Insurance Law-Intentional, Negligent and Illegal Conduct

9. Intentional, negligent and illegal conduct Where the risk insured is itself unlawful W.H. Smith & Co v. Clinton & Harris (1908) 99 L.T. 840 -

Coleridge J.: A publisher’s undertaking to indemnify a printer against possible liability for libel was unenforceable because it was against public policy to enforce the indemnity. The publisher of Vanity Fair agreed to indemnify the printer against possible actions for libel.

Intentional and negligent conduct What are the policy considerations for -

Intentional conduct Negligent conduct?  Is a policy wide enough to cover negligence?  How about simple negligence vs recklessness?  Might it be repugnant to the commercial object of a contract? How about an exclusion?

Woolfall & Rimmer v. Moyle [1924] 1 K.B. 66. -

English Court of Appeal: An employers’ liability policy requiring an insured to take reasonable precautions to prevent accidents operated only if the insured was reckless. Employers' liability policy: "assured shall take reasonable precautions to prevent accidents and to comply with all statutory obligations". A workman was killed and three others injured when a plank on which they were standing to paint the inside roof of a factory gave way. Insurers: Insured failed to take reasonable precautions as the plank was defective and of insufficient strength. The duty owed to the insurers was similar to that owed to the employees.

W. & J. Lane v. Spratt [1969] 3 W.L.R. 950. -

Roskill J.: An insured’s duty to take reasonable precautions under a road hauliers’ policy meant that the insured must not be reckless or grossly negligent in caring for the goods. Road hauliers’ policy: "The insured shall take all reasonable precautions for the protection and safeguarding of the goods and/or merchandise". Plaintiffs hired a driver sent to them through the Labour Exchange without obtaining any references and without verifying his identity. The driver disappeared with a lorry load of bacon on his first day at work. Insurers: Insured failed to take reasonable precautions to protect and safeguard the goods

Fraser v. B.N. Furnam [1967] 1 W.L.R. 899. -

English Court of Appeal: There was no breach of an employer’s duty to take reasonable precautions to prevent accidents unless it could be shown that he had acted recklessly. A Miss Fraser sustained serious injuries when her hand was caught in an electric welding machine.

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She recovered damages from her employers based on common law negligence and breach of statutory duty under the Factories Act for failing to fence a dangerous part of the machinery. Employers had engaged brokers to place insurance for them but the brokers failed to do so. Brokers: Owing to the employers’ flagrant breach of statutory duty and their complete disregard to fence a dangerous part of the machinery, an insurer would have repudiated liability.

Victor Melik & Co. Ltd. v. Norwich Union Fire Insurance Society Ltd. [1980] 1 Lloyd's Rep. 523. -

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Woolf J.: A duty to keep a burglar alarm system in efficient working order did not impose an absolute duty on an insured to see that the alarm system was fully operational at all times. The duty was discharged if he did everything possible to ensure that the system was in working order. Policy: “alarm … is kept in efficient working order”. Insured’s warehouse was fitted with an alarm system linked to a control centre by a phone line.  One evening, at about 9 p.m., insured were informed of a fault in the phone lines. After a check, the alarms were reset to give an audible signal.  Robbers who earlier cut the phone lines broke into the premises that night. Insurers: Insured failed to keep the alarm in efficient working order.

Sofi v. Prudential Assurance Co. Ltd. [1993] 2 Lloyd's Rep. 559. -

English Court of Appeal: A policy covering an insured’s property and his third party liability was to be construed consistently throughout the policy. A term requiring the insured to take reasonable precautions to safeguard the insured property meant that he must not be reckless. Policy: “take all reasonable steps to safeguard any property insured”. Insured’s family decided to take jewellery, worth some £42,035, while on a driving holiday to France. The family’s car was parked at Dover castle grounds for about 15 minutes. Thieves smashed the front driver's window and broke into the glove compartment. They stole the jewellery and 5 suitcases. Insurers: Insured was negligent in leaving the jewellery in the car. Held: Insured not reckless The standard here was recklessness not negligence.

