Matton Developments was involved in a project to expand a factory in the Brisbane suburb of Darra, using a 100-tonne crane to manoeuvre large concrete panels.
During the process, the crane’s boom collapsed, damaging the crane beyond economical repair. Matton submitted a claim to CGU seeking recovery for the damage under its Contractors Plant and Machinery policy.
Matton argued the collapse of the crane was due to a pre-existing defect in the base of the boom to which the material damage cover responded or, alternatively, that the failure was an accident to which the accidental overload cover responded.
The judge held that an insurer was not obliged to accept the statement of an operator or even an insured, who may be honestly mistaken.
CGU denied the claim, having obtained expert engineering evidence which asserted that at the time of the incident the crane was operated in contravention of Australian standards and manufacturer’s guidelines. When declining the claim, CGU informed the plaintiff that the damage to the crane did not fall within the relevant insuring clause (namely it was not ‘accidental, sudden and unforseen’ within that meaning of the expression in the policy). CGU also relied on exclusions in the policy, which denied cover where the crane was not operated in the manner for which it was designed.
Heard by the Supreme Court of Queensland, the proceedings included a detailed consideration of the policy’s material damage clause. The judge concluded that accidental meant ‘unintended and unexpected’ and that the plaintiff had failed to establish that the collapse of the boom was ‘accidental’, finding that the operator knew the crane should not be operated on a slope and that if he did so there was a real risk of the boom collapsing. Despite this knowledge, he operated the crane on a seven-degree angle.
The policy contained additional benefit for damage caused by accidental overload which was non-deliberate and clearly unintentional.
Matton argued that the term ‘overload’ in the policy should be read to encompass a situation where the crane was overloaded because it was operated on a slope. The judge concluded, contrary to the plaintiff’s submissions, that the accidental overload cover responded to accidental ‘physical’ overload of the crane where it had otherwise been operated in the manner in which it was designed to be used. As the crane was operated in contravention of manufacturer’s guidelines, the policy provision’s additional cover did not respond to the plaintiff’s claim.
Test of faith
Matton also submitted that CGU had breached its duty of utmost good faith by relying on conclusions drawn by its own experts, in its decision to refuse indemnity, rather than giving due consideration to the eyewitness testimony.
The judge accepted CGU’s argument that the decision to decline the claim was made after careful consideration of the available evidence.
He held that an insurer was not obliged to accept the statement of an operator or even an insured, who may be honestly mistaken. Accordingly, the judge concluded that the refusal of cover by CGU did not constitute any breach of its duty of utmost good faith.
The claim against CGU was dismissed, although the decision is being appealed. This decision shows that an insurer can establish with appropriate use of forensic and eye-witness evidence that refusal of cover under a policy is justified.
John Sharman is a Partner at Barry. Nilsson. Lawyers.