Glenda Monica Kalyk v Club Marine Ltd

APPLICANT'S CASE 10The applicant's case was to the following relevant effect. 11The applicant at all material times held a policy of insurance with the respondent in respect of a boat owned by the applicant. The policy itself was intended to respond to claims for accidental loss or damage to the boat. 12The boat was normally kept on a swing mooring but in or about April 2013 the applicant had caused the boat to be removed from the water and placed on a trailer in anticipation of taking the boat for service on the engine. 13The boat was covered whilst it was on the mooring and whilst it was on the trailer. The covers were supported by a timber pole held in position by the tension exerted on the covers by pulling it down on the sides of the boat. 14The boat was not immediately taken for service but was left on the trailer on a section of Council owned land near the applicant's home. 15On or about 27 July 2013 the applicant's husband first noticed that the pole supporting the covers had become dislodged and that a large amount of rainwater had entered the boat causing irreparable damage to the engine. The dislodgement of the pole was attributed to high winds during the time the boat was on the trailer. 16The applicant had claimed on the policy of insurance but by letter dated 1 October 2013 the respondent had denied the claim. 17The applicant relied on a number of authorities (discussed below) for the proposition that the insurer was not entitled to rely on the exclusions in the circumstances of the case because the applicant (and the applicant's husband) were unaware of the risk that would arise from the alleged failure to take reasonable care of the boat.

RESPONDENT'S CASE 18The respondent did not dispute the facts as outlined by the applicant. 19Following receipt of the claim the respondent had a naval architect inspect the boat. 20The damage and the causes were assessed on behalf of the respondent by the naval architect who had determined.

• The support pole under the covers had been dislodged for a considerable period of time,
• Water stains on the inside of the boat were consistent with periodic rainfall and water ingress through the covers,
• Rusting on the engine sump was consistent with sea water in the bilge,
• The boat was generally poorly maintained and the engine had not been regularly serviced, 21It was the respondent's position that it was entitled to rely on the exclusions set out in the policy. 22Specifically, it was the respondent's position that the applicant (and her husband whom she had charged with the duty to look after all aspects of usage and maintenance of the boat) had acted unreasonably in their failure to regularly inspect the boat. 23The policy is intended to respond to accidental loss or damage and is not intended to respond to the neglect of a boat by the insured. 24The report of the naval architect, the photographs and the undisputed facts demonstrate that the boat is poorly maintained and that the applicant and her husband have neglected it and in doing so have failed in the obligation to take reasonable care. 25The IC Act requires that the parties are to act in the utmost good faith and that the insurer is not entitled to rely on the exclusions unless it acts with the utmost good faith. The policy itself at Section 1sets out the commercial purpose of the policy (being to provide for accidental damage) and therefore the insurer is entitled to rely on the exclusions.

FACTS 26The facts were largely undisputed and for the purpose of the decision nothing turns on any minor differences.

APPLICATION OF RELEVANT LAW 27The applicant relied on the decision of the Full Court of the Supreme Court of Western Australia in the decision of Container Holdings Pty. Ltd. v Insurance Commission of Western Australia & ors [2001] WASCA 304 (Container Holdings) for a number of propositions. 28That decision applied the reasoning of the High Court in Australian Casualty Co. Ltd. v Federico [1986]HCA 32 for the proposition that in respect of interpretation of a policy of insurance, the court should apply the normal rules of interpretation and construction relevant to any commercial contract and that the trend is to adopt a "liberal interpretation in favour of the assured so far as the ordinary and natural meaning of the words used by the insurers permits this to be done" (para 63). Further, the meaning to be given to any insurance policy must take into account the commercial and social purpose for which it is written. 29In Vero Insurance Ltd. V Power Technologies Pty. Ltd. CA 40174/06 (Vero) the New South Wales Court of Appeal considered a contract of insurance in which the insured was obliged to exercise "reasonable care" in order that it could rely on the policy. 30In that case it was not denied by the insurer that the exclusion clause did not exclude the insured's entitlement to indemnity on the basis of the insured's negligence. "To construe the clause in that way would deprive the policy of its commercial purpose". (Ibid, para 14). 31The Court also considered the proper interpretation to be placed on the word "reasonable" as that related to the behaviour of the insured vis-à-vis the insurer and reviewed a long line of cases. 32The decisions were to the effect that an insured "where he recognises a danger should not deliberately court it by taking measures which he knows to be inadequate to avert it". The Court in Vero determined that in order for an insurer to have the benefit of an exclusion clause based on an obligation of the insured to act reasonably, there must be a finding that the insured had actual knowledge of the danger imposed by the action. 33Further the Court adopted the wording of Cole J in Plasteel Windows Australia v Sun Alliance Insurance that in determining the existence of a risk it is the perception of the insured, whether foolishly held or not, that is the appropriate test.

CONCLUSION 34As expressed by me at the hearing I am somewhat surprised that neither the applicant nor her husband took the trouble to look at the boat during the time it was on the trailer (some three and a half months). Had they done so it is possible that the water ingress would have been noticed at an early stage and the damage averted or minimised. 35Further, the very obvious deterioration in the condition of the boat as evidenced by the photographs and the failure to have the engine regularly serviced all persuade me that the applicant has been neglectful of that pride of ownership that would normally ensure regular inspection of one's valuable property left in a public place to ensure it was not damaged in any way. 36However, even that negligence, and it does appear to be more than neglectful, is not sufficient in light of the decided cases to enable the respondent to rely on the exclusions provided under the policy. 37I am persuaded that Vero (above) does require that in the circumstances of this case, in order for the respondent to be entitled to rely on the exclusion clause, it would be necessary to demonstrate not only that the applicant (and her husband) had acted unreasonably in regard to the level of care of the boat, but that the applicant knew that dislodgement of the support pole for the covers would result in the risk of severe damage to the engine. 38Firstly, there is no evidence that the applicant (or her husband) were actually aware that the pole had dislodged until about 27 July 2013 when the damage was discovered. Further, because the covers were presumed to be waterproof, there is no basis for the proposition that the applicant or Mr Kalyk, even if they had been aware of the dislodgement of the pole, would have been aware of the risk involved. 39In short, the policy of insurance does not seek to exclude the negligent acts of the insured from the risks covered by the policy. Had it done so, the insurer may have been on stronger ground. 40In the event, I am satisfied the applicant is entitled to the benefit of the policy. 41It was not disputed that the appropriate sum after allowance for "excess" is $15,400.00. 42It is noted and it was not disputed that the applicant has now sold the subject boat and that there is an entitlement in the respondent pursuant to the insurance policy to salvage. No evidence on that issue was before the Tribunal and the parties agreed that the issue would be the subject of further discussion. Should those discussions not resolve the issue the respondent is at liberty to seek its remedy in an appropriate jurisdiction..

COSTS 43The parties' representatives agreed that costs would not be pursued in this matter irrespective of the outcome. Jeffery Smith Senior Member Civil and Administrative Tribunal of New South Wales 29 May 2014 I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 August 2014