We all take calculated risks from time to time, but what if we do so negligently, and that risk eventuates? Is any damage or loss the result of an accident or not? This is an important issue for both insurers and policy holders, but not always one with a clear answer. There has now been some guidance from the Queensland Court of Appeal, which found in favour of an insured when the materialisation of a known and appreciable risk was considered to be an "accident" and “accidental damage” (Matton Developments Pty Ltd v CGU Insurance Limited  QCA 208).
The Court found that for there to be no coverage under the insurance policy, both the damage and the action that caused the damage must have been expected and the conduct of the insured must be so reckless, hazardous or culpable that the damage caused was not accidental.
Twelve seconds to disaster
Matton Developments Pty Ltd owned a 100 tonne telescopic "crawler" crane which could lift a maximum of 100 tonnes. It was damaged beyond economical repair while being used to lift a concrete tilt panel weighing about 39 tonnes. Why was the crane damaged if the weight of the panel was within its capacity?
The answer lies in the manner in which it was being lifted. The crane had to be operated on level ground or near-level ground of a gradient no greater than 0.3 degrees, but for this job the crane needed to travel over uneven ground to move the panel. The crane operator, Mr Hitaua, attempted to level the ground by spreading unreinforced concrete rubble over the area, a common method of ground-filling in the industry.
Critically, Hitaua had expected that the weight of the crane and concrete panel would compress the concrete rubble as the crane drove over it and provide a level platform. In the 12 seconds that the crane was being operated before the boom collapsed, the concrete rubble did not compress; the crane was being operated on a 7 degree slope and became overloaded. This was in contravention of the manufacturer's manual and the relevant Australian standards, and the cause of the collapse of the boom.
The insurance policy and the Accidental Overload clause
CGU Insurance Limited provided Contractors Plant and Machinery insurance in respect of the crane. Matton sought cover pursuant to the policy's Accidental Overload additional benefits clause. Although the policy contained exclusions which excluded damage caused by reason of the crane being operated with a load that is in excess of a safe working load or contrary to the manufacturer's manual or Australian standards, it also contained an extension:
“We will pay for accidental sudden and unforeseen physical loss of or damage to a machine caused by or resulting from accidental overloading which is non-deliberate and clearly unintentional.
The onus rests with you to substantiate any claims relating to accidental overload.”
CGU refused indemnity under the policy by stating that the damage was not accidental, and therefore not covered. The case turned on whether:
- the "Accidental Overload" clause extended to circumstances where there was a structural overloading of the crane; and
- the damage was caused by an “accident”.
Decision at first instance: a deliberate courting of the risk
At first instance (Matton Developments Pty Ltd v CGU Insurance Limited (No 2)  QSC 72), Justice Flanagan held that Matton was not entitled to indemnity under the Accidental Overload clause because:
- the structural overloading that occurred was not “overloading” within the meaning of that term in the Accidental Overload clause;
- the overloading was not “accidental”; and
- the damage to the crane was not “accidental, sudden and unforeseen”.
Adopting a narrow interpretation, he held that “overload” in the policy should be interpreted separately from the circumstances of operation, and so it simply meant that the crane was "physically overloaded with an excessive load". Accordingly, he held that the Accidental Overload clause only applied where the crane was overloaded in its normal operating conditions (eg. a 105 tonne weight was mistakenly lifted instead of the maximum 100 tonnes), as opposed to being overloaded because it was on a slope.
So, was the collapse of the boom accidental? Justice Flanagan said it was not; he characterised the facts as a deliberate courting of the risk.
A broader approach to the Accidental Overload clause in the Court of Appeal
The Court of Appeal took a broader approach to interpreting the policy and looked at the text, the surrounding circumstances, the purpose of the policy, the coverage and the object of the transaction before holding that “overload” within the policy included structural overloading caused by operation of the crane outside of the manufacturer’s guidelines and the relevant Australian standards. This was because:
- the Accidental Overload clause did not contain limiting words so as to read “machine which is located and in use in the manner in which it was designed to be used” to qualify the cover afforded by the scope of cover clause; and
- “overload” was given its natural meaning (i.e. an excessive load or burden).
For Matton to be deprived of the benefit of the Accidental Overload clause, both the overloading itself and the resultant damage must have been expected. They would be considered accidental if each could be categorised as “an unlooked-for mishap or an untoward event which is not expected or designed”.
The method of operation (laying the unreinforced concrete rubble in the expectation that it would compress) was not inherently hazardous, was standard in the industry and was an acceptable method of accessing the relevant area. The hazard and incident occurred because the concrete did not compress as expected. Hitaua had only driven along the ramp for 12 seconds before the boom collapsed.
By the time Hitaua had realised that the ground was not compressing as he had expected, the overloading and collapse of the crane was imminent and unavoidable. Hitaua simply did not have enough time to realise that the rubble had not compressed as planned. As President McMurdo concluded, while Hitaua deliberately courted a risk, he did not invite the disaster which ensued. The operation of the crane was not so hazardous that the subsequent overloading and resultant boom collapse could not be called an accident.
Otherwise applicable exclusions within the policy (for example, excluding damage where a machine was being used contrary to the manufacturer’s guidelines or Australian standards) were read down heavily against CGU’s interests. If they had not been, the Accidental Overload clause would have been illusory and had no effect.
The Court of Appeal allowed Matton’s appeal, set aside the trial judgment, and ordered that CGU indemnify Matton’s loss of approximately $2.5 million, with interest.
When will your insurance policy respond to an accident?
Only time will tell whether CGU seeks special leave to appeal this decision to the High Court. The Court of Appeal’s decision confirms that the conduct of an insured, while on its face clearly negligent, may still be found to be “accidental, sudden and unforeseen” and covered by a policy.
There is a point at which a risk taken by an insured is sufficient that its consequences are no longer “accidental” but, as this case shows, it can be difficult to assess when that line is crossed.
Further, while exclusion clauses may assist insurers in limiting liability, specific coverage and additional benefits clauses will take priority over potentially applicable exclusions to ensure that all coverage clauses have a role to play. Where there is any doubt in the interpretation, the courts will be reluctant to adopt an outcome which is against the interests of the policy-holder.
For insureds, this decision makes it worth your while to review your policies to ensure that any additional benefits clauses that conflict with general limitations or exclusions make it clear that the benefit takes priority.