Insurance, conditions and burden proof

 

Subject to the terms conditions and exclusions of this policy as agreed by You and Us, We agree to provide indemnity in respect of any Motor Vehicle described in the Schedule against loss damage or liability as hereafter mentioned arising out of an Accident or theft,

Provided …

(4) Your Motor Vehicle is being used in connection with Your occupation or business, or in the case of a sedan or station sedan, Your occupation, business or private use.

 

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.

Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67

 

[46] As Jordan CJ observed (at 234-235) the condition in question was “expressed as a condition to which the existence of an obligation to indemnify is made subject”. His Honour had earlier (at 234) made the following observations as to provisions described as conditions in insurance policies:

… A term in a policy of insurance which is expressed to be a condition may be a condition going to the operation of the policy as a binding document, or it may be a condition affecting only the insurer’s liability to pay under what is admittedly a binding document: Maynard v Goode [(1926) 37 CLR 529 at 540] …. That is, it may be a condition a breach of which is intended to entitle the insurer to treat the policy as a document which never became binding on him, or to treat a policy which had become binding on him as no longer binding, or, on the other hand, it may be a provision a breach of which is intended merely to entitle him, according to the terms of the document, to refuse to make a payment under it, either because the breach prevented an accruer of liability to pay or because it operated to release the insurer from a liability which had in the first instance accrued: L’Union Fire Accident and General Insurance Co Ltd v Klinker Knitting Mills Pty Ltd [(1938) 59 CLR 709 at 717] …. Which of these characters should be attributed to any particular condition or provision is a question of construction depending on its language and context. The mere fact that a provision is in terms called a condition precedent will not make it such if it is incapable of operating otherwise than as a condition subsequent or incapable of operating as a condition at all: London Guarantie Co v Fearnley [(1880) 5 App Cas 911] …

[47] This is not an exhaustive statement of the possible consequences under a contract of insurance of the breach of a provision which describes itself as a condition. In The Law of Insurance Contracts (6th ed, 2009, Informa), Professor Clarke notes (at [26-2G], pp 856-857):

The possibilities in descending order of importance are that the condition is (a) a condition precedent so that breach rules out payment by the insurer, (b) a suspensive condition such that breach rules out payment until it is corrected, and (c) a minor contract duty, breach of which does not prevent recovery, but may render the insured liable in damages to the insurer for loss (if any) caused to the latter by the breach.

[49] In Wallaby Grip, the High Court recognised the distinction between an exception and a limitation as to the amount payable under an indemnity, but said that in each case the onus is on the insurer (at [35]):

The difference between the two is that an exception may prevent an insurer’s liability from arising, whereas a limitation of the kind here in question operates after the obligation to indemnify has arisen and upon the amount payable pursuant to it. It limits the extent of the insurer’s liability. What they have in common is the purpose of limiting an insurer’s liability, where the circumstances necessary for it have otherwise been shown to exist. In each case the insurer should bear the onus of proving the limitation.

[50] The High Court also explained in Wallaby Grip at [36] that the legal burden of proof arises from the principle that he who alleges must prove. Earthmoving claimed that its liability to the RTA for damage to the bridge was caused by the use of its motor vehicle. As such that liability was within the description in Section 2 and the insurers’ liability to indemnify arose, subject to the application of an exclusion or there having been a breach of a condition which was causative of all or part of that liability. Accordingly, to justify a refusal to pay all or part of that claim by reference to condition 3, the insurers had to allege and prove breach of the condition and causation. It follows that the insurers bore the onus in that respect and that ground 5 must be upheld.

[52] In Fraser v Furman (Fraser v B N Furman (Productions) Ltd [1967] 1 WLR 898 (at 905-906)) his Lordship said (at 906), speaking of a condition which required that the insured “take reasonable precautions to prevent accidents and disease”:

… 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.

[80] In this context the notion of deliberately courting danger involves the taking of measures which are known to be an inadequate response to the recognised danger, or not taking any measures at all when it is appreciated that the taking of some measure is required: see [51], [74] above. An insurer bearing the onus of establishing non-compliance with an obligation to take reasonable precautions must prove that the insured has not taken such measures as it thinks are reasonable having regard to the danger which is recognised: Eather at 407 (per McHugh JA) (Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390).

[82] The insurers did not establish that Mr Luck had not slowed or stopped the vehicle in circumstance where he believed the taking of such steps was reasonable to avoid the risk that the load might strike the bridge. It follows that the grounds challenging the primary judge’s finding that Mr Luck’s conduct was reckless within exclusion 7(i) and in breach of condition 3 should be upheld.