Insurance Update - General Insurance July 2007

 

Insurers are increasingly keeping an eye out for potential recoveries, and changes in policy wordings over time reflect that. A recent case involving a recovery clause has brought the issue into sharper focus.

Mr Kaduthodil was injured in a motor car accident. He held a policy with NRMA, which provided “If you or your family are hurt in an accident in a car, we will pay you the $50,000 over two years for lost wages and expenses”. Following the accident, NRMA paid Mr Kaduthodil over
$44,000 pursuant to the clause in the policy.

He then pursued a damages claim from the insurer of the other vehicle and, after arbitration, was awarded some $318,000. NRMA then claimed return of the money it had paid for loss of wages. In that regard, NRMA relied on a clause in its policy that read:

“If you also received damages or compensation. 

If we pay you, your spouse or family member additional living expenses or loss of earnings, and either you, your spouse or a family member also received damages or compensation, for those same additional living expenses or loss of earnings, whether under the Motor Accidents Act 1988, the Workers Compensation Act 1987, or any other statutory scheme arrangement, the person we have paid must immediately repay us the amount we have paid them or the amount of those damages or compensation, whichever is less.” [Emphasis added]

Mr Kaduthodil resisted NRMA’s claim but was unsuccessful in the Local Court. He appealed to the NSW Supreme Court, arguing that the Magistrate’s decision was wrong as he had not received compensation for the “same” loss of earnings. He referred in particular to the outcome of the arbitration, where his past economic loss was assessed at $45,000 over 4 years; arguing that showed that the loss was not the “same” loss, or if it was, NRMA was only entitled to a pro rata amount.

In the Supreme Court, Acting Justice Harrison noted that there was no ambiguity in the recovery clause. While the award in the arbitration was not precisely identical, common sense suggested that the economic loss was likely to be more “acute” in the period immediately after the accident.

In addition, Acting Justice Harrison found that the word “same” did not mean “identical”. As a result, the Magistrate’s interpretation of the clause was open, and the decision was not shown to be erroneous.

Kaduthodil v NRMA Insurance [2007] NSWSC 451

 

The legal doctrine of res ipsa loquitur has been waning somewhat in prominence since the High Court’s 2000 decision in Schellenberg v Tunnel Holdings; but it may not be dead altogether if the comments from a recent NSW Court of Appeal case are anything to go by.

The res ipsa loquitur (literally: “the thing speaks for itself”) principle can be invoked by a plaintiff where actual proof of negligence is lacking. The principle has three elements which must be established: first, that the occurrence of the incident is unexplained; second, that the incident is of a kind that is unlikely to occur without negligence; and third, that the instrument of the injury was under the control of the defendant.

The plaintiff, Mr Dimitrelos had been injured in an incident involving a lift. He alleged the lift dropped suddenly, resulting in injury to him. At trial, the trial judge had rejected his reliance on the res ipsa loquitur principle and (although critical of some aspects of the lift’s maintenance) had found in favour of the defendants. Mr Dimitrelos appealed to the Court of Appeal.

The court unanimously upheld the trial judge’s decision, finding that the decision was supported by the evidence and was within the trial judge’s discretion.

In the course of the judgment though, Justice Young made some pertinent observations about the res ipsa loquitur doctrine. He noted that since Schellenberg, a perception had arisen that res ipsa loquitur could not be used in a case involving “complex machinery”. He found that perception was wrong, and that in an appropriate case, the principle could be invoked notwithstanding the complexity of the machinery involved. Nonetheless, he was of the view that, while he had some “sympathy” for the plaintiff’s arguments, the trial judge had been correct in rejecting the application of the principle in this particular case.

The other point of particular interest in the case was whether the building owner had adequately discharged its obligations for the safety of persons using the lift by entering into a maintenance contract with a reputable lift repair company. Justice Young noted that although the contract was “cheaper… than one might have thought appropriate” and there had been a history of faults involving the lift in question, the evidence had not established a failure to properly maintain the lift. He felt however that in an appropriate case, merely entering into a maintenance contract might not be sufficient to discharge the owner’s obligations.

 

 

As liability insurers will appreciate, the old principle of caveat emptor (“buyer beware”) has long gone, replaced by consumer protection legislation. But sometimes even that legislation is not necessary for a retailer to be held liable for injuries caused by products it sells.

In March 1999, Mr Laws Snr was fitting a new tyre to the wheel rim of a tractor when it exploded, injuring him and his son (Mr Laws Jr) who was assisting him at the time. The tyre had been bought from GWS Machinery. It had been imported into Australia and distributed by Motokov Australia Limited ("Motokov"). The Laws sued both GWS and Motokov, relying both on negligence and on breaches of the Trade Practices Act.

