September 2015

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Doctrine falters if indemnity not obliged


By Kate Tilley, Resolve Editor

“If you can’t get indemnity under the policy, the doctrine of utmost good faith (DUGF) is not going to deliver it to you,” Brisbane barrister Sandy Thompson QC told the AILA Queensland insurance law intensive.

Mr Thompson appeared for CGU in the Qld Supreme Court case Matton Developments v CGU. He said the unsuccessful insured had lodged an appeal.

Matton had accused CGU of breaching DUGF by not accepting the insured’s account of events when a mobile, track-mounted crane’s boom collapsed while being operated to erect concrete panels on a building site.

Matton sought indemnity under the policy’s material damage section, which provided cover for damage to the crane “while it is located and in use in the manner in which it was designed to be used”.

CGU denied indemnity, pleading the crane was being operated on sloping ground in a manner contrary to its designed use, and the loss was excluded because the operation was in contravention of Australian standards and manufacturer’s guidelines.

Matton argued the insurer was obliged to accept the insured operator’s account of how the damage had occurred.

The crane driver gave evidence the crane was on a level surface when its boom collapsed but a CGU expert’s evidence said it was not. Justice Peter Flanagan found the driver’s evidence was inconsistent.

Justice Flanagan said honesty was “a core obligation” and DUGF:
• imposed principles of fairness and honesty;
• compelled full and frank disclosure;
• required notice of important obligations;
• necessitated avoiding conflicts of interest; and
• obliged a timely response to a claim for indemnity.

However, DUGF did not:
• prevent an insurer putting an insured to proof when the insurer was suspicious of a claim or where the insurer had bona fide reservations about its obligations to indemnify;
• impose an “obligation in an insurer to coddle its insured and allow idiosyncratic judicial solicitude to replace principle”;
• require a party to “surrender any commercial advantage they may seek to take advantage of during negotiations in favour [of] the other party”;
• require an insurer to give an assurance, not required to be given under the policy, that it would indemnify the insured for any further damage resulting from reparations for which liability was accepted;
• prohibit an insurer from relying on an assumption against the interests of the insured after inquiries were made of the insured and no information was received; or
• require an insurer to subjugate its interest to that of another party to a contract of insurance, for example requiring an insurer to refrain to seek contribution from a co-insurer.

Justice Flanagan said DUGF did not require the insurer to put the interests of the insured above its own. “The duty does not equate to, nor is it synonymous or analogous to, a fiduciary duty.”

Mr Thompson said Justice Flanagan said insurers were entitled to deny indemnity if circumstances fell outside the insurable interest or exclusion clauses applied.

(Matton Developments Pty Ltd v CGU Insurance Ltd (No 2) [2015], QSC 72, 15/04/2015)

 
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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.