Insurable Interest – Issue 39

Contents

Ship faced

Gone in 60 seconds

Jump at your own risk

Deep pockets

On the factory floor

Out of step

Don’t be so reckless

Ship faced

The Queensland Court of Appeal has added to the growing body of recent case law on assault cases pursued against venues licensed to serve alcohol.

Tall Ship operated a pleasure cruising business on Moreton Bay whereby it would transport passengers between the mainland and a venue it operated at McLaren’s Landing. The plaintiff’s employer arranged a Tall Ship cruise for their 2006 Christmas party. Mid-morning on 2 December 2006, the ship left the mainland carrying 111 passengers and 10 crew members. In addition to the plaintiff’s group, there was also a group from ‘Malouf Marine’ aboard.

Passengers were served food and alcohol and, when the ship arrived at McLaren’s Landing, members of the Malouf group continued drinking while the plaintiff’s group (accompanied by family members and children) played water-sports and ate lunch.

Mid-afternoon, passengers returned to the ship and, as the plaintiff was about to board, men from the Malouf group were swearing loudly amongst themselves and behaving in a drunken manner. The plaintiff asked the Malouf group to watch their language, following which he was sworn at. After the plaintiff again requested that the men mind their language, he was punched from behind by an unidentified assailant. The plaintiff was left with facial injuries and long-term neurological problems. He sued Tall Ship alleging it was negligent.

The Court of Appeal affirmed the High Court authority of Adeels Palace v Moubarak in which it was said that that an operator of a licensed venue owes a duty to take reasonable care to prevent injury to patrons from the violent, quarrelsome or disorderly conduct of other patrons. However, the Court emphasised that in considering whether the duty had been breached, all of the surrounding circumstances must be taken into account.

The Court held that a group of men swearing in the presence of children did not mean it was foreseeable that the assailant might become violent towards the plaintiff or members of his group. The Court went a step further and said that, even if a crew member had heard the swearing directed at the plaintiff after he had asked them to mind their language, the crew would still not have identified that there was a risk of violence. There was no violent, quarrelsome or threatening behaviour to which the crew were obliged to respond.

The Court rejected submissions by the plaintiff that the Malouf group’s noisy and boisterous behaviour required withdrawal of alcohol services, monitoring of the group or refusing permission for them to re-board the ship. The Court also found that, taking into account all of the relevant circumstances, there was no requirement for Tall Ship to have a designated security presence aboard. The plaintiff’s appeal was dismissed with costs.

Packer v Tall Ship Sailing Cruises Australia Pty Ltd

Courts will not find licensed venues liable for assaults unless the injured person can establish that the licensee ought to have known of facts creating a foreseeable risk of violence and failed to take appropriate precautionary measures.

This article was written by Liam Fowler, Lawyer.

Gone in 60 seconds

There has been some uncertainty about the burden of proof in suspicious or fraudulent insurance claims since McLennan v Insurance Australia Ltd last year. The New South Wales Court of Appeal has now confirmed that, where a claim is made for the theft of a motor vehicle, the onus remains on an insured to prove that the vehicle was stolen.

The insured was the owner of a Ferrari which he alleged was stolen from a suburban street. The insured made a claim under his insurance policy for the agreed value of the vehicle. During the investigation of the claim, the insured made a number of statements to the insurer that were not truthful and on the basis of this the trial judge held that the insured had not discharged his onus of proving that the vehicle had been stolen.

In dismissing the insured’s appeal, the Court of Appeal found that in order for the insured to succeed, he needed to satisfy the Court of the facts necessary to establish the cause of action. There was no onus on the insurer to prove a negative. That is, the insurer did not need to prove that the theft did not occur in order to deny indemnity for the claim. In circumstances where the probability of the vehicle having been stolen was equal to the probability that it was not stolen, the insured’s claim must fail. Accordingly, it was open to the trial judge to find that on the basis of the insured’s dishonest conduct throughout the claim, he had not proven the occurrence of an insured event. To this extent, the Court of Appeal reaffirmed the longstanding principle set out in Hammoud Brothers Pty Ltd v Insurance Australia Limited.

