The recent case of Matton Developments Pty Ltd v CGU Insurance Ltd  QCA 208 demonstrates the difficulties faced by insurers seeking to argue that a policy does not respond because of the reckless actions of the insured.
Matton held an insurance policy with CGU that covered damage to equipment. The policy contained an additional benefit clause that provided CGU would pay for damage caused by 'accidental overloading which is non-deliberate and clearly unintentional'.
On 1 February 2009, a subcontractor of Matton was operating a mobile crane lifting a load of approximately 39 tonnes when the boom collapsed and the crane was damaged beyond repair.
During the course of the lift, the crane had to pass over an area of unreinforced concrete rubble. The subcontractor was aware that the crane needed to be operated on level ground or near-level ground (with a gradient of less than 0.3 degrees). The subcontractor banked up the rubble to level the ground, a common method of ground filling in the industry. He was told by another employee of Matton that the rubble had been banked too high but disregarded that advice. He considered that the combined weight of the crane and the load would compress the rubble to the necessary level as the crane drove over it and would provide a level platform.
The crane moved forward for 12 seconds before the boom collapsed. In those 12 seconds, the concrete rubble did not compress as the subcontractor had expected. This meant that the crane was operating on a 7 degree slope. The crane became overloaded, causing the boom to collapse.
Matton made a claim under its policy with CGU for $2.5 million comprising the value of the crane ($1.4 million) and a further $1.1 million for loss of revenue. CGU refused indemnity under the policy on the basis that that the damage was not 'accidental'.
Was the damage caused by 'accidental' overloading?
The Court explained that the test for determining if the overloading and resultant damage was 'accidental' was whether each could be categorised as 'an unlooked-for mishap or an untoward event which is not expected or designed'.
The Court found the overloading and resulting damage to the crane was 'accidental'. In coming to this conclusion, the Court considered the following factors:
- The subcontractor had prepared the rubble in accordance with industry practice and taken the necessary time to do so.
- The subcontractor's decision to traverse the banked up rubble in the anticipation that it would compress was not so hazardous as to have courted the disaster that ensued.
- Disregarding the other employee's advice did not make the subcontractor's overloading of the crane deliberate as the subcontractor was the expert who had the last say in the appropriateness of the embankment of the rubble.
- By the time the subcontractor realised that the rubble was not compressing as expected, the overloading and ensuing damage had become imminent and unavoidable.
The Court found that the subcontractor's opinion that the rubble would compress, and his failure to realise in time that it was not compressing, may have been wrong, even negligent. However, it did not reach the point where it could be said that:
- the 'risk of the mishap was foreseen or courted even though it was thought unlikely that it would occur';
- Matton was gambling or courting the risk, or taking a calculated risk, deliberately accepting the outcome;
- Matton voluntarily embarked on a foolhardy venture, with the damage an inevitable consequence, by 'courting, inviting or wooing' of the risk; or
- Matton deliberately incurred the risk.
The Court therefore ordered that CGU indemnify Matton's loss of approximately $2.5 million.
Lessons to be learned
The Court of Appeal's decision illustrates the high bar that insurers must overcome in seeking to refuse cover for accidental damage because of the seemingly reckless actions of the insured.
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