McLennan v Insurance Australia Limited: home and contents insurance - arson, onus of proof and failure to co-operate
The plaintiff was insured by the defendant for damage to her home in Orange, New South Wales (the “Property”). On 27 December 2006, the Property and the contents were extensively damaged by fire (the “Fire”). The plaintiff made a claim on the defendant insurer. The insurer refused the plaintiff's claim.
The Insurer’s position
The product disclosure statement (“PDS”) stated:
..., we will NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone
- who lives in your home, or
- who has entered your home or site with your consent, or the consent of a person who lives in your home.
(“the Insuring Clause”)
Consistent with the decision in Secure Funding Pty Ltd v Insurance Australia Limited [2010] FCA 1094, the insurer argued that the plaintiff would not be able to prove that the Property and contents were damaged in a way that results in the Policy responding.
In Secure Funding, the Federal Court said:
[22] Insurance cover may be defined positively by specifying the risks or circumstances in respect of which cover is provided. Alternatively, cover may be expressed in broad terms, such as “property damage”, subject to exceptions that subtract from broad terms, so that the precise ambit of the insurer’s liability is tailored. This is what has occurred in this Policy.
[23]Therefore, the Policy here limits the ambit of the cover to not include liability in the circumstances that give rise to these proceedings. In my view, this is the proper characterisation of the relevant clause now relied upon by IAL. The cases relied upon by Secure Funding relating to the visiting of a named insured’s wrongful conduct on a co-insured are of no assistance to Secure Funding. The simple point is that the Policy as a matter of construction does not cover the event that occurred. (Emphasis added).
In McLennan, as in Secure Funding, there was no promise by the insurer to cover any loss caused by a fire other than a “fire” as defined in the contract of insurance.
In Vidal v NRMA Insurance Limited [2005] NSWCA 390, Handley JA supported such an approach by stating that “(t)his [principle] applies, with appropriate modifications, to insurance claims for theft, fire and the like.”
The judgment in McLennan
Applying the principles in Secure Funding and Halikiotis v Insurance Australia Ltd [2011] NSWDC 31, the court found that in order to succeed, the plaintiff must prove, on the balance of probabilities, that the loss or damage falls within the terms of the policy. Consistent with this interpretation of the policy, the plaintiff was required to prove:
(a) the Property and contents were damage by fire; and
(b) that the fire was not started by someone who entered the property with her consent with the intention of causing damage.
The court found that the Insuring Clause can be “...described as an "exception clause"” being cover that is expressed in broad terms subject to exceptions so that the ambit of the insurer's liability is tailored. The court found that the plaintiff did not only have to prove that a “fire” had occurred, but also that “the fire was not started by someone who entered the property with her consent with the intention of causing damage”.
The court went on to apply Vidal v NRMA Insurance Ltd [2005] NSWCA 390 confirming that an insurer is entitled to simply put the insured to proof without undertaking anything more than an evidentiary burden of displacing the plaintiff's primary case. Of course, the insurer could also put a positive case if it chose.
The court noted that the insurer pleaded a number of positive defences or, to use the terminology of Handley JA in Vidal, "defences by way of confession and avoidance under which it had the onus of proof". Following the finding that the plaintiff had failed to discharge her onus, that is the court was not satisfied that the plaintiff had proved on the balance of probabilities that the fire was not started by someone who entered the property with her consent, the court concluded that there was no need to consider the positive defences.
The court returned a judgement in favour of the insurer together with an order for costs.
Update
The District Court judgement was successfully appealed by the insured.
The Court of Appeal constructed the relevant part of the policy as an exclusion clause and held that the onus fell on the insurer to prove that the fire was not started by someone who entered the property with [the insured's] consent with the intention of causing damage. All the insured was required to prove, under the relevant terms of the policy, was that there was loss or damage to her home and contents and that the cause of that loss or damage was fire.
Significantly, the Court of Appeal noted an insurer may seek to draft its policy documents to expressly make provision as to who bears the burden of proving the existence or non existence of a particular fact for the purpose of establishing an entitlement to indemnity.
The insurer in Secure Funding and McLennan was represented by William Roberts Lawyers.