Class Action Loses Oxygen in Insurance Coverage Dispute
The Insurer of a now defunct plumbing company allegedly responsible for igniting bushfires in 2017 was entitled to rely on a policy exclusion relating to welding work to deny cover for the claim.
- A class action commenced in the NSW Supreme Court by a landowner, representing a number of other landowners, who were impacted by the Carwoola bushfire on 17 February 2017 was unsuccessful after Justice Davies found that CGU Insurance (CGU) was entitled to rely on an exclusion to deny cover.
The plaintiff alleged that the Carwoola bushfire was caused by sparks falling on dry grass after an employee of Advanced Plumbing and Drains Pty Ltd (APD) cut reinforced steel. APD was placed into liquidation and the plaintiff proceeded against APD’s liability insurer, CGU, after it was joined under section 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the TPC Act).
In mid-2016, Mr Hooper (the director of APD prior to its liquidation) engaged a builder to construct a dwelling at his property, with APD to carry out works up to slab level. On 17 February 2017, Mr Hooper’s foreman, Mr Orford (assisted by a former apprentice of APD, Mr Elliot), used a power cutter to cut reinforced steel, causing sparks to fly onto a paddock which was vegetated with long, dry, fully cured, grass.
The decision at trial
APD and Messrs Orford and Elliot were found liable to the plaintiff and the group members for breach of their duty to exercise reasonable care, caused by the use of the power cutter. APD was vicariously liable for Mr Elliot in using the power cutter.
Despite this, the plaintiff and group members were only entitled to recover loss against CGU if they had the right to recover the amount of any insured liability with CGU in accordance with section 4 of the TPC Act. CGU argued that APD was not entitled to indemnity for three reasons.
Firstly, CGU argued that the construction of footings for the concrete slab was not within APD’s business description in the insurance policy. APD’s business was described as “Principally Plumbing and any other activities incidental thereto.” CGU submitted that it did not envisage that the business activities of APD would include constructing footings for a new home for a director of APD, despite CGU’s knowledge that APD’s work was not exclusively plumbing. CGU knew that APD’s business involved plumbing on commercial sites, it had construction equipment and it used sub-contractors for trenching electrical work. This was sufficient for Justice Davies to reject CGU’s argument in preference for a less restrictive interpretation of the description of APD’s business description. The work being carried out by APD was an activity incidental to the plumbing business.
Secondly, CGU unsuccessfully argued that APD breached a policy condition requiring APD to take reasonable precautions by recklessly using equipment that shot sparks around on a total fire ban day. The question was whether the use by Mr Orford or Mr Elliot of the power cutter and the weather conditions amounted to recklessness in the sense that they courted the danger. In rejecting this argument, Justice Davies did not find any evidence that Mr Orford or Mr Elliot had any actual recognition that a danger existed from the sparks.
Thirdly, CGU relied on a welding exclusion in an endorsement on the insurance policy (endorsement), which required compliance with Australian Standard 1674.1 “Safety in Welding and Allied Processes – Fire Precautions” (Standard). CGU submitted that the requirement to comply with the Standard arose from the endorsement, which excluded CGU’s obligation to indemnify APD for “liability arising out of or in any way connected with…spark producing equipment…unless such activity is…in strict compliance with [the Standard]”. There was no dispute that the workers failed to comply with the Standard. The issue to decide was whether the power cutter was spark producing equipment within the meaning of the endorsement. Despite finding the endorsement as a whole ambiguous, Justice Davies found no ambiguity in the words “spark producing equipment.” There was a consensus of expert evidence that the power cutter was spark producing equipment. As such, Justice Davies found that the endorsement was engaged on the basis that the power cutter fell within the meaning of the endorsement and the workers failed to comply with the Standard.
Accordingly, neither APD, Mr Orford nor Mr Elliot had an insured liability to the plaintiff and the group members. Justice Davies found for CGU with the plaintiff ordered to pay CGU’s costs.
Implications for you
This case is an example of the importance of carefully reviewing policy wordings to ensure that that the description of an insured’s business is consistent with an insurer’s intention. If an insurer wishes to restrict the activities it insures, it should expressly say so to reduce the risk of the court applying a wider interpretation.
The case also confirms that a “reasonable precautions” clause will generally only apply in circumstances where the insured has been proven to have acted recklessly.