There has recently been some litigation in higher courts concerning conditions in insurance policies requiring an insured to take reasonable care or precautions to prevent loss or damage. A review of these authorities is a useful reminder of the very limited circumstances under which these conditions operate.
In April 2016, the NSW Court of Appeal (NSWCA) handed down its decision in Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd  NSWCA 67 (Barrie Toepfer). This case concerned damage to a bridge caused when an excavator, carried on a prime mover, struck several spans of the bridge. As the owner of the bridge, the RTA brought proceedings against Barrie Toepfer Earthmoving and Land Management Pty Ltd (Toepfer), claiming damages for the cost of repair. Toepfer's employee, Mr Luck, had been driving the prime mover when the accident occurred.
Toepfer sought indemnity from its motor vehicle insurer for the claim, which denied indemnity for Toepfer's failure to comply with a condition, requiring it to take reasonable care to prevent loss or damage.
Relevantly, the bridge was clearly signposted with "Low clearance 4.8 m". When the excavator was initially loaded onto the prime mover its height was 4.49 m. However, during the journey, an RTA inspector at a weighing station required the excavator to be moved forward because the weight distribution on the rear axles exceeded the maximum permissible weight. The height of the excavator then became 5.46 m. At first instance, the trial judge found:
- The driver of the prime mover was aware, before leaving the weighing station, that the height of the load had substantially increased, but he was not aware of its precise height.
- A passenger in the prime mover expressed concern about the increased height of the load to the driver as they were departing the weighing station.
- The driver of the prime mover saw the low clearance sign when approaching the bridge and the passenger joked with the driver about whether the load was less than 4.8 m.
The applicable legal principles were generally not in dispute at first instance or on appeal. Both Toepfer and the insurer accepted that the legal test established in Fraser v B N Furman (Productions) Ltd  1 WLR 898 applied in determining whether a condition requiring reasonable care was breached, that test being:
"...it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent, it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not that risk is averted."
However, there was a dispute as to who bore the onus of proof with respect to the condition. The NSWCA determined that a proper construction of the policy meant that the insurer had to prove breach of the condition (rather than Toepfer proving it complied with the condition), applying the principle "he who alleges must prove".
Whether the condition was breached was contentious. The insurer succeeded at first instance, however on appeal Meagher JA (with whom Ward JA and Sackville AJA agreed) held that the insurer did not establish that Toepfer breached the reasonable care condition. His Honour was not satisfied there was a proper basis to find a sufficiently real risk that was known to the driver of the prime mover, that the excavator would hit the bridge.
His Honour distinguished knowledge from the driver's belief that the height of the load was more than 4.8 m, considering:
- the earlier involvement of the RTA inspector at the weighing station (who did not raise any concerns about the height of the repositioned load), and
- the incongruity between the driver not slowing down on his approach to the bridge and the risk of injury to himself or others if he really considered there was a risk the load would hit the bridge.
Barrie Toepfer follows a similar decision by the Full Court of the Supreme Court of Tasmania in Hammerlsey v National Transport Insurance  TASFC 5. This case also involved a load on a trailer being too high for an overpass and causing damage to the overpass. The owner of the overpass claimed damages against Mr Hammersley and his employer, Kellara Transport Pty Limited. Kellara's insurer denied indemnity for various reasons, one of which was an exclusion for loss, damage or liability caused by recklessness or reckless failure to comply with statutory obligations.
The Full Court of the Supreme Court of Tasmania held that the driver did not recklessly contravene traffic regulations. The relevant test cited was again from Fraser v Furman and the Court noted that recklessness involves a recognition that danger exists and indifference as to whether or not it is averted. On the facts, the Court held it to be a case of "appalling inadvertence" rather than recklessness as the driver did not know of the applicable regulations, did not consult the permit before his journey and, while he knew the excavator was not in its usual position for transport (the boom was usually set to the lowest level), he did not know there was a requirement to fully retract the boom on the excavator. The insurer's special leave application to the High Court was refused.
These two decisions highlight the narrow compass in which conditions requiring an insured to take reasonable care to prevent loss or damage operate. There will not be many cases where an insured recognises a danger and acts in such a way that it is indifferent as to whether the risk eventuates—let alone a case in which that indifference can be proven by the insurer.
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.