The New South Wales Court of Appeal has cast further doubt over the burden of proof in indemnity disputes including fraudulent claims.
Since 2004 insurers have commonly relied on the decision of Hammoud Brothers Pty Ltd v Insurance Australia Limited in support of the principle that an insured bears the onus of proving the occurrence of an insured event. That case related to a claim made by an insured for the theft of a motor vehicle in circumstances where the directors of the insured had significant criminal records, their evidence was inconsistent and there were other anomalies that cast considerable doubt over their version of events. As the Court was not satisfied that the insured had proven on the balance of probabilities that the vehicle had been stolen, the insurer was entitled to deny indemnity.
The application of Hammoud Brothers was narrowed in 2014 with the decision of McLennan v Insurance Australia Limited. That case related to a fire damage claim made by an insured in circumstances where the fire had been deliberately lit and there were a number of suspicious circumstances that cast doubt over the insured’s version of events. The insurer denied indemnity on the basis that the insured had failed to prove the occurrence of an insured event. However, the insured successfully argued that as the insured event was fire damage, she only needed to prove that her home had been damaged by fire and the onus then shifted to the insurer to prove that the fire had been deliberately lit by the insured or with her consent.
In Sgro v AAMI in 2015, the New South Wales Court of Appeal reaffirmed Hammoud Brothers insofar as it related to theft claims. In a claim relating to the theft of a motor vehicle, the Court found that if the probability of a vehicle having been stolen was equal to the probability that it was not, an insured will not have discharged their onus of proving the occurrence of a theft. In such circumstances, an insurer is entitled to deny indemnity.
In the recent case of Averkin v Insurance Australia Limited, the insured’s vehicle was allegedly stolen from outside his home and then set on fire. The insured made a claim for the theft of his vehicle under his policy of insurance. There were a number of anomalies including evidence from a forensic locksmith that the vehicle had last been driven with a correctly coded key. Accordingly the insurer denied indemnity on the basis that the insured had failed to discharge his onus of proving the occurrence of a theft.
However, after issuing proceedings, the insured amended his statement of claim to plead that he was entitled to indemnity under the policy as the vehicle had sustained fire damage. The insured argued that as the relevant insured event was ‘fire damage,’ he only needed to prove that the vehicle had been damaged by fire in order to satisfy his burden of proof and the onus then shifted to the insurer to prove that he had been complicit in the fire. This proposition was accepted by the New South Wales Court of Appeal and the insurer was ordered to indemnify the insured.
Averkin v Insurance Australia Ltd
This decision could further dilute the application of Hammoud Brothers and the availability of the ‘no insured event’ defence for insurers. Ultimately insurers should be reviewing the wording of their policies to ensure that insured events are worded in such a way as to require insureds to discharge their burden of proving fortuitous insured events.