The Court considered 'Material Damage' cover and whether claimed damage was 'accidental, sudden and unforeseen'. The Court also considered whether section 13 of the Insurance Contracts Act 1984 (Cth) creates a statutory duty affording an insured a private right of action for breach.
This is a case where an insurer, through forensic expert evidence, convinced a Court to reject the 'eye witness' testimony of an insured. Based on expert evidence regarding the circumstances in which the damage occurred, the Court held that the damage was not accidental or unforeseen.
The Plaintiff is a crane operator and held a Contractors and Plant Machinery insurance policy with CGU for an 100 tonne Telescopic Crawler Crane.
On 1 February 2009, while being used to lift concrete panels weighing about 36-38 tonnes, the crane's boom collapsed, effectively damaging it beyond economical repair. The Plaintiff submitted a claim to CGU seeking indemnity for the damage to the crane.
CGU denied indemnity on the grounds that the damage to the crane was:
- not 'accidental, sudden and unforseen' within the meaning under the policy; and
- subject to policy exclusions, which excluded cover where the crane was not operated in the manner in which it was designed to be used and/or in accordance with the manufacturer's guidelines.
The Plaintiff submitted that the crane collapsed due to a pre-existing defect (weakness) in the base of the boom. CGU argued that the boom collapsed due to structural overload as a consequence of a side load induced by the crane operating on a slope.
The 'Insured damage' under the policy was as follows:
'Accidental sudden and unforeseen physical loss of damage to a machine which occurs during the period of insurance and requires immediate repair or replacement to allow continuation of use' (my emphasis)
The 'Material Damage Cover' clause provided as follows:
'We will cover you for insured damage to a machine while it is located and in use in the manner in which it was designed to be used....' (emphasis added)
The policy included an 'Accidental overload' Additional Benefit which extended cover to:
'...insured damage caused by or resulting from accidental overloading which is non-deliberate and clearly unintentional'
Findings under the policy
His Honour Justice Flanagan accepted CGU's expert evidence that the collapse occurred due to structural overload, rather than to any material defect. Flanagan J considered this conclusion to be consistent with the photographic evidence, which showed the crane at the time of the boom collapse on a 7 degree slope.
The first question for the Court with respect to policy cover was whether there had been accidental, sudden and foreseen damage. Flanagan J found that the Plaintiff failed to establish that there was accidental, sudden and unforeseen damage to the crane. Although the collapse of the crane was not intended, Flanagan J found that the crane operator knew the crane should not be operated on a slope and that, if it was operated on a slope, there was a real risk of the boom collapsing.
Flanagan J drew a negative inference from the fact that the Plaintiff failed to call evidence from its director who was on site when the boom collapsed. It is the Plaintiff who bears the onus of establishing that the damage was accidental and unforeseen. Flanagan J accepted CGU's submission that the Plaintiff's failure to call the director permitted it to draw the inference that the director who was 'part of the directing mind and will of the Plaintiff' knew of the position of the crane and that his evidence would not have assisted the Plaintiff.
Flanagan J then considered whether the overloading of the crane was accidental under the 'accidental overload' provision of the policy. 'Overload' was not defined in the policy. The plain meaning Flanagan J attributed to the word was being '"loaded up" to excess; too great a burden or cargo; when the crane is first loaded'.
Flanagan J noted that the accidental overload provision was additional cover to the primary cover provided by the material damage cover provisions. The accidental cover provision only provided cover in circumstances where the crane was used in the manner in which it was designed to be used.
Flanagan J rejected the Plaintiff's submission that the additional cover for accidental overload was a standalone provision. Rather, he found that the provision must be read with the rest of the policy as a whole. The overload therefore must also itself be accidental, ie unintended and unexpected. Flanagan J found that overload while the crane was being operated on a slope was not unintended or unexpected.
In the event that Flanagan J's conclusion that the damage to the crane was not accidental, sudden and unforseen is wrong, Flanagan J found that the claimed damage was nevertheless excluded from policy cover because:
- the crane was being used in a manner other than for which it was designed;
- at the time of the collapse the crane was not used in compliance with the relevant Australian Standards; and
- at the time of the collapse, the boom was being operated contrary to the manufacturer's guidelines.
Duty of utmost good faith
Section 13 of the Insurance Contracts Act implies into a contract of insurance a provision requiring each party to act with the utmost good faith. The Plaintiff submitted that, CGU breached its duty of utmost good faith in refusing indemnity. The Plaintiff argued that CGU breached its duty by relying on conclusions drawn by its own experts rather than having proper regard to eye witness testimony, including that given by the crane operator.
The Plaintiff submitted that the consequence of breach was that CGU must compensate it for all damages causally connected to the breach, including the default interest on the bank finance for the crane.
His Honour rejected the Plaintiff's argument that section 13 creates a statutory duty affording the Plaintiff a private right of action for breach. His Honour observed that, while the duty required an insurer to act in accordance with commercial standards of decency and fairness and with due regard to the insured's interests, it does not require the insurer to put the interests of the insured above its own. His Honour held that an insurer is not obliged to accept the statement of an operator, or an insured, who may be honestly mistaken. An insurer is legitimately entitled to decline indemnity if the circumstances giving rise to the claim fall outside the insurable interest of an exclusion clause.
This case is an example of an insurer using expert forensic evidence to contradict an insured's 'eye witness' account and to justify a denial of indemnity.
It also paves the way for insurers to refuse cover for a claim for 'accidental' damage where the insured is aware of the risk of damage and proceeds in circumstances where that damage is expected to occur.
Finally, Flanagan J found that section 13 of the Insurance Contracts Act does not impose a statutory duty which affords a Plaintiff a private right of action for its breach, in the circumstances of this case.