Insurable Interest – Issue 41


Accident Towing Services Legislation

Vicarious Liability for Criminal Acts

Plaintiff Gives Council the Pits

Demolishing Liability to Indemnify

The Broad and Narrow of it: interpreting ‘professional services’ in insurance contracts

Not Without Intent

Accident Towing Services Legislation

Hall & Wilcox has been involved in a series of cases which deal with the application of the Accident Towing Services Act 2007 to motor vehicle repairers, specifically whether a repairer is entitled to detain a vehicle to secure payment of towing, storage and other charges.

In the case of Insurance Manufacturers of Australia Pty Ltd v Barlea Panels Pty Ltd Hall & Wilcox acted on behalf of Insurance Manufacturers of Australia (IMA). IMA insured the owner of a vehicle involved in a collision. The vehicle was towed to the repairer’s premises to be quoted for repair. The insured verbally agreed to pay the cost of storing, towing, quotation, administration and a ‘parts liaison’ fee. She also signed an authority to repair the vehicle.

The repairer prepared a quotation for repair but the vehicle was subsequently assessed by IMA to be a total loss. IMA settled the claim under the terms of the policy and, in so doing, became the owner of the vehicle.

When IMA requested the release of the vehicle, the repairer claimed an entitlement to recover from IMA numerous charges allegedly authorised by the insured. The repairer refused to provide an invoice until IMA informed it of the date that the vehicle would be removed.

IMA issued proceedings in the Magistrates’ Court against the repairer seeking delivery up of the vehicle. By counterclaim, the repairer sought the various fees and an ongoing rate of storage while the vehicle was on its premises. By the time the vehicle was released 18 months later, the repairer claimed a sum in excess of $20,000 from IMA.

At the hearing IMA successfully argued that it was entitled to possession of the vehicle and that the repairer had wrongfully detained it. Importantly, IMA was not privy to any agreement said to have existed between the insured and the repairer.

The repairer claimed that it was exempt from the Accident Towing Services Act (specifically section 153 of the Act, which requires written authorisation of costs sought from the insurer) because the vehicle was not towed to the repairer directly from the scene of the accident. This argument was rejected by the Magistrate, who confirmed that the Act applies generally to all repairers and towing operators regardless of the circumstances in which a vehicle comes into their possession. As the repairer had not obtained written authority from either the insured or IMA to charge the fees sought, section 153 of the Act prevented it suing for any charges not authorised in writing.

Her Honour also considered that section 153(2)(d) of the Act prevented the recovery of storage fees unless the amount claimed was in accordance with the statutory rate prescribed by the regulations (currently $15.90 per day).

The Magistrate also rejected a factual argument on behalf of the repairer that it had not refused to release the vehicle, but rather IMA had failed to indicate when it would collect the vehicle, so the repairer could provide an invoice. Her Honour held that by making delivery conditional, the repairer’s conduct amounted to a constructive refusal to release the vehicle.

This decision represents a welcome confirmation of the law in this area. It confirms the broad application of the Act and demonstrates that a failure to obtain authority for fees and charges in writing is almost certainly fatal to a repairer’s claim for fees.

This article was written by Ella Simmons, Lawyer.

Vicarious Liability for Criminal Acts

The High Court of Australia considered the circumstances in which an employer is vicariously liable for the criminal acts of an employee in Prince Alfred College Incorporated v ADC [2016] HCA 37.

ADC was sexually abused by a housemaster employed by Prince Alfred College, where he was a boarder, in 1962. He brought proceedings against the College in 2008 (46 years later) claiming damages for the psychological injuries he sustained by reason of the abuse.

ADC’s claim was dismissed at first instance. The Supreme Court of South Australia found that he had not established liability on the part of the College and that, in any event, it would not grant an extension of time for ADC to bring the proceeding outside of the time prescribed by the Limitation of Actions Act 1936 (SA).

This decision was overturned by the Court of Appeal, which held that the College was vicariously liable for the actions of its employee, the housemaster and that the extension of time should be granted. The College appealed this decision.

The High Court refused to grant ADC an extension of time within which to bring the proceeding. It considered that the extraordinarily lengthy delay by ADC in bringing the proceeding (when he had clear knowledge of his right to do so) and the resulting prejudice to the College’s ability to mount a defence rendered it unlikely that there could be a fair trial on the merits of the case.

However, the Court also took the opportunity to clarify the approach to be taken when determining whether an employer is vicariously liable for the criminal acts of its employees. After canvassing the case law, the joint judgment of five out of seven High Court Justices concluded that the fact that a wrongful act by an employee is a criminal offence does not preclude the employer from being held vicariously liable in circumstances such as these.

The Majority held that the relevant approach is to consider any special role that the employer has assigned to the employee and whether that role gave rise to the “occasion” for the wrongful act. It stated that “factors such as authority, power, trust, control and the ability to achieve intimacy with the victim” were particularly important.

