Aust Assoc Motor Ins Ltd v Wright and Wright No. Scgrg-97-1173 Judgment No. S6471
[1997] SASC 6471
•5 December 1997
AUSTRALIAN ASSOCIATED MOTOR INSURERS LIMITED
(ACN 004791744) v WRIGHT & WRIGHT
Full Court
Coram: Matheson, Duggan and Nyland JJ
Matheson J
On 4 February 1995 a fire broke out on the respondents’ property at Kersbrook causing loss and damage to that property and to the property of adjoining landowners. The appellant refused to indemnify the respondents under a contract of insurance and the respondents issued proceedings in the District Court of South Australia. In their prayer for relief the respondents sought, inter alia, the following directions:
A declaration that the defendant is liable under the contract of insurance to indemnify the plaintiffs against loss and damage arising from the fire.
A declaration that the defendant is liable under the contract of insurance to indemnify the plaintiffs against loss and damage arising from the fire in respect of claims against the plaintiffs from the neighbours referred to in paragraph 4 of the Statement of Claim."
The learned trial Judge held that the respondents were entitled to those declarations, and the appellant now appeals to this Court.
On appeal there was no real dispute as to the trial judge’s findings of fact. His Honour said:
"On 4 February 1995 the plaintiffs were the registered proprietors of a 17.5 acre parcel of land at Buhlman Road, Kersbrook, South Australia. There were two policies of insurance between the parties in force on that day, one covering loss in respect of buildings and improvements and the other covering contents loss. It is not in dispute that if the policy points taken by the defendant in its defence are not upheld by the Court, the defendant is otherwise liable to indemnify the plaintiffs in respect of their personal and third party losses sustained as a result of the fire.
It is apparent from the photographs tendered in evidence that the plaintiff’s property consisted of low rolling hills, most of which had been cleared for pasture. The main improvements on the property consisted of a storage shed, a shed which had been converted for domestic living whilst a permanent house was being constructed and a substantially completed permanent house. The plaintiffs had caused a dam to be constructed on the lower part of the property. Dam water was pumped to the house area to a settlement tank. When the dam water had settled it was then pumped into another tank for domestic use. It is not clear from the photographs, and no evidence was given of the distance, but it would seem that the distance between the dam and the house would have been in excess of 100 metres and perhaps greatly in excess of that figure. The water line from the dam to the house consisted of one inch black poly pipe which ran underground. One end of the line was attached to the outlet of a pump and the other end of the line came up to the settlement tank. The first plaintiff, Mr Wright, had constructed an inlet pipe from the dam to the point where pumping took place alongside the dam wall. When he needed to pump water from the dam to the settlement tank, he brought to the dam a pump driven by a petrol motor. He then connected up the inlet and outlet pipes to the pump and, after the pump was primed, the pumping operation could commence.
Two or three days before 4 February 1995 Mr Wright borrowed from a neighbour a petrol engine driven pump in order to pump water from the dam to the house. He did not wish to use his own petrol engine driven pump because there was a crack in the exhaust system which could have led to the escape of sparks from the engine when in operation. Mr Wright was thus aware of the need to minimise the chance of a fire starting in the dry conditions which then prevailed on his property.
During the mid to late afternoon of 4 February 1995, Mr Wright took the borrowed pump to the site alongside the dam and connected up the inlet and outlet lines. The area where he usually placed the pump consisted of mown pasture grasses. The grass was kept short in that area because of the presence of snakes in reeds which grew at the edge of the dam and also to minimise fire risk. Mr Wright was not able to place the borrowed pump in precisely the same position from which he normally pumped because the outlet position on the borrowed pump was different from the position on his own pump. In order to connect the outlet line to the borrowed pump he had to put the pump in a slightly different position from that which would have been occupied had he been using his own pump. It was common ground that in the altered position the pump had been placed on pasture grass which had been cut short but which still had clumps of longer grass in it. It was conceded by Mr Wright that, in such a position, longer grass was within one or two metres of the position of the pump when it was put in operation.
