The Supreme Court of Queensland handed down its decision in Matton Developments Pty Ltd v CGU Insurance Limited (No 2)  QSC 72 on 15 April 2015.
Barry.Nilsson. Lawyers represented CGU Insurance Limited (CGU) in successfully defending a claim brought by Matton Developments Pty Ltd (the plaintiff) in response to the decision by CGU to decline the plaintiff’s claim under a Contractors Plant and Machinery policy of insurance.
Matton Developments Pty Ltd v CGU Insurance Limited
CGU provided Contractors Plant and Machinery insurance in respect of a 100 tonne Telescopic Crawler Crane (the crane) owned by the plaintiff.
On 1 February 2009, the crane’s boom collapsed damaging the crane beyond economical repair. The plaintiff submitted a claim to CGU seeking recovery for the damage under the policy. The plaintiff argued the collapse of the crane was due to a pre-existing defect in the base of the boom to which the ‘Material Damage’ cover responded or that the failure was an accident to which the ‘Accidental Overload’ cover responded. CGU obtained expert engineering evidence which, supported its assertion that, at the time of the incident the crane was operated in contravention of Australian standards and manufacturer’s guidelines. When declining the claim, CGU informed the plaintiff that the damage to the crane did not fall within the relevant insuring clause (namely it was not ‘accidental, sudden and unforseen’ within that meaning of the expression in the policy). CGU also relied on exclusions in the policy, which denied cover where the crane was not operated in the manner for which it was designed and/or in accordance with the manufacturer’s guidelines.
Flanagan J of the Supreme Court delivered judgment in the matter.
There were a number of key issues dealt with in the judgment.
The expert evidence relied upon by the parties
The plaintiff relied upon expert evidence from an engineer to allege that the crane collapsed due to pre-existing structural damage in the base of the boom. The plaintiff argued that the presence of large cracks in the welding on the base of the boom caused its collapse but then abandoned this initial theory in response to the inability of the various experts to identify any defects. The plaintiff’s subsequently argued that the cause of the collapse was the presence of small pores in the welding of the boom.
CGU relied upon expert evidence from a crane engineer, a metallurgist and an engineer specialising in fracture mechanics. His Honour accepted the unanimous opinion of CGU’s experts that the collapse occurred due to structural overload as opposed to any material defect. His Honour noted that this conclusion was entirely consistent with the photographic evidence (which placed the crane, at the time of the boom collapse, on a 7 degree slope) and it was also the most logical explanation for the collapse.
Did the policy respond to the plaintiff’s claim?
The ‘Material Damage’ policy covered the plaintiff for accidental, sudden and unforeseen damage to the crane while it was located and in use in the manner in which it was designed to be used. After a detailed consideration of the meaning of ‘accident’, His Honour concluded that accidental meant ‘unintended and unexpected’ and that the plaintiff had failed to establish that the collapse of the boom was ‘accidental’. His Honour found that the operator knew the crane should not be operated on a slope and that if he did so there was a real risk of the boom collapsing. Despite this knowledge he operated the crane on a 7 degree angle.
The policy contained additional benefit for damage caused by ‘Accidental Overload’ which was non-deliberate and clearly unintentional. The plaintiff submitted that the term ‘overload’ in the policy should be read to encompass a situation where the crane was overloaded because it was operated on a slope.
His Honour examined the meaning of ‘overload’ and held that the plain meaning of the word, being ‘physically overloaded with an excessive load’, was consistent with a proper construction of the policy as a whole.
His Honour concluded, contrary to the plaintiff’s submissions, that the ‘Accidental Overload’ cover responded to accidental ‘physical’ overload of the crane where it had otherwise been operated in the manner in which it was designed to be used. As the crane was operated in contravention of manufacturer’s guidelines, the additional cover under that policy provision did not respond to the plaintiff’s claim.
After consideration of additional cover and exclusions in the policy, His Honour concluded that the policy did not respond to the plaintiff’s claim.
Was a statutory duty of utmost good faith imposed upon CGU?
Section 13 of the Insurance Contracts Act 1984 (Cth) (the Act) implies the duty of utmost good faith as a term into the contract of insurance.
The plaintiff submitted that, as a matter of statutory construction, when considering the clear meaning of section 13 and the context of the Act, a statutory duty of utmost good faith was imposed upon CGU. Therefore, as a consequence of any breach of this duty, damages sound for all causally connected loss, including default interest on the finance of the crane.
After a detailed consideration of section 13 of the Act, His Honour held that the section was enacted to clarify with certainty that the duty of utmost good faith applied to both the insured and insurer and provided a basis for either party to seek contractual damages for its breach. His Honour noted that the further amendments to provide for regulatory sanctions did not support the existence of a concurrent liability in tort, either by way of a statutory duty or a tort of bad faith.
His Honour again held in favour of CGU that no statutory duty was imposed to afford the plaintiff a private right of action for the breach.
Did CGU breach the duty of utmost good faith?
The plaintiff also submitted that CGU had breached its duty of utmost good faith by relying on conclusions drawn by its own experts, in its decision to refuse indemnity, rather than giving due consideration to the eye witness testimony.
His Honour accepted CGU’s argument that the decision to decline the claim was made after careful consideration of the available evidence, including the lay evidence. His Honour held that an insurer was not obliged to accept the statement of an operator or even an insured, who may be honestly mistaken. Accordingly, His Honour concluded that the refusal of cover by CGU did not constitute any breach of its duty of utmost good faith.
Flanagan J ordered for the claim against CGU to be dismissed.
This decision shows that an insurer can establish with appropriate use of forensic and eye-witness evidence that refusal of cover under a policy is justified.