What is the level of reasonable care required under an insurance policy?
The term ‘reasonable care’ are two words that have been argued extensively to determine their meaning in relation to claims made against insurance policies.
As the Australian market increases its digital presence in business and personal use on the internet, acting with reasonable care in cyber space becomes crucial, especially when disputes are made against one another. Then understanding how one’s insurance policy may protect them when claims arise, it is worth considering how rights have been raised in the past.
The meaning of reasonable care is settled on the test of being one of recklessness. However, there is conflict of judicial opinion whether the argument of reasonable care is one where the insured in question appreciates the risk and deliberately fails to take adequate measures to avoid it, or the insured ought to have known they were acting recklessly.
In Australian reasonable care is a subjective test and the insured is required to have actual knowledge of the risk before it can be claimed they acted recklessly and not with reasonable care.
When the insured’s reasonable care is in dispute, the condition to meet the requisite standard of reasonable care will always be dependent on the facts of the case.
The appropriate way to consider the meaning of reasonable care is to view various court interpretations.
In Legal & General Insurance Australia Ltd v Eather (1986) the court held, … the greater the value of property at risk of loss, the grater will be the obligation to take stringent precautions. The greater the foreseeable risk of a loss occurring in the circumstances, the greater will be the obligation to take precautions. The greater the possibility of precautions being taken, the more readily will a court infer that they ought to have been taken.
In Body Corporate Strata Plan No 4303 v Albion Insurance Co Ltd [1958] the test for reasonable care is whether the insured deliberately courts the danger by refraining from taking any measures or by taking measures which he knows to be inadequate to avert it. The word “deliberately” indicates intentional, considered action or inaction. The verb “court’ suggest action or inaction which invites the danger of accident. The test requires more than a recognition of the danger and failure to take any measures or any measures known to be adequate to avert it. It requires that this be due to a deliberate decision to court the danger.
In Fruehauf Finance Corp Pty Ltd v Zurich Australian Insurance Ltd (1990) the court held there must be something of the nature of a subjective appreciation of the existence of the relevant risk, coupled with a deliberate courting of that risk or recklessness in relation to it.
In Legal & General Insurance Society Ltd Commonwealth (1985) the court held in this case that the insured had to deliberately know of the danger.
In Aluminium Wire & Cable Co Ltd v All State Insurance Co Ltd [1985] the court held the use of an electric arc welder in a congested engineering store, did not amount to acting deliberately or recklessly, careless of the risk knowing that the building was insured.
Then in Brescia Furniture Pty Ltd v QBE Insurance (Australia) Ltd (2007) the insured stored furniture in a roof space without considering fire precautions as they were not aware of any danger of fire, and the insured was not held to have acted deliberately, carelessly or recklessly.
However, in Caff v McHenland Nominees Pty Ltd (1984) the court held the insured knew of the danger, but continued with the operation without fitting a safety device and had acted deliberately, carelessly and recklessly.
In CGU Workers Compensation v Panoy Pty Ltd [2012] the court held the insured failed to stop its workers from riding on the back of vehicles unsafely and had acted in breach of reasonable care.
In Limit (No 3) Ltd v ACE Insurance Ltd [2009] a builder was held to be reckless in failing to take proactive measures to prevent the risk of excavation collapsed during construction works, and was held to be reckless.
Recklessness or carelessness cannot be inferred from a mere event or accident. There needs to be a special circumstance on the facts for an inference of recklessness to occur, which this test is subjective on the evidence of the claim.
Reasonable care must be construed in context of the particular insurance policy and the specified risks that are relevant to the insured and policy entered into.
The best protection for the insured in relation to acting with reasonable care is to read and understand the insurance policy conditions that are being signed.