At the pumping site, Mr Wright kept a 20 litre metal container which had formerly been used for storing paint. He used the container as a bucket. He would fill the bucket from the dam and then use the water so collected to prime the pump. He also said that it was his practice to spread the balance of the water held in the bucket, after the pump had been primed, over the ground in the vicinity of the pump, again as a fire safety precaution. It was suggested to the plaintiff by Mr Britton, counsel for the defendant, that he did not employ this practice on the day in question because he had made no mention of it when interviewed by a police officer on the day of the fire and the day following the fire. However, Mr Wright was quite sure, without being adamant, that he did spread the balance of the water in the bucket over the ground near the pump and I have no reason to doubt that his recollection in the witness box was accurate. I formed the view that Mr Wright was a witness who endeavoured to tell the truth. There may have been an element of unconscious reconstruction, but I do not think that that altered the underlying truth of the statements which he made in the witness box.
Having set the pump up, he started the petrol engine which drove the pump and, after ensuring that the pump was pumping properly, he left the pumping site and went back to the house. He had been in the house for about 20 minutes when a neighbour drove up and informed him that a grassfire had started down by the dam. The two men, and perhaps the plaintiff’s adult son Stephen, then went down to the dam and attempted to put the fire out. They were unsuccessful and the fire spread to adjoining properties until it was eventually put out by the CFS... I have no hesitation in finding that the petrol pump caused the fire ...".
It is convenient to set out paragraphs 6, 7, 8 and 10 of the appellant’s defence, which particularise the policy condition and exclusions relied on by the appellant:
The policy contained the following condition:
PRECAUTIONS
‘You must at all times and at your expense take all reasonable precautions:
a) for the safety and protection of your property.
b) to prevent bodily injury.
c) to prevent damage to your property.
To comply with all statutory obligations, by-laws or regulations imposed by any public authority governing:
a) the use of your home and the site.
b) the storage of chemicals and hazardous goods.
c) the health and safety of persons’
The policy contained the following exclusion:
‘This policy also does NOT cover DELIBERATE or INTENTIONAL ACTS committed by you or by any member of your family who lives with you (or by any other person acting with the express or implied consent of any of you) which cause loss of damage’
The policy contained the following exclusion:
‘We will not pay claims arising from things done intentionally or left undone intentionally by you or your family or by a person acting with your consent with reckless disregard for the consequences’.
In setting the stationary engine in operation the plaintiffs or one of them:
10.1 failed to take all reasonable precautions for the safety and protection of their property, in breach of the policy.
10.2 failed to comply with all statutory obligations, by-laws or regulations, in breach of the policy.
10.3 acted with reckless disregard of the consequences, and
10.4 committed an illegal act.
PARTICULARS
In breach of Section 46 of the Country Fire Act 1989 ["the Act"] the plaintiffs or one of them operated an engine of a prescribed kind in the open air, during the fire danger season:
(a) without clearing the space around the engine of all flammable material to a distance of 4 metres,
(b) while there was not a person present,
(c) without a shovel or rake and a portable water supply being at hand, and
(d) while the engine was not fitted with an exhaust pipe or fitted with an appropriate spark arrester."
Section 46 of the Act, so far as is material, provides:
"46. A person must not, during the fire danger season, operate an engine ... of a prescribed kind in the open air ... except in accordance with the relevant regulations."
The maximum penalty is a fine of $4,000.
Regulation 36 of the Country Fires Regulations provides:
"36.(1) In this regulation -
‘stationary engine’ means a steam engine, an internal combustion engine or a turbine engine that is operated in a stationary position.
(2) Pursuant to section 46 of the Act, a stationary engine is prescribed.
(3) A person must not, during the fire danger season, operate a stationary engine not enclosed by non-flammable material in the open air unless -
(a) the space immediately around and above the engine is cleared of all flammable material to a distance of at least four metres, or a person who is able to control the engine is present at all times while the engine is in use;
(b) a shovel or rake, and a portable water spray in good working order, are at hand;
and
(c) any exhaust pipe is fitted with a spark arrester in good working order.
(4) A person must not, during the fire danger season, operate a stationary engine enclosed by non-flammable material in the open air unless any exhaust pipe that projects beyond that material is fitted with a spark arrester in good working order."