Where the employer has put an employee in a position which enables them to take advantage of a victim, that may be sufficient for it to be determined that the wrongful act was committed in the course or scope of employment, such that the employer is vicariously liable for the wrongdoing.

The High Court did not determine whether the College was vicariously liable for the actions of the housemaster in this case.

This article was written by Zoe Keith, Partner.

Plaintiff Gives Council the Pits

The plaintiff sustained a broken hip, pelvis and a fractured back after he walked through a Council reserve at night and tripped on a stormwater pit. The plaintiff brought a claim against the Shepparton City Council in the Supreme Court of Victoria.

The Shepparton City Council denied that the plaintiff had suffered any injuries as a result of the fall. Further, it argued that even if he did sustain an injury, he must have been jogging (rather than walking) in the dark and that this would have contributed to his injuries. Ultimately, the Court accepted the plaintiff’s medical evidence and found that he did suffer an injury in the manner alleged. The Court agreed that the plaintiff probably did jog through the park, and did not take reasonable care for his own safety, but concluded that even if he had walked, he would not have been in a position to see the stormwater pit in the dark and avoid it.

The Council also argued that the presence of the stormwater pit should have been obvious to the plaintiff and that even if it was not visible to him, it would have been obvious to a reasonable person traversing an unlit reserve in the dark. Justice Keogh dismissed that argument and found that neither the probability nor the magnitude of the risk were obvious to pedestrians crossing the reserve at night. He found that it was the defendant’s responsibility to take reasonable care to eliminate or reduce hazards, which a pedestrian taking reasonable care for his own safety would not necessarily see and be in a position to avoid.

Justice Keogh found that the Council failed to warn of the existence of the stormwater pit and should have erected a warning sign and a barrier to ensure the pit was made visible to pedestrians. Had any of those precautions been taken, the Court found that the plaintiff’s fall and subsequent injuries would have been avoided. The Court also noted that the Council had failed to produce any evidence to show that taking precautions to avoid the risk would be burdensome.

An occupier’s obligation to eliminate hazards outweighs the obligation on entrants to avoid them. In this case, a person jogging through an unlit reserve at night was only 15% to blame when he tripped on a storm water pit.

This article was written by Bridget Negri, Lawyer.

Demolishing Liability to Indemnify

The Supreme Court of Victoria has considered whether plans to demolish buildings are relevant to an insurer’s decision whether to accept the risk.

The insured purchased a property with the intention of demolishing the buildings, which were being operated as a rooming house at the time and constructing a new house. In the meantime, he leased it to the person operating the rooming house and obtained landlord’s insurance. Before the policy was issued, the insured completed a New Policy Declaration which asked: “Is the property … to be demolished?”. The insured answered “no” and the policy was issued. The insured subsequently renewed the policy three times, the last time for the year ending 21 December 2014.

On 17 September 2014 the buildings were substantially damaged by fire. The insured made a claim under the policy which was denied. The insurer submitted that the insured had failed to disclose his intention to demolish the buildings, gave a false answer in the Declaration and did not, in any event, suffer loss because at the time of the fire he intended to demolish the buildings. Litigation ensued.

The Court considered the insured’s intention as at the last renewal before the fire. The Court found that, although the demolition project was on hold while the insured considered purchasing an alternative residence, it had not been completely abandoned. The insured gave evidence that he would not have authorised demolition unless and until he secured a formal offer of finance. The Court did not accept this as the insured had undertaken substantial steps to implement the project. Amongst other things, he had obtained building plans and quotations, moved out the tenant and sub-tenants and applied to extend the demolition permit.

The Court further found that the insured’s intention regarding the demolition was a matter relevant to the insurer’s decision to accept the risk. The Court said this finding was both common sense and supported by evidence. The Court noted that property owners are less likely to maintain a property that is going to be demolished. Moreover, periods of vacancy while a property is being prepared for demolition increase the risk of vandalism, particularly where the property is derelict. The insurer’s underwriting guidelines and oral evidence confirmed that demolition plans were blanket unacceptable risks.

Whilst the Court accepted that the insured did not know his intention to demolish was relevant to the risk, a reasonable person in the same circumstances could be expected to have known that it was. Accordingly, the Court held that the insured had breached his duty of disclosure. The Court further held that the insured’s answer of “no” in the Declaration constituted a misrepresentation that was continuing as at the renewal date. As the insurer would never have issued the policy if the insured had disclosed the prospect of demolition and answered “yes”, the Court reduced the insurer’s liability to nil by operation of section 28 of the Insurance Contracts Act. The Court did not consider whether the insured suffered loss for the purposes of the policy because it was unnecessary to do so.

Bergman v CGU Insurance Limited

This case demonstrates that an insured’s intention to demolish buildings is relevant to acceptance of the risk. Failure to disclose such intention at policy inception or on renewal may lead to the insurer’s liability being reduced to nil.

This article was written by Jessica Dickson, Lawyer.

