Mr Luck gets lucky – Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67

The appellant, Barrie Toepfer Earthmoving and Land Management Pty Ltd (BT Earthmoving), had a 'Commercial Motor Vehicle' policy of insurance (policy) with CGU Insurance Ltd (CGU) which covered BT Earthmoving's liability to third parties.

On 15 April 2003, an employee of BT Earthmoving, Mr Luck, was driving a prime mover which had an excavator loaded onto it. Importantly, Mr Luck had stopped at an RTA weighing station and an RTA inspector instructed Mr Luck to move the excavator forward, raising its height by almost one metre (from 4.49 m to 5.46 m).

Mr Luck then drove towards the Hexham Bridge. Mr Wyborn, a passenger in the prime mover with Mr Luck, expressed concern about the increased height of the excavator on no less than three occasions. In particular, Mr Wyborn pointed to a sign approaching the Hexham Bridge which stated 'low clearance 4.8 m'.

Mr Luck proceeded to drive over the Hexham Bridge, causing $12.8 million worth of damage.

The RTA brought proceedings against BT Earthmoving for the damage. BT Earthmoving sought indemnity from CGU, who had denied indemnity by relying upon an exclusion clause relating to damage caused by recklessness and breach of a condition to take reasonable care.

At first instance, the trial judge entered judgment for the RTA against BT Earthmoving and dismissed BT Earthmoving's cross-claim, holding that BT Earthmoving had not established it had taken reasonable care and that CGU were entitled to rely upon the exclusion. In doing so, the trial judge found that Mr Luck appreciated there was a danger that the excavator might strike the bridge and that he had made a conscious decision to court that danger. BT Earthmoving appealed this decision.

The policy relevantly stated:

(i) Recklessness by you or any person acting on your part or by reckless failure to comply with any statutory obligations and bylaws or regulations imposed by any public authority, for the safety of motor vehicle/s and for the carriage of goods and merchandise.'

The introductory clause to the conditions was in the following terms:

Meagher JA delivered the judgment, with Ward JA and Sackville AJA agreeing.

His Honour found that CGU bore the onus of proving that Mr Luck's conduct was reckless and relied upon the decision of Fraser v Furman², which stated:

"…it is not enough that the employer's omission to take any particular precautions to avoid accidents should be negligent, it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not that risk is averted."

His Honour could not be satisfied that Mr Luck had appreciated the danger presented by the increased height of the excavator. Instead, his Honour found that Mr Luck was transporting the excavator, as instructed by the RTA, and was satisfied that it did not exceed the minimum clearance height. Had Mr Luck appreciated this risk, it is unlikely he would have proceeded onto the Hexham Bridge without slowing down and endangering himself, Mr Wyborn and the other motorists on the road.

His Honour was also asked to determine whether the second limb of the condition to take reasonable care could be construed as imposing an absolute obligation on BT Earthmoving to ensure compliance with statutory obligations (which were breached by Mr Luck). However, his Honour found the policy, being a commercial contract, should be given a businesslike interpretation which gives a congruent operation to the different parts of the policy.³ Accordingly, his Honour found the words 'reasonable care' qualified the obligation to comply with statutory obligations, and therefore could not constitute an absolute obligation.

This case is a reminder of how difficult it is for insurers to rely upon the condition to take reasonable care to preclude an insured from cover. The commercial purpose of a policy must always be born in mind. A condition to comply with all statutory obligations will not be considered an absolute duty.

In order to succeed, insurers need to remember they bear the onus of proving recklessness on the part of the insured. This is difficult to do because the insurer must establish the insured recognised the danger and chose to ignore it or deliberately run the risk.