In the NSW Supreme Court, expert evidence indicated that fitting a tyre to a tractor was not a job to be undertaken by an unqualified person such as Mr Laws Snr. The consensus was that the job should only be undertaken by a qualified tyre-fitter, and indeed, that was standard industry practice. To do otherwise involved a serious risk of injury.

More importantly however, Justice Rothman noted that any retailer who had “bothered” to read the catalogue provided by Motokov would have been aware of these risks. GWS in fact had the catalogue from the beginning of 1999.

Even further than that, GWS’s assistant general manager at the time had considered the issue and knew that fitting of tractor tyres should only be undertaken by a trained specialist. Notwithstanding that knowledge, he did not consider that GWS had any obligation to inform a purchaser, nor any obligation to determine precisely the nature of the danger that may be posed to his clients.

The evidence indicated that the tyre had been ordered by Mr Law Snr’s wife; and that her discussions with GWS were “perfunctory”. Certainly, there had been no discussion about the dangers of fitting tyres, nor was there any warning to ensure that the tyre was only fitted by a specialist tyre-fitter.

Mr Laws Snr had no knowledge about the dangers posed by the tyre.

Justice Rothman noted that the relationship of retailer and consumer did not necessarily give rise to a duty of care in negligence. There had to be “something more” before a duty of care would be imposed. That “something more” was, on the authorities, either knowledge or “reason to know” about a danger posed by the product.

In this case, GWS both actually knew and had reason to know about the dangers posed by the tyre. That was sufficient to impose a duty of care on them. In addition, the means of averting the risk – placing a sticker on the tyre or providing a booklet with it – were both inexpensive and likely to be effective. It followed that GWS was liable for the injuries sustained by the Laws. Damages were assessed (in total for both claims) at nearly $9.5 million.

 

 

What might at first appear to be a simple fact situation can cause even experienced judges problems, as a recent decision of the NSW Court of Appeal illustrates.

The plaintiff, Ms Skulander, was at the Chatswood Bus Interchange, where she had arranged to meet her husband who was to drive her home. When she arrived at the Interchange, she walked along the platform towards a pedestrian crossing that would enable her to exit from the facility. At the time, she was looking down at the keypad of her mobile phone as she was dialling her husband to find out where he was. Perhaps due to this inattention, she took what was described as an “unusual” line close to a column on the platform. She struck her head on a metal cage (which housed a toxic gas monitoring unit) erected at about head height on the column. She sued the Willoughby City Council for negligence.

In the District Court, Ms Skulander’s claim was dismissed, the trial judge finding that the Council did not owe her any duty of care, and if it did, then that duty had not been breached. The trial judge was so firm on the point, damages were not even assessed. Ms Skulander appealed to the Court of Appeal.

All three judges on the Court of Appeal agreed that the trial judge had been wrong to find that the Council owed no duty of care. As the occupier of the bus interchange, it clearly owed a duty to persons using the facility – even those who were not paying attention to what they were doing.

From there though, the three members of the court diverged. President Mason would have found that there was no breach of the Council’s duty; but Justices Basten and Beazley agreed there had been.

Giving the leading judgment for the majority, Justice Basten noted that, although Ms Skulander might have been walking an “unusual” line, there were simple measures the Council could have taken to remove the risk of pedestrians hitting the head-high cage. One (which had been adopted after the accident) was to put a rubbish bin under the cage, thereby forcing pedestrians to walk around it. Another solution (favoured by Justice Basten) would have been to install a handrail around the column, again forcing pedestrians away from the cage.
It was however clear that Ms Skulander could have avoided the cage if she had been keeping a proper look-out instead of dialling her mobile phone. Justice Basten expressed the view that 50% contributory negligence was an appropriate apportionment, but Justice Beazley would have assessed only 20% contribution.

As a result, the three judges had no unifying decision. This clearly caused President Mason considerable concern, as he discussed the relevant principles at length in his judgment. Ultimately however, he was persuaded that, despite his views on liability, he should join with Justice Basten in finding contributory negligence at 50%.

In the outcome then, the appeal was allowed, Ms Skulander was entitled to judgment against the Council, subject to a 50% reduction for contributory negligence, and the matter was remitted to the District Court for assessment of damages.

Skulander v Willoughby City Council [2007] NSWCA 116

 

Despite being an important area of health care, negligence claims against dentists are relatively rare. The District Court of Queensland has however recently had occasion to consider just such a case – which also serves as an example of the old adage that if something appears too good to be true, it probably is.

