September 18, 2014 · 3:01 am

High Court decision in Highway Hauliers tightens wriggle room on refusals

Another chapter in the ongoing battle between insurers and their insureds regarding the reach of section 54 of the Insurance Contracts Act (Cth) 1984 was recently decided by the High Court; in the insured’s favour this time.

Section 54 seeks to strike a balance between permitting insurers to include terms in an insurance policy that prevent their level of risk from increasing after the policy has commenced, versus unfairly relying on technicalities in drafting to deny the insured a valid payout.

If the effect of the insurance policy is to allow the insurer to deny coverage only by reason of some act of the insured occuring after the policy has been entered, the insurer’s right to deny indemnity is limited to a situation in which there is a causal relationship between the particular act in question and the actual loss. If there is no causal relationship, but the insurer’s interests are nevertheless prejudiced, section 54 also permits the insurer to reduce its libility to the extent such prejudice can be defined in monetary terms.

Maxwell v Highway Hauliers Pty Limited [2014] HCA 33 was an invitation to the High Court to delineate where the line between fairly limiting risk and avoiding indemnity should lie.

Highway Hauliers was in the business of freight transport and owned a fleet of trucks. The vehicles were insured under a policy which included an endorsement that all drivers undertake and receive a particular rating in a nominated driver safety attitudinal test (ie. the policy stated that no indemnity would be provided unless this condition was satisfied).

The drivers of trucks involved in the accidents said to trigger the policy had not undertaken the requisite test and the insurer invoked the term to deny liability.

At first instance and in the WA Court of Appeal the insurer conceded that the drivers’ failure to undertake the testing was not in any way causally related to the accident. In fact, the validity of the test was never established. Therefore, relying on section 54, the insured successfully claimed that the insurer’s denial of liability was invalid becuase the omission bore no causal relationsip to the loss suffered.

Nevertheless, the insurer was granted special leave in the High Court to use the case as a vehicle to test the meaning and effect of section 54. In principal, the argument put by the insurer was reduced by the High Court to this (at 17]):

[A] ‘claim’ to which s 54(1) refers is limited to a claim that is an insured risk.

Effectively, the insurer argued that the policy endorsement was simply a means of defining the scope of coverage. Therefore, on this argumemt, the failiure to have the truck drivers tested meant that the ‘claim’ never made it within the scope of the policy in the first place. As such, section 54 had no work to do, there being no valid ‘claim’.

In the end, the Court was unattracted to this argument and therefore able to dispose of the argument quite simply and with perhaps a somewhat disappointingly (but understandably) brief analysis.

In picking up an aspect of its earlier decision in Antico v Heath Fielding Pty Limited (1997) 188 CLR 652 the Court cited with approval the following words (appearing at CLR 659 of Antico):

[n]o distinction can be made, for the purposes of the section, “between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting the entitlement to a claim”.

Not great news for insurers obviously.  For example, had the decision gone the other way (ie. a finding that a ‘claim’ must be found to fall within the scope of the policy before section 54 has any work to do), it would have provided a means of limiting risk through policy drafting which more narrowly defined the scope of cover.

The effect of Highway Hauliers is to make plain the position that it doesn’t matter whether the limitation on coverage the insurer seeks to enshrine in the policy is treated as an exclusion, endorsement or forms part of identifying the insured risk, section 54 will limit the insurer’s ability to deny liability on account of the actions of an insured unless those actions are causally linked to the loss itself. It seems a fair result, but one which now further confirms the strict limits facing insurers when seeking to deny liability.

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July 14, 2014 · 2:34 am

‘Hot tubbing’ can be anything but ‘just, quick and cheap’

 

With its racy moniker and perceived potential to address the kinds of reservations McClellan CJ raised in Wood v R [2012] NSWCCA 21 (at around [465-470]), the arrival of the expert conclave procedure in this jurisdiction was received with considerable optimism.

 

In theory at least, by the expert having to face-off with their peers, professional pride will supress the willingness to express a one-eyed opinion tailored to the needs of one’s paymaster. Having the experts brought together before the trial to establish the major areas of difference also has the potential of saving valuable court time for debating areas of genuine controversy.

 

In my experience however, us lawyers find it hard to stay out of the process enough to let these advantages bring their ‘just, quick and cheap’ imperative to fruition.

 

The battle simply shifts to areas like how the experts are actually briefed (eg. agreeing upon the assumptions upon which the experts will base their opinion). In fact this is probably the first bit of advice I can give: beware of being railroaded into agreeing a set of assumptions which promotes the opponent’s case in favour of your own. These assumptions can become close to accepted fact in the case, even though we all know from Makita that the underlying facts upon which the opinion is based must each be proven.