The respondents do not dispute that the petrol engine was an engine of the prescribed kind, that it caused the surrounding dry grass to be ignited, that the fire occurred during the fire danger season, and that in operating the engine they were in breach of s46 of the Country Fire Act, 1989. As far as the particulars contained in par 10.4, supra, are concerned, the respondents admitted they were in breach of (a), (b) and (c) but I draw attention to the fact that sub-reg(3)(a) does not require both the space clearance there specified and a person to be present. His Honour found that (d) had not been made out.
The Grounds of Appeal stated briefly were as follows: the learned trial Judge should have found that the respondents were in breach of the policy condition particularised in paragraph 6 of the Defence, supra, that he should have held that the respondents committed acts covered by the exclusions particularised in paragraphs 7 and 8 of the Defence, that he erred in taking into account that the respondents did not know that the act of setting the stationary engine in operation was illegal, and that on the whole of the evidence he should have found that the actions of the male plaintiff were illegal and of such seriousness and of such a character that the appellant was not obliged to indemnify the respondents pursuant to the terms of the policy of insurance, or alternatively on the grounds of public policy.
I will consider first the question of the onus of proof, and then whether the illegal actions of the male respondent disentitled the respondents to the relief they claimed.
As to the onus of proof, judicial opinion as to where it lies in relation to conditions is not unanimous. I refer to the discussion in Sutton Insurance Law in Australia 2nd Ed pars 8.14 to 8.16 inclusive, and to the discussion in the CCH Australian and New Zealand Insurance Reporter par 18-380. Like the authors of those discussions, I prefer to follow the reasoning of Lord Goddard CJ in Bond Air Services Ltd v Hill (1955) 2 QB 417 at 426, 427-428, and would hold that the onus rests on the insurer. As to the onus of showing whether a case comes within an exclusion clause, it normally lies on the insurer, see Sutton, op. cit. par 9.81 and the CCH Reporter, op. cit. par 18-370.
The condition set out in paragraph 6 of the Defence, supra, is not well drafted, but his Honour found, and counsel for the appellant did not dispute, that a fair reading of it gave rise to the construction that the phrase "take all reasonable precautions" also applies to the requirement to comply with all statutory obligations. I agree with this reading.
The judgment of Diplock LJ in Fraser v B N Furman (Productions) Ltd (1967) l WLR 898, with which Willmer and Winn LJJ agreed, throws considerable light on the phrase "reasonable precautions" in the policy under consideration. There the Court of Appeal was considering an employer’s liability indemnity policy, and the relevant condition read "the insured shall take reasonable precautions to prevent accidents and disease". At pp905-906 his Lordship said:
" The first point to consider is the question of construction of that condition. It must be construed, of course, in the context of a policy of insurance against specified risks. The risks so specified, which are ‘liability at law for damages,’ are liability for breach of statutory duty, for which the owner or occupier of the factory would always be personally liable, negligence at common law of the employer, for which he would be personally liable, and also the negligence of his servants, for which he would be vicariously liable. Therefore, when one approaches the construction of the condition, one does so in this context, and applies the rule that one does not construe a condition as repugnant to the commercial purpose of the contract ...
... ‘Reasonable’ does not mean reasonable as between the employer and the employee. It means reasonable as between the insured and the insurer having regard to the commercial purpose of the contract, which is inter alia to indemnify the insured against liability for his (the insured’s) personal negligence. ... Obviously, the condition cannot mean that the insured must take measures to avert dangers which he does not himself foresee, although the hypothetical reasonably careful employer would foresee them. That would be repugnant to the commercial purpose of the contract, for failure to foresee dangers is one of the commonest grounds of liability in negligence ... What, in my judgment, is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, 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 it is averted. The purpose of the condition is to ensure that the insured will not, because he is covered against loss by the policy refrain from taking precautions which he knows ought to be taken."
The judgment of Diplock LJ was applied in Albion Insurance Co. Ltd v Body Corporate Strata Plan No.4303 [1983] 2 VR 339. McGarvie J, in a judgment with which Young CJ and Anderson J agreed, said at 345:
"The test which Diplock, L.J. propounded is not whether the insured who recognizes a danger, takes no measures or takes measures which he knows to be inadequate to avert it. The test is whether the insured deliberately courts the danger by refraining from taking any measures or by taking measures which he knows to be inadequate to avert it. The word "deliberately" indicates intentional, considered action or inaction. The verb "court" suggests action or inaction which invites the danger of accident. The test requires more than a recognition of the danger and failure to take any measures or any measures known to be adequate to avert it. It requires that this be due to a deliberate decision to court the danger."