The plaintiff, Ms McEnearney had consulted Dr Coggin about some fillings. In the course of the consultation, he had suggested that he could straighten her crossed front teeth without the use of braces. This (no need for braces) was of importance to Ms McEnearney because she was pursuing a career as a “sales advisory speaker”.

Over the next 18 months, Dr Coggin used a dental expansion plate in an effort to straighten the front teeth. This led to a series of problems, including pain, loosening of teeth and gum inflammation. Ms McEnearney then consulted another dentist and was told that she definitely needed braces. She eventually required extensive orthodontic treatment to correct the situation. She sued Dr Coggin (who did not appear at trial to defend the claim).

Judge Tutt found that Dr Coggin owed a duty of care, and that the standard of care was essentially defined by reference to the High Court’s decision in Rogers v Whitaker. He found that Dr Coggin had breached his duty of care by not warning Ms McEnearney about the risks of the course he was proposing; that he failed to properly investigate Ms McEnearney’s ongoing complaints of pain and tooth loosening; and in failing to refer her to an orthodontist.

McEnearney v Coggin [2007] QDC 120

 

The law recognises a so-called “non-delegable” duty of care in certain circumstances, the most common being between employer and employee. But can a non-delegable duty be owed to the employee of an independent contractor? The South Australian Full Court has held it can – but only in limited circumstances.

Mr McVicar was employed as a cleaner by Mr Keogh, who ran a cleaning business. He was injured while cleaning a cooking range at a hotel operated by the defendant. The cooking range he was working on exploded, most likely as the result of fumes from the petrol he was using as a cleaning agent being ignited by a pilot light under a hotplate on the cooking range. Mr Keogh had been carrying out cleaning at the hotel for several years without incident.

 Mr McVicar sued the hotel operator for negligence, arguing that it was in breach of its duty of care as an occupier, in failing either to turn off the gas supply to the kitchen or to show Mr Keogh how to do so in order to prevent the foreseeable risk of injury by explosion or fire if the pilot lights were not extinguished. He also argued that the operator was in breach of a non-delegable duty of care to ensure that reasonable precautions were taken to prevent foreseeable risks of injury to employees of an independent contractor on its premises, and for alleged breaches of South Australia’s Occupational Health, Safety and Welfare Act.

The trial judge found that the hotel operator was not in breach of its duty of care as an occupier; that if it owed a non-delegable duty of care to Mr McVicar, that duty was not breached; and found that the alleged breach of statutory duty had not been made out.
On appeal, the Full Court of the South Australian Supreme Court unanimously upheld the trial judge’s decision. So far as the occupier’s duty claim was concerned, two factors were crucial. Firstly, the operator did not know that Mr McVicar’s employer used petrol as a cleaning agent, and therefore, could not have foreseen the risk of injury to which he was exposed. Secondly, even if it had foreseen the risk, the management of the risk (turning off the pilot light) was so obvious, the operator was not in breach of its duty by leaving that task to Mr Keogh.

On the question of a non-delegable duty of care to an independent contractor’s employees, the court found that such a duty could exist. It would however arise where the person engaging the contractor required the task to be performed in a way that carried an inherent risk of injury. Another significant factor would be if the person undertook a particular responsibility for the safety of another person. Otherwise however, the performance of a task that did not carry an inherent risk of harm could be discharged by engaging a competent independent contractor. Since there was no foreseeable risk of injury from the hotel operator’s point of view, no non-delegable duty of care arose.

Interestingly, the Full Court did not refer to the decision of the High Court in Stevens v Brodribb Sawmilling (1985-1986) 160 CLR 16 in their judgments.

One possible explanation for this could be that the cases were factually different. In the earlier case, Stevens was engaged as a contractor directly by Brodribb – he was not the employee of someone else. Here, Mr McVicar was employed by Mr Keogh. There was no suggestion that there was anything akin to an employment relationship between him and the hotel operator.
The reasoning of the court about the existence of a non-delegable duty was however essentially the same as that used by the High Court in Stevens v Brodribb; namely that a person engaging a contractor has to exercise a degree of control over the employee (such as by prescribing how the work is to be carried out; or by accepting particular responsibility for safety) before any non-delegable duty of care can be said to arise. The factual findings here precluded such a duty.

Accordingly, while this case does not break any new legal ground (particularly given the result), it serves as an indicator of when a person might be liable for injury to someone else's employee.

McVicar v S&J White Pty Ltd t/as Arab Steed Hotel [2007] SASC 107


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