The plaintiff’s home in Orange, New South Wales was significantly damaged by arson. The plaintiff made a claim under her policy of insurance, which was denied.

The policy provided that if the plaintiff’s home was damaged by fire, the insurer would rebuild or repair that part of the home that was damaged. Cover for fire damage was, however, subject to a number of exclusions including that:

“We will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone

  • Who lives in your home, or
  • Who has entered your home or site with your consent, or the consent of a person who lives in your home.”

The insurer submitted that in order to be covered by the policy the plaintiff not only had to prove that her home was damaged by fire, but also that the fire was not intentionally started by the plaintiff or by someone who had entered the home with her consent.

After considering a number of anomalies including the plaintiff’s apparent financial motive, the arsonist’s apparent familiarity with the home, the plaintiff’s lack of cooperation and the lack of evidence of forced entry to the home, the trial judge determined that the plaintiff had failed to discharge her burden of proof. Accordingly, the trial judge found that the insurer was entitled to deny indemnity.

The plaintiff appealed the decision to the New South Wales Court of Appeal, submitting that the trial judge had erred in requiring the plaintiff to prove that the fire had not been intentionally started by her or by someone who had entered the home with her consent.

In allowing the appeal and ordering the insurer to pay the claim, the Court of Appeal made the distinction between:

  1. exclusionary provisions that qualify all of the circumstances in which the insurer’s promise to indemnify applies; and
  2. exclusionary provisions that exclude only particular classes of cases which would otherwise be covered.

In relation to (a), an insured must prove that the qualification does not apply in order to have an entitlement to indemnity. In relation to (b), once an insured establishes that the claim is within the scope of the insurer’s promise, the burden is then on the insurer to prove that it falls within an exception.

In this case, the insurer’s promise was to indemnify the plaintiff against loss or damage caused by fire. As not all fires are deliberately lit, the relevant exclusion relied upon by the insurer to deny indemnity only applied to certain limited circumstances in which the insurer’s promise to indemnify for fire damage would not apply. Accordingly, once the plaintiff had established that the home was damaged by fire, the onus was on the insurer to prove that the fire was started by the plaintiff or by a person who had entered the home with her consent.

McLennan v Insurance Australia Ltd [2014] NSWCA 300

An insured has the burden of proving that a loss falls within the cover as defined and limited by the policy. But an insurer has the burden of proving that an exclusion applies. Ultimately which party has the burden of proof will depend on the policy wording.