When does an exclusion for a ‘deliberate act’ apply?

It is fundamental to all insurance that it only covers a fortuity – that is, a loss that is accidental from the insured’s point of view. So, how are the courts to interpret a liability policy that excludes:

Liability arising out of deliberate acts …?

Deliberate acts cannot, by definition, be accidental. However, deliberate acts can still result in a loss that is accidental from the insured’s point of view; there is still a fortuity. For example, I deliberately burn some rubbish in an incinerator in my back yard, but the embers cause an accidental fire next door.

If the courts interpreted the above exclusion literally, the exclusion would apply to this example. Only accidental acts causing accidental loss would be covered. This diminishes the benefit of the cover considerably.

Recently, this issue went all the way to the United Kingdom’s Supreme Court. Although the facts of the case relate to liability for personal injury rather than property damage, the principles that apply are the same. Background

A bouncer at a bar in Scotland ejected a customer from the bar who was intoxicated with both alcohol and cocaine; he had fallen asleep. Once outside, an altercation occurred. The customer was restrained by the bouncer around the neck. The police were called. In the meantime, the bouncer continued to apply his neck restraint for up to 3 minutes. The customer continued to resist for a short period, but then turned blue in the face and started to cough.

Once the police arrived the customer was motionless. He was pronounced dead shortly afterwards. The cause of the death was mechanical asphyxia caused by the bouncer’s neck hold.

The bouncer was charged with murder. The jury acquitted him of murder but found him guilty of assault. When sentencing the bouncer, the trial judge accepted the bouncer’s actions were ‘badly executed, not badly motivated’.

The customer’s widow sued the bouncer for damages. He was insured under a liability policy containing the exclusion quoted above.

Policy interpretation

The Supreme Court restated the established law about interpreting an insurance policy. The Court said the policy must be:

“… interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean”.

This allows the court to have regard to the commercial realities underpinning a liability policy issued to a door security company that employs bouncers. Insurer’s position

The insurer accepted that the exclusion could not be interpreted literally – it could not apply simply because an action by a person was deliberate.

to the injury. In other words, the exclusion only applies if the bouncer intended his actions to cause injury. Of course, this interpretation achieves the same outcome as a policy with an insuring clause limiting the liability cover to accidental injury (and not deliberate injury).

The Supreme Court accepted this was the only logical interpretation available when applying the established principles of interpretation referred to above to the words used in the policy.

While the insurer was successful on this point, it was ultimately unsuccessful when it came to applying the exclusion to the unusual outcome of the murder trial. The bouncer had only been convicted of assault. There was not finding by the jury of an intention to cause injury.

The Supreme Court noted the trial judge’s statement when sentencing the bouncer that his actions were: ‘badly executed, not badly motivated’. In the light of this the Supreme Court was not prepared to imply any inference of intention and held that the exclusion did not apply because there was no evidence the bouncer intended to cause an injury.

It seems the outcome may have been different if the sentencing notes had found some intention.

Comment

This decision is likely to be followed by the New Zealand Courts. It makes it clear that excluding cover for liability arising from deliberate acts:

1. Cannot be applied literally, and

2. Will be interpreted as only applying when the person has an intention to bring about the injury or damage that resulted.

This, of course, maintains the need for a fortuity.

Given this outcome, there seems little point having this type of exclusion in a policy with an insuring clause that limits cover to accidental injury or accidental damage. That type of insuring clause is common in the New Zealand insurance marketplace.

Indeed, we note that stating the need for a fortuity in the insuring clause has the advantage of placing the initial onus on the insured to prove this, rather than placing the onus on the insurer to prove it was not a fortuity by way of an exclusion.

Please feel free to contact us if you require any further information.

Crossley Gates cgates@keegan.co.nz

Frank Rose frose@keegan.co.nz