Most liability policies contain a condition requiring the insured not to make any admissions of liability. These are not frequently relied on to decline cover so the recent case of Hugo v AMP General Insurance (NZ) Limited is a useful illustration of the Court’s approach and the operation of s11 Insurance Law Reform Act 1977.
Mr Hugo, a mechanic, was sued for damages after the steering box of a truck that he had fixed, failed and caused an accident. The insurer declined to indemnify Mr Hugo, based on what he said at the scene of the accident and when later talking to the loss adjuster. The statements can be summarised as follows:
Mr Hugo conceded he had not used the correct tool to fix the steering boxwhen visiting the accident site, Mr Hugo noticed that the drop arm of the steering mechanism was separated from the shaft and that the screws were looseMr Hugo admitted to the loss adjuster that the accident was a serious thing to happen, about which he was worried.In the High Court, the Judge found that Mr Hugo’s statements were admissions in terms of the general condition under the policy. He then went on to consider whether the loss was contributed to or caused by these statements and whether AMP could decline indemnity.
The Judge said that the relevant loss was the liability to the third party.
He then said that for an event or circumstance to cause or contribute to the loss requires at least a meaningful contribution. This is an objective test.
Next, for an insured to say they were at fault would ordinarily have considerable potential to cause or contribute to the loss, but a factual concession may not. In this case, the Judge found that Mr Hugo’s statements at the scene and subsequently to the loss adjuster did not cause or contribute to the loss. They were not material to the third party’s decision to sue Mr Hugo for their losses.
The Judge stated that this case was one where the likely cause was identified immediately after the accident. Mr Hugo’s liability was established by the process of investigation conducted by the insurer and its loss adjuster at the scene of the accident and also of the components of the steering box. In other words, Mr Hugo’s liability was established separately from his statements. herefore, the insurer was not entitled to decline indemnity.
This case is a reminder to all insurers that when deciding whether to decline indemnity based on an insured’s admission of liability, careful consideration is needed of the nature of what has been admitted and whether that really did have an effect on the determination of liability at the end of the day.
This is a general summary only and should not be taken as a substitute for specific advice.
For further information, please contact Peter Leman, partner or Jacques Jacobs, solicitor:
peter.leman@phillipsfox.com
jacques.jacobs@phillipsfox.com
Web site:
Phillips Fox