I also refer to Legal and General Insurance Co Ltd v Eather (1986) 6 NSWLR 390. At p397 Kirby P (as he then was) said:
"... there are many reasons why [the judgment of Diplock LJ] should be followed. They include repeated references to and applications of the case in numerous decisions in England, Australia and New Zealand; the desirability of a common interpretation of the terms of the subject condition appearing as it does so frequently in policies used in countries throughout the common law world; and above all the good commercial sense which lies behind the decision and which, in my judgment, reflects the reasonable expectations which would exist in the community concerning the respective obligations of insurer and insured under a policy such as is here in question."
At p403 Glass JA said:
"The insured person will not be in breach if he shows either that he did not recognise that a danger existed or that perceiving its existence he took some action to avoid it and was not indifferent to whether the danger was averted or not..."
At p407 McHugh JA (as he then was) said:
"In my opinion the words ‘you are to take all reasonable precautions to avoid or minimise injury, loss or damage’ mean that the insured must be concerned to protect the property from loss or damage and must take such steps to protect the property as he thinks are reasonable having regard to dangers which he recognises."
Next I refer to Plasteel Windows Australia Pty Ltd & Ors v Sun Alliance Insurance Ltd & Ors (1989) 5 ANZ Insurance Cases 60-918. Cole J in the Supreme Court of New South Wales said at p75,884:
"Failure to perceive a risk may be negligent on the part of an insured, just as failure to avert the consequences of such risk may be negligent. But the commercial purpose of such an insurance policy is, in part, to protect against such negligence. Thus, the test of the perception of risk cannot be that of the hypothetical reasonable insured ... The above reasoning is sufficient to conclude that the test is a subjective one."
This line of cases was also followed by the South Australian Full Court in State Government Insurance Commissioner v Lane & Or, Butterworths Unreported Judgments BC9701802, 2 May 1997, and, not surprisingly, the trial Judge in the case at bar held that the principles enunciated in these cases applied to the construction of the condition he was considering.
It is clear that the male respondent was aware that there was a risk that fire could be caused by the operation of the pump. It was for that reason that he borrowed his neighbour’s pump which was apparently in excellent condition. I agree with Mr Scragg, counsel for the respondents, that it was reasonable for the insured to assume that the pump had been manufactured to a standard to make it safe for pumping of water in rural situations. He said that he had operated a pump in a similar manner since moving to the area six years before without any outbreak of fire, and that his neighbours used a similar system and, moreover, did not stand by while a pump was operating. He took further steps to reduce the risk of fire by wetting out the area both with a bucket and by deflecting water. He had mowed the area on a previous occasion. His Honour accepted his evidence that he was unaware of the requirements of the regulations. I do not find that surprising. The situation should be contrasted with, for example, the regulations relating to lighting a fire in the open during a fire ban season.
The day was not excessively hot - Mr Wright thought it was approximately 25oC. He said there was no wind when he started the pump, although other evidence suggested that at a later stage there was a westerly wind. The precautions taken by the male respondent were ineffective, but I would not categorise them as patently ineffective, anti-social or reckless.
The learned judge said, and I agree:
" Although the precautions taken by Mr Wright were not sufficient to prevent a fire starting, his actions (and omissions) could not be said to constitute a realisation on his part that a fire would start and a deliberate disregard for that risk. At worst his conduct was negligent. Negligence is not sufficient to constitute a breach of the condition. Consequently the defence based on breach of condition must fail."