The Broad and Narrow of it: interpreting ‘professional services’ in insurance contracts

The recent decision in Chubb Insurance Company of Australia Limited v Robinson highlights the differing approaches courts have taken to interpreting the term ‘professional services’ in insurance contracts.

Reed Constructions Australia Pty Ltd entered into a design and construction contract for the redevelopment of a site and the construction of 173 residential apartments and a number of office suites. Pursuant to the agreement, Reed was required to provide statutory declarations by an officer in support of any progress payments made. The purpose of the statutory declarations was to detail and verify the amounts Reed had paid to subcontractors, and for materials, in the works completed to date. The chief operating officer of Reed, Mr Robinson, completed a number of such statutory declarations on the company’s behalf.

Reed was placed into liquidation and subsequently the building owner alleged that Reed had claimed progress payments to which it was not lawfully entitled. The owner issued proceedings against Mr Robinson on the basis of misleading and deceptive conduct and negligence.

Mr Robinson denied liability and by a cross-claim sought indemnity from Reed’s directors’ and officers’ insurer Chubb. Chubb sought to rely on the professional services exclusion in the policy as the basis for denying indemnity. Chubb argued that by giving the statutory declarations, Mr Robinson was performing ‘professional services’ which were excluded under the policy.

On appeal, the Full Court of the Federal Court decided that Chubb could not rely on the ‘professional services’ clause to deny indemnity. The Court considered that Chubb had not established either that project management was a profession or that the routine managerial task of making statutory declarations was a professional service.

The Court noted that the term ‘professional’ in the insuring clause of a professional indemnity policy does not necessarily hold an identical meaning if the expression were to be used in public liability, product liability or directors’ and officers’ policies. Significantly, the decision highlights that courts will interpret ‘professional services’ narrowly in exclusion clauses and find that the clause does not apply.

In contrast, courts are more willing to interpret the term broadly and inclusively in the insuring clause of a professional indemnity policy. For example in the earlier decision of Suncorp Metway Insurance Ltd v Landridge Pty Ltd. That case involved a real estate agent undertaking administrative duties. However, the Court concluded that because the administrative tasks were undertaken in the course of carrying out property management, it was to be considered a professional activity for the purposes of the policy. The Court recognised that property management was a core aspect of the business of a real estate agency and, accordingly, was a professional duty for the purposes of the policy.

The meaning of ‘professional services’ has always been problematic in the insurance context. Generally speaking that term will be construed narrowly or widely depending on whether it is used in an exclusion or in an operating clause.

This article was written by Alexandra Lane, Lawyer.

Not Without Intent

The insured lodged a claim with his motor vehicle insurer, Shannons, seeking indemnity in relation to damage said to have been caused to his Mercedes in a collision.

The insured said that the collision occurred after an unknown vehicle turned in front of his line of traffic, causing an emergency situation. The insured vehicle was hit from behind by a Toyota Hilux, causing it to collide with a Toyota Corolla in front of him.

Shannons obtained forensic evidence which concluded that the Corolla had, in fact, reversed into the insured vehicle. The forensic evidence also indicated that the insured vehicle was switched off when it sustained the relevant damage. Both conclusions were contradictory to all drivers’ versions of events and suggested that the collision had been staged. The claim was denied as fraudulent.

At first instance, the Magistrate applied Vidal v NRMA Insurance Ltd, which establishes that an insurer may put an insured to proof, notwithstanding that an allegation of fraud has been made, whether the claim be for theft, fire or other similar claims.

The Magistrate accepted the evidence of the witnesses called by the insured as truthful. The Magistrate also accepted that a collision of some description occurred on the date alleged between the three parties. However, he was not satisfied, on the balance of probabilities, that the collision occurred ‘without intent’. At the same time he was not satisfied that the collision had been staged.

The Magistrate found in favour of Shannons on the basis of a ‘no insured event’ defence and dismissed the insured’s claim.

On appeal, the insured argued that an insured event (i.e. a collision) had been made out on the basis that the Magistrate had accepted the drivers’ evidence as truthful and concluded that a collision of some description occurred on the relevant date.

This argument was rejected by the NSW Supreme Court. While the Magistrate accepted the evidence of the drivers as truthful, he was correct in assessing the weight to give to such evidence in light of the conflicting forensic evidence and the inconsistencies identified by Shannons with the drivers’ original versions of events.

The Supreme Court also held that Shannons were entitled to put the insured to proof and that the Magistrate made no error in finding that the insured bore the onus of proving all elements of his case, including that the alleged accident had occurred ‘without intent’. The insured had failed to discharge this burden and his claim failed on that basis.

Issa v Australian Alliance Insurance Company Ltd t/as Shannons Insurance

The approach taken by the Supreme Court appears different to that taken in McLennan v IAL insofar as it suggests that an insured must establish that every claim must have occurred ‘without intent’. It will be interesting to see how such an approach applies to a claim for fire damage.

This article was written by David Carolan, Lawyer


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