The Court also considered the circumstances in which a claim can be denied on the basis of fraud. In order to make a finding of fraud, it would not have been necessary for the Court to be satisfied that the insured was complicit in the fabricated theft of the vehicle. It would only have been necessary for the Court to find that the insured dishonestly intended to create a false belief in the insurer for the purpose of inducing payment of the claim.

Sgro v Australian Associated Motor Insurers Ltd

Which party bears the burden of proof in an indemnity dispute will depend on the policy wording and the nature of the insured event. Where the insured event is ‘theft,’ the onus remains on an insured to prove that their property was stolen.

This article was written by Liam Campion, Senior Associate

Jump at your own risk

The 24-year-old plaintiff suffered a compression fracture to her spine after jumping from the 10 metre diving platform and landing awkwardly at the Parramatta War Memorial Swimming Centre. She sued Parramatta City Council, as the occupier of the Centre.

The plaintiff’s claim was dismissed on the basis that the risk encountered by her was subject to a risk warning, so that section 5M of the Civil Liability Act 2002 offered a complete defence. The lifeguard’s instruction to ‘fall vertically, feet first into the pool below’ satisfied the Council’s duty to provide instruction to the plaintiff after she had sought guidance. This was in spite of the plaintiff’s claim that the lifeguard had also told her to ‘run and jump’ and her allegation that this was inconsistent with any warning.

The plaintiff appealed. The Court of Appeal upheld the trial judge’s findings and found that the ‘critical instruction’ to fall vertically and enter the water feet first was not revoked by any instruction to run and jump.

In addition, the Court of Appeal found that the warning sign adequately warned of the general nature of the particular risk as it was clearly worded and placed at eye level at the foot of the platform.

A further consideration was that the risk of injury from striking the water surface in an uncontrolled fashion would have been clearly apparent and understood by a reasonable adult in the plaintiff’s position by virtue of the signage and placement of a lifeguard. The risk was therefore ‘obvious’ within the meaning of section 5F of the Act.

Lastly, the Court determined that the activity of jumping into water from a 10 metre platform ‘carried with it a probability of harm that was real and present and the consequences of which included serious injury from the impact with the surface of the water’. The obvious risk which materialised made the activity ‘relevantly dangerous’ and therefore section 5L(1) was satisfied, with the result that the Council was not liable in negligence for the plaintiff’s injury.

Sharp v Parramatta City Council

The importance of supervision and placement of warning signs, clearly worded, cannot be emphasised enough to swimming pool operators. However, the Court of Appeal’s decision firmly categorises the activity of diving or jumping from 10 metre heights into swimming pools as a ‘dangerous recreational activity’ for which liability is excluded.

This article was written by Rachael Arnold, Partner

Deep pockets

The Victorian Court of Appeal recently considered the question of whether a claimant can join a non-contracting insurer to a proceeding. The proceeding was brought by the liquidators of a company against the company’s former directors for insolvent trading.

Two of the directors, who were by this stage personally insolvent, were covered by a professional indemnity policy. They had previously made a claim on the professional indemnity policy, which had been denied by the insurer. Both of the former directors had indicated that they did not intend to challenge the insurer’s denial of indemnity.

The liquidators of the company brought an application to join the insurer to the proceeding as a co-defendant. They sought a declaration that the insurer was liable to indemnify the former directors under the policy in respect of any judgment which the liquidators might obtain against them.

The insurer opposed the joinder application on the basis that the court did not have jurisdiction at the suit of the liquidators to make a declaration in relation to the insurance policy. The policy of insurance was between the insurer and the former directors. The liquidators were not parties to that contract of insurance.

The Court of Appeal rejected the insurer’s argument that the court lacked jurisdiction to grant declaratory relief. The question was instead one of power, and whether granting the declaratory relief sought in the circumstances came within the power of the court.