Having regard to the authorities to which I have referred I have no hesitation in saying that the male respondent was not in breach of so much of the relevant condition as required him to take all reasonable precautions "for the safety and protection of [their] property" and "to prevent damage [thereto]". What has caused me some hesitation is the further requirement of the condition that reasonable precautions must be taken to "comply with all statutory obligations, by-laws or regulations ...". Counsel for the appellant, Mr Kennelly, submitted that the minimum content of the requirement is to find out what those obligations are. He submitted that fire bans are well known throughout South Australia during summer, and that the occupiers of rural land have an obligation to ascertain their legal obligations. To remain ignorant in this respect, he submitted, is to fail to take reasonable precautions. But how can an insured take reasonable precautions to comply with statutory obligations of which he is not aware? In my opinion, there is an ambiguity in the drafting of the condition, and I would apply the contra proferentem rule against the appellant. The insurer could so easily have provided specifically that the policy did not cover losses incurred in the course of a wilful infringement of the Country Fires Act and the Regulations thereunder (compare Fire and All Risks Insurance Co Ltd v Powell [1966] VR 513 at 524)
On the illegality aspect, counsel for the appellant argued in the alternative that it should not have to indemnify the respondents on the grounds of public policy, and referred to the case of Fire and All Risks Insurance Co Ltd v Powell (supra). There the owner of goods damaged in the course of transit by reason of the carrier’s semi-trailer coming into contact with an overhead bridge, successfully claimed damages for negligence against the carrier. The insurer who had agreed to indemnify the carrier for loss of or damage to the goods of others being carried by him, denied liability on the grounds that the carrier had deliberately disobeyed s38 of the Motor Car Act, 1958 (Vic), which required him to obtain a permit before he used his vehicle on the highway with the load exceeding a specified height. It was argued accordingly that he was not entitled to recover:
(a) Where his own wilful act had caused or contributed to the loss;
or
(b) Where the loss followed from his own intentional criminal act.
I am indebted to Sutton Insurance Law in Australia 2nd Ed p755-756 for the following summary:
" Powell’s case may be said to be authority for the following propositions:
1. As a matter of construction a policy of insurance will not cover intended loss or injury arising from an intentional act. By its very nature a policy of indemnity seeks to give protection where the occurrence of the event insured against is uncertain and may never happen. It is an insurance against a contingency, and is not designed to cover the situation where the assured has deliberately caused the event insured against ...
If the intentional act which produces intended loss or injury is unlawful or amounts to the commission of an offence, the assured cannot claim on the policy since it is against public policy for an assured to recover an indemnity from his insurer in respect of the intended consequences of his own intentional criminal act. A person is not to be allowed to benefit from his crime in such a case.
Where the assured deliberately commits an offence and as a result unintended consequences ensue for which he is liable, there is not an inflexible rule preventing the enforcement of any claim the title of which arises from the assured’s own crime. The maxim ex turpi causa non oritur actio does not operate automatically to prevent the assured from recovering an indemnity in such circumstances. A rule which relieved an insurer of responsibility whenever he could show any illegal behaviour on the part of the assured would make a sham of insurance ...
Each case depends on its own particular facts. A criminal act can vary infinitely in its seriousness and in deciding whether or not to deny an assured’s claim for indemnity in a situation where he has deliberately committed an unlawful act which has unintended consequences, the court must have regard to such matters as the gravity of the offence committed, whether it is of such an anti-social character as to justify a refusal to enforce the claim in the interests of the public, the offender’s knowledge of the facts or law making his conduct unlawful, the degree of likelihood that if the claim were allowed encouragement would be given to the commission of similar offences, the purpose for which the legislation was enacted which made the conduct of the assured unlawful, the degree of likelihood that if the claim were allowed the interests of innocent victims would be promoted, and the public interest in the observance of contracts. The gravity of the anti-social act and the extent to which it would be encouraged by enforcing the right of the assured is weighed by the court against the social harm caused if the right is not enforced."
I also refer to Clayton v Mutual Community General Insurance Pty Ltd (1995) 64 SASR 353. There the appellant’s husband had ignited petrol fumes in a motor vehicle to commit suicide. As a result of his action the motor car was destroyed and the fire spread damaging their jointly owned house. The appellant lodged an insurance claim for damage to the house in the sum of $45,000. The claim was rejected by the insurer who relied on two general exclusion clauses. These clauses read in part:
"That the Policy does not cover ‘loss or damage caused by the deliberate or intentional acts committed by you ...’ and excluding cover for ‘loss damage or liability arising from any unlawful act or omission by you or by any other person insured by the policy ...’"
Section 85 of the Criminal Law Consolidation Act provides that a person who damages the property of another, intending to damage it, and knowing that no lawful authority exists, shall by guilty of an offence.
