In brief - Onus of proof is borne by insurers
In Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd
 NSWCA 67, the NSW Court of Appeal recently determined that the onus of proof is on insurers to prove an insured's recklessness if they wish to rely upon an exclusion in a commercial motor vehicle insurance policy for damage caused by recklessness and breach of a condition to take reasonable care and comply with statutory obligations.
Excavator strikes overhead sections of Hexham Bridge causing extensive damage
On 15 April 2003, two employees of Barrie Toepfer Earthmoving and Land Management Pty Ltd were transporting a 16 tonne excavator from North Arm Cove to Wyee in New South Wales by prime mover and low loader. The vehicle was driven by Mr Luck and in the passenger seat was Mr Wyborn, the operator of the excavator. As the vehicle was driven over Hexham Bridge near Newcastle, the arm of the excavator struck a number of the overhead sections of the bridge, causing more than $12.8 million worth of damage.
Shortly prior to the collision, Mr Luck had stopped at a Roads and Traffic Authority of New South Wales (RTA) weighing station and was advised by the RTA inspector that the weight distribution of the excavator on the low loader was in breach of RTA regulations. The excavator was repositioned to remedy this breach but the repositioning resulted in the maximum height of the excavator increasing by almost one metre.
RTA sues for bridge repair costs while insurers deny indemnity to Earthmoving
The RTA brought proceedings against Earthmoving seeking the cost of repairing the bridge. By cross claim, Earthmoving sought an indemnity from CGU Insurance Ltd, Vero Insurance Limited and NTI Limited, which had denied cover under Earthmoving's commercial motor vehicle policy.
The insurers relied on Exclusion 7 and Condition 3 of the policy to deny indemnity. Exclusion 7 provided that:
We will not pay for:
(7) Loss or damage or liability caused by:
(i) Recklessness by You or any person acting on Your part or by reckless failure to comply with any statutory obligations and by-laws or regulations imposed by any public authority, for the safety of Motor Vehicle/s and, for the carriage of goods and merchandise.
Additionally, Condition 3 stated:
We may refuse to pay a claim, or may reduce the amount payable under a claim to the extent that Your breach of any condition of this policy causes or contributes to loss, damage or liability or prejudices Our interest or rights, in respect of that claim.
3. REASONABLE CARE
You and any person acting on Your behalf must exercise reasonable care and precautions to prevent loss or damage to the Motor Vehicle, and comply with all statutory obligations and by-laws or regulations imposed by any public authority, for the safety of the Motor Vehicle/s and, for the carriage of goods and merchandise.
The judge at first instance (Price J in the Supreme Court of New South Wales) entered judgment for RTA against Earthmoving and found in favour of the insurers on the issue of indemnity. His Honour held that the driver of the prime mover was "reckless", and Earthmoving had not proven that it had exercised "reasonable care" for the purposes of a condition contained in the policy wording.
Onus of proof and whether driver was "reckless" or breached reasonable care obligation considered on appeal
Earthmoving appealed the decision at first instance on a number grounds, and raised a number of issues for consideration by the Court of Appeal, including:
- whether Earthmoving bore the onus of proving it had complied with the obligation to exercise "reasonable care and precaution"
- whether the driver, Mr Luck, was "reckless" (for the purposes of the exclusion clause) or in breach of the obligation to exercise "reasonable care and precaution" (for the purposes of the condition)
Justice Meagher gave the leading judgment on the appeal, with Ward and Sackville JJA concurring with his reasons.
Insurers must prove breach of conditions: Wallaby Grip Limited v QBE Insurance
The Court of Appeal first considered whether the insured bore the onus of proving compliance with the condition. After surveying the case law, the Court of Appeal held that it did not, and that the insurers had to allege and prove breach of the condition. The Court of Appeal relied upon the decision of Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association
(1942) 42 SR (NSW) 231 in support of the proposition that the question of onus must depend primarily upon the nature of the condition and the provisions of the policy.
The policy wording provided that insurers could refuse to pay a claim, or reduce the amount payable under a claim to the extent that the insured's breach of any condition caused or contributed to loss, damage or liability. The Court of Appeal relied upon the decision of the High Court in Wallaby Grip Limited v QBE Insurance (Australia) Limited  HCA 9
in finding that the insurer should bear the onus of proving breach of the condition.
Court of Appeal finds that driver believed it was safe to drive over bridge
The Court of Appeal noted that the obligation to exercise "reasonable care and precautions" required a person to take such precautions to prevent loss or damage to a motor vehicle as that person considered reasonable having regard to the dangers which were recognised (Fraser v B N Furman (Productions) Ltd
 1 WLR 898 and Legal and General Insurance Australia Ltd v Eather
(1986) 6 NSWLR 390).
Lord Diplock in Fraser
noted "…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."
Using the reasoning in Fraser
, the Court undertook an analysis of the facts before it. In determining whether Earthmoving's employees had acted recklessly, the Court considered the following questions:
- Did the driver recognise there was a risk?
- If so, what was the extent of the risk recognised?
- Were the measures taken an inadequate response to the recognised danger?
Justice Meagher disagreed with the primary judge's finding that the driver and his companion recognised there was a risk. Amongst other things, there was oral evidence from the driver's companion that he did not "for one minute" think the load was going to hit the bridge. It was noted that Mr Luck and Mr Wyborn had joked about the possibility of the vehicle exceeding the maximum clearance height shortly prior to crossing the bridge. However, given that the excavator had been moved under the direction of RTA shortly prior to the collision, the driver told his companion that he did not think there was a problem with the height of the load because it was as the RTA "wanted it" or "have told us to do it". Ultimately, the Court of Appeal held that Mr Luck believed it was safe to drive onto the bridge and he did so without slowing.
In Justice Meagher's view, "it seems highly unlikely that [the driver] would not have slowed on his approach to the bridge if he believed, as the primary judge found, there was a risk that the load would hit".
Insurers must prove insured's recklessness to rely on reckless conduct limitations
The Court of Appeal held that the insurers did not establish that the driver had not slowed or stopped the vehicle in circumstances where he believed the taking of such steps was reasonable to avoid the risk that the load might strike the bridge.
The Court's decision illustrates the high bar that insurers must overcome to rely on an exclusion for recklessness. In circumstances where a policy is intended to cover the insured for negligent actions of its employees, it is unlikely that insurers can rely on limitations for reckless conduct unless they can establish that the insured has recognised the relevant risk and subsequently acted in a manner which indicates a blatant disregard for that danger.
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