Whilst the Court of Appeal accepted that as a general proposition only contracting parties have an interest in the contract to which they are parties, they also considered that once an insured becomes insolvent leaving behind an unpaid claimant in respect of whose claim an insurance policy responds, the situation becomes different from an ordinary private contract. The insured no longer has any practical interest in the insurance contract. It is only the claimant that has an interest in the insurance contract.

Having been satisfied that the liquidators had a sound basis for seeking declaratory relief against the insurer, the order joining the insurer to the proceeding was upheld.

The Court of Appeal was clearly of the view that the declaration would not just be an advisory opinion, but would have the practical effect of resolving the issue as between insured and insurer. They were also clearly driven by the desire to ensure all interested parties and claims were dealt with in the one proceeding.

CGU Insurance v Blakeley

This decision provides grounds for an insurer to be joined to a proceeding by a non-party to the insurance contract, in circumstances where the insured is insolvent.

The insurer in this case has sought leave to appeal the decision to the High Court.

This article was written by Melissa Macrae, Special Counsel

On the factory floor

The NSW Court of Appeal considered the liability of a landlord of commercial premises to a person who was injured while working there. The claim against the landlord had been dismissed at trial.

The premises were used as a factory by the injured man’s employer. The injured man gave evidence that during the course of his employment the concrete floor deteriorated, developing cracks and holes. He stepped into one of those holes when alighting from the forklift and injured his ankle.

The employer’s practice had been to fill the cracks/holes, but the fill would itself deteriorate over time. There was no evidence that the floor had any problems when the premises were first let to the employer. There was evidence of a meeting which took place five months before the accident. Notes of the meeting were brief and did not even clearly indicate who was present. The notes included: Floor - forks breaking concrete edging. The Court found that the context of the meeting was the employer’s desire to move to smaller premises and the ‘make good’ works which it would be required to undertake at its cost before leaving.

The Court had regard to the provisions in the NSW Civil Liability Act, which are the same as the corresponding ones in the Victorian Wrongs Act, that a person is not negligent in failing to take precautions against the risk of harm unless the risk was one of which the person knew or ought to have known and the risk was not insignificant and a reasonable person would have taken those precautions. The Court added:

As between an occupier-tenant, on the one hand, and the landlord on the other, of commercial premises, liability for injuries sustained by an entrant onto the premises will primarily rest with the occupier-tenant, because the tenant is generally in possession and has control of the premises and can determine who enters and under what conditions.  However, everything must depend on the particular circumstances of each case.

The Court had regard to the requirements in the lease that the tenant must immediately make good any damage caused by the tenant, and immediately give notice to the landlord of any defect in the premises or of any circumstances likely to occasion injury within the premises. The Court found that the landlord had not been informed about the problems with the concrete floor.

The Court did not allow the injured man to raise at the appeal a new point, namely that the tenant had no obligation to fix the floor because the damage amounted to ‘fair wear and tear’ for which, under the lease, the tenant had no responsibility.

The Court confirmed both the dismissal of the claim and the order that the injured man pay the landlord’s legal costs.

Aldred v Stelcad Pty Ltd.

While landlords of commercial premises owe a duty of care to persons entering the premises, the primary duty of care remains with the tenant-occupier.  The extent of the landlord’s duty may be defined in part by the terms of the lease.

Out of step

The New South Wales Court of Appeal has found in favour of an occupier and an employer after an employee slipped on a wet step.

The worker suffered injuries in the course of his employment when he slipped and fell when stepping up into a demountable hut at the container terminal at Port Botany, NSW. Patrick Stevedores was the occupier of the container terminal and the worker’s employer. FBIS International (FBIS) provided security services to Patrick Stevedores.

The worker submitted that four things contributed to him falling in wet conditions. Firstly, the absence of an awning over the doorway; secondly, the height of the ‘step up’ which he estimated to be 45-50 centimetres (there was a live issue as to the height of the ‘step up’ at the hearing); thirdly, the absence of a grab-rail to assist with his entry into the hut; and finally, the flat metallic covering of the door sill meant that he had to step up to a smooth wet surface. Of significance was the fact that, days after the worker’s accident, an awning and step were added to the hut by Patrick Stevedores.