 

Nevertheless, Heydon J’s ‘counsel of perfection’ as it is sometimes called, is not always so closely observed amid the cut and thrust of a trial. If we are not careful, assumed facts have the power to take on the status of established folklore.

 

In fact, in some cases agreed assumptions are simply not appropriate. For example, where there is an issue of causation of psychiatric injury. Perhaps more that any other discipline, psychiatry is an area about which minds will differ radically (no pun intended). Part of the reason for this is that a psychiatrist can place differing emphasis, or indeed little or none, on the many various background experiences that make up a plaintiff’s pre and post-accident life. Telling all experts within the conclave which facts they can take into account in rendering their opinion has obvious difficulties in this regard.

 

Another criticism and danger to be mindful of, is that expert conclaves promote a survival of the fittest environment among the experts themselves. The contest becomes one of who is quickest to the mark in finding the ‘alpha’ expert, whose credentials, personality or both will see the others bow to their will.

 

Then there’s the logistics of getting the experts together who, in my experience, seem notoriously difficult to coordinate.

Despite all the work of getting them together in one place to refine their various opinions into something vaguely collective, so many of the joint reports I have seen are nothing more than a cut and pasted collection of the relevant parts of each expert’s individual report.

 

For the conclave process to be ‘just’ practitioners need to exercise great vigilance, but to do so is rarely ‘quick and cheap’.

 

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May 9, 2014 · 12:31 am

The Rule In: Res Ipsa Loquitur

This is another addition to my ‘The Rule In’ list of standard legal maxims.

It is my experience that in negligence cases where there is no other obvious explanation for an accident other than the fault of the defendant, a plaintiff will allege res ipsa loquitur. It masquerades as the perfect case for a plaintiff. Properly applied however, it’s anything but a cinch.

A recent treatment of the applicable principles by McCallum J in Holberts Oyster Supplies P/L v Stephenson [2014] NSWSC 425 illustrates this point.

The first thing to know about res ipsa is that it is not a rule of law but rather a process of inferential reasoning to bring about factual conclusions. Therefore, whether or not it was engaged in correctly may not even be appealable, it being in all likelihood a question of fact. McCallum J raised this doubt at [19-20], but settled on it being a mixed question of fact and law, for which leave was required (and granted).

In Holberts, the plaintiff’s truck collided with a spare wheel that had broken free from where it was stored beneath a trailer towed by the defendant’s truck. At first instance, there being no other evidence upon which a finding of negligence against the defendant could be made, the plaintiff’s case relied heavily upon seeking to have the Magistrate draw an inference on the basis of res ipsa loquitur. The magistrate rejected this approach and the plaintiff appealed, alleging the Magistrate she had done so incorrectly.

MacCallum J reviewed the key authorities on the doctrine and at [12] refined the principles to the following three:

 

(a) the cause of the incident must be unexplained;

(b) the incident must be of such a kind that, in the common knowledge and experience of mankind, it does not ordinarily occur without negligence;

(c) the things that caused the incident must be in the exclusive control of the defendant.

By reference to more of the authorities her Honour also pointed out that satisfaction of the above test still doesn’t get the plaintiff home by say, creating a rebuttable presumption that the case is made out. At [15] her Honour says:

Ultimately, however, any inference to which the principle gives rise is but one factor to be taken into account along with the other evidence in the matter.

Returning to the facts of this case, on its face, reliance upon res ipsa loquitur might have seemed attractive. Why else other than the defendant’s failure to have it properly secured would the wheel have fallen free from the underside of the trailer?

But the trial judge disagreed. The causal component of the case was not so straightforward. That is, the plaintiff’s case failed at the second hurdle, it being decided that this was not such a simple matter, ie. not a matter that within common knowledge and within the experience of mankind, only explicable by negligence.

In fact the trial judge proffered a number of other alternatives: faulty ropes securing the wheel, its T-bar not being properly secured, a crack in the T-bar, something on the road that came into contact with the tyre rack causing friction or even a latent defect not discoverable on visual inspection (of which there was evidence two weeks prior to the accident).

In referring to this part of the magistrate’s judgment, her Honour McCallum J found the trial judge had more than adequately applied the principles applicable to a res ipsa inference and so was confident to dismiss the appeal.

What at first seemed quite an attractive way home for the plaintiff in the end proved calamitous.

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