| FAILING TO TAKE REASONABLE PRECAUTIONS? |
The Full Court of the Supreme Court of South Australia recently visited the law in this area in the case of Australian Associated Motor Insurers v Wright (1998). In this case Mr & Mrs Wright had two policies of insurance with AAMI covering buildings and contents on a parcel of land in South Australia. The improvements on the land consisted of a storage shed, a shed which had been converted for living whilst a house was being constructed, and the substantially completed house. There was a dam on the lower part of the property from which water was pumped via a water line into a settlement tank near the house area. When water needed to be pumped into the settlement tank, Mr Wright used a pump driven by a petrol motor. Prior to the incident, Mr Wright borrowed a neighbour’s petrol driven pump as his was faulty and he was aware of the need to minimise the chance of fire in dry conditions. The Pump was placed in an area where the grass was kept short, partly to minimise the risk of fire. He needed to connect the pump in a slightly altered position where the pasture grass still had some clumps of longer grass within one or two metres from the position of the pump. Mr Wright kept a 20 litre container of water near the pump to prime it and he spread the rest around the pump on the ground as a fire precaution. After ensuring the pump was working properly Mr Wright then left it unattended. Approximately 20 minutes later a neighbour alerted Mr Wright to a grass fire near the pump, which fire spread and caused damage to building and contents. The insurance policies related to fire damage and contained a number of exclusions, including conditions that the insured take all reasonable precautions for the safety and protection of the property, and comply with all statutory obligations. In addition the policy did not cover deliberate or intentional acts by the insured. It was alleged by AAMI that setting the pump into operation during danger season in breach of the County Fire Act 1989 (the’Act’) was a breach of these conditions. At first instance the trial Judge found that Mr Wright was not aware of the requirements of the Act and that his conduct was merely negligent and not reckless to the degree required to breach the policy conditions. The Full Court dismissed AAMI’s appeal and upheld the trial judge’s decision. It was held that the way the conditions in the policies should be construed meant the phrase ‘take all reasonable precautions’ also applied to the requirement to comply with all statutory obligations. However, it was found that there was ambiguity in the drafting of the clause as it would be difficult for the insured to take reasonable precautions to comply with statutory obligations he was not aware of. The clause was therefore applied contra proferentum against AAMI. Further it was held that Mr Wright’s actions in trying to prevent the risk of fire, although ineffective, were not patently reckless. It was not enough that the failure to take reasonable precautions was negligent. In order to breach the policy it would have to be at least reckless, with the insured knowing the risk existed and not caring whether or not it is averted. The fact that Mr Wright took some precautions showed he recognised the danger and was not indifferent to it and therefore there was no recklessness. This follows the earlier decision of the Supreme Court of Victoria in Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303[1983]. The cases where an insurer might successfully rely upon such exclusions will be those where the insured recognises the danger and recklessly ignores it. Maria Townsend |
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