The appellant was quite unaware of the act or intentions of her husband. King CJ, with whom Duggan and Nyland JJ agreed, said at pp356-357:
" The learned judge construed the ‘act’ in the phrase ‘deliberate and intentional acts’ as applying to the igniting of the petrol fumes disengaged from its consequences. The only question for him was whether the igniting of the fumes caused the damage to the insured premises. Such a narrow construction would have consequences which, in my opinion, would frustrate to a substantial degree the effectiveness of the legitimate cover which the parties should be taken to have intended. Damage caused by the escape of a hearth fire deliberately lit in the course of ordinary domestic use would not be covered. Neither would damage from a fire accidentally resulting from a deliberately lit candle or damage to the premises as a result of a deliberately driven car accidentally colliding with a building. The parties should not be taken to have intended that unintended consequences of ordinary and proper use of the insured premises or ordinary and proper activities carried out on them would be excluded from the cover provided by the Policy.
I consider that the act contemplated by the phrase ‘deliberate and intentional act’ is the act of causing the damage. There must be a deliberate or intentional causing of the damage to the insured premises.
Generally speaking, to say that a person deliberately or intentionally causes damage imports that that person desires to cause that damage. Intention in law, however, is not equated with desire. There is an intentional act of causing damage when a person who has no desire to cause the damage, deliberately does so because of a desire to achieve some collateral purpose. Neither is intention equated with recklessness. The act of causing damage is reckless in contra distinction to deliberate or intentional where the person realises the risk that damage will probably result but proceeds irrespective of that risk.
Although intention and recklessness are distinct states of mind and the latter is not within the policy exclusion, there is a point at which the risk of damage to the insured premises, as it exists and as it is realised by the insured to exist in consequence of the insured’s actions is so high that the insured’s state of mind, notwithstanding that the damage was not designed or planned by him, is indistinguishable from intention.
It is difficult to formulate a satisfactory test for the determining when unplanned and undesigned damage is to be regarded as intentional. In the American cases cited above the test adopted is that the insured believes that the damage is ‘substantially certain to result’ from his actions and MacGillvray refers to embarking ‘upon a course of conduct in which there was a clear risk of the loss occurring’. I do not think that the adoption of a precise formula would be useful. It must be a question for the tribunal of fact whether the risk, as realised by the insured, of the unplanned and undesigned damage was so high that his state of mind should be equated with intention because it amounted to imposing on the insurer a risk which it could not reasonably be thought to have intended to assume.
I do not think on the evidence that the deceased’s action in igniting the petrol fumes in the car give rise to an inference that he realised that the carport would be damaged still less that the fire would enter the house through the air-conditioning. I do not think that his action can be regarded as the deliberate or intentional causing of damage to the insured premises. I do not think that the ‘deliberate and intentional act’ exclusion applies to exclude the respondent’s liability under the policy."
Although at this stage of my reasons it may not be apposite, King CJ said at p357 in relation to the unlawful act exclusion:
"It is plain that the deceased did not have lawful authority to damage the car. The conclusion that the damage to the car by igniting petrol fumes ... was an unlawful act is inescapable.
The fire by means of which the deceased damaged the car spread to the carport and through the air-conditioning system into the house. The damage to the insured premises therefore arose directly out of the unlawful act of the damaging the car."
The court held that the respondent had brought itself within the unlawful act exclusion.
It is probable that the male respondent caused the fire, although causation was not canvassed before this Court, but what he did do was "performed unintentionally", as His Honour found. In my opinion, the appellant’s argument must fail at the first hurdle on the public policy argument.
As far as the appellant’s arguments based on par 10.3 of the defence and on the exclusions is concerned - which I think can be considered together - I agree with the learned Judge that they cannot succeed because the male respondent’s conduct only amounted to negligence. He did not intentionally start the fire. Moreover, in my opinion, his Honour was correct in inferring on the evidence that he did not act with reckless disregard for the consequences of his action in operating the pump.
I would dismiss the appeal.
Duggan J
I agree that this appeal should be dismissed for the reasons given by Matheson J.
Nyland J
I agree that the appeal should be dismissed for the reasons expressed by Matheson J.
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