The trial judge decided that both Patrick Stevedores and FBIS had breached their respective duties of care to the worker and apportioned contribution 40% to FBIS and 60% to Patrick Stevedores. The worker’s own negligence was not found to have contributed to his fall.

On appeal, the Court of Appeal decided that the worker had failed to establish negligence by either Patrick Stevedores or FBIS. The Court of Appeal found that:

1. The worker had failed to show that the additional risk posed by the step from the ground up into the demountable hut would have prompted a person in the position of Patrick Stevedores to take some precaution.  The Court of Appeal was critical of the plaintiff’s failure to adduce evidence proving the height of the ‘step up’ or its characteristics.
2. There was no finding that the ‘step up’ was ‘significantly’ higher than normal. The finding was only that it was ‘higher than normal’.
3. Even if FBIS was held to have conducted an inspection of the demountable hut, the evidence did not sustain a finding that the inspection would have disclosed a risk which would have given rise to an obligation on FBIS to take any precautionary measures.

Patrick Stevedores Operations (No 2) v Hennessy; FBIS International Protective Services (Aust) Pty Ltd v Hennessy

Just because a ‘step up’ is higher than normal does not automatically give rise to a finding of negligence. The onus is on an injured plaintiff to prove that a reasonable person in the position of a defendant would identify the risk and take measures to address it.

This article was written by Terri Hirbod-Bassi, Lawyer

Don’t be so reckless

The Supreme Court of Queensland has considered the meaning of accidental, sudden and unforeseen damage in a Contractors and Plant insurance policy.

The insured was in the business of supplying cranes and a crane operator to third parties. On the day of the relevant events, the crane operator noticed that the ground conditions on which the crane had to travel had deteriorated. In an effort to level the ground, the operator constructed a ‘ramp’ using crushed rubble which he believed would compress as the crane travelled over it. While the operator was driving the crane over the ramp, its boom collapsed, rendering the crane uneconomical to repair. The insured made a claim under its insurance policy.

The policy covered damage to the crane that was accidental, sudden and unforeseen which occurred while the machine was being used in the manner in which it was designed to be used. The insurer denied indemnity on the basis that the crane was being used in contravention of the operating guidelines and in circumstances where the operator was well aware of the inherent risk.

At the trial, the Court made a factual finding that the crane was positioned at an angle of 7 degrees at the time the boom collapsed. The Court rejected evidence from the insured’s expert that the boom collapsed due to a pre-existing structural defect in the welding of the boom. The Court accepted evidence from the insurer’s experts that the cause of the collapse was a structural overload caused by the crane being operated on a 7 degree slope while carrying a 39 tonne load.

In relation to the construction of the policy, the Court considered whether the damage was ‘accidental, sudden and unforeseen.’ It was not alleged that the operator intended to cause the damage to the crane, but the Court found that he did deliberately drive the crane over the ramp. In finding that the damage was not accidental, the Court found that the operator deliberately and recklessly courted a risk of which he was well aware. The Court found that the operator knew the crane had to be operated on level ground, he ignored the warning of a witness that the ramp was too steep and, while driving over the ramp, he would have been aware that the rubble was not crushing as he had planned and that the crane was not being operated on level ground.

It was not controversial that the operating guidelines and the relevant Australian Standard prohibited the crane being operated on an angle of 7 degrees. The Court therefore found that even if the damage had been accidental, sudden and unforeseen, the crane was clearly not being used in the manner for which it was designed and so the insurer was entitled to decline cover.

Finally, the insured sought to rely on an additional benefit that covered damage to the crane caused by accidental overload. The Court agreed with the insurer’s interpretation of the clause that it was limited to accidental physical overload and did not respond to structural overload caused by the crane being operated on a slope.

Matton Developments v CGU

The courts ordinarily impose a very high threshold for reckless acts. However, this case is an example of a court being prepared to find that an insured had willingly courted a known risk.

This article was written by Liam Campion, Senior Associate