Gunns v. Par Insurance Brokers [1997] 1 Lloyd’s Rep. 173. -

Sir Michael Ogden Q.C.: A home contents policy requiring an insured to take reasonable precautions to safeguard insured property operated if the insured was reckless. Burglars broke into the insured’s home one weekend taking away a safe containing jewellery. Insured were jewellers and their home burglar alarm system was not activated. Insurers disclaimed liability for non-disclosure and the insured sought to hold their brokers responsible for the non-disclosure. Brokers: Insured failed to take reasonable care when the burglar alarm was not activated

Ronson International Ltd. v. Patrick (Royal London Mutual Insurance Society Ltd. [2006] 2 All E.R. (Comm.) 344. -

English Court of Appeal: A House and Home policy excluding liability for an insured’s “wilful” acts would cover an insured’s reckless conduct.

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An old mill at Hadfield in Derbyshire was adapted for commercial use even though part of it was derelict.  Two boys built a den in a corner of the mill by placing pallets against the wall.  After smoking in the den, they decided to set fire to the den using the paper inside the den.  They left for home and the fire spread to the rest of the mill destroying stocks belonging to Ronson valued at £845,956. ASK: Is the term “wilful” an ordinary word?  Is it reasonable or fair to equate wilful conduct with reckless conduct?

Porter v. Zurich Insurance Co. [2009] 2 All E.R. (Comm.) 658 -

Coulson J.: An insured who deliberately set fire to the insured premises would be precluded from recovering under the policy on contractual and public policy grounds. Exclusion: “any wilful or malicious act”. The insured, who had been drinking heavily and was suffering from a persistent delusional disorder, decided to kill himself by setting fire to the insured property. He changed his mind and escaped from the property after a large part of the living area was ablaze.

Illegal/criminal conduct Public policy considerations? -

One does not benefit form his own crime

Haseldine v. Hosken [1933] 1 K.B. 822. -

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English Court of Appeal: Allowing an insured to claim an indemnity for the consequences of his criminal conduct was contrary to public policy. Solicitor’s policy covered: "loss arising from any claim ... by reason of any neglect, omission or error".  A solicitor agreed to take a percentage of the damages awarded to a client if the action succeeded.  The action failed. The successful litigant sued the solicitor claiming damages for champerty. The action was settled by the solicitor for £950. Insurers: Champerty was manifestly unlawful and it was contrarty to public policy to allow recovery.

Cleaver v. Mutual Reserve Fund Life Assurance [1892] 1 Q.B. 147. -

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The executors of a person who had effected an insurance on his life for the benefit of his wife were able to maintain an action on the policy even though his wife had murdered the insured. The trust in favour of the wife was obviously unenforceable, so the executors held the insurance money for the estate of the insured.

Geismar v. Sun Alliance and London Insurance Ltd. [1977] 2 Lloyd's Rep. 62. -

Talbot J.: The law would not assist an insured if he had to rely on his criminal conduct to establish his claim. Contents of a house were insured against the risk of theft. House was burgled and the items stolen included some jewellery. The jewellery were brought into England without payment of customs duties. Insurers: It was contrary to public policy to allow the insured to be indemnified for the illegal importation of the jewellery.

Euro-Diam Ltd. v. Bathurst [1988] 1 Lloyd's Rep. 228. -

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Staughton J.: The law would not assist an insured if he had to rely on his criminal conduct or if a claim was so closely connected with the proceeds of a crime as to offend against the conscience of the Court. Insured supplied diamonds to wholesalers in England and Europe. They consigned to a customer in Germany on a sale or return basis diamonds worth some US$223,000. Value of the diamonds was stated as US$131,411 in the invoice so that the customer would pay less customs duties in Germany. Diamonds were insured for US$142,173.90. They were later stolen. Insurers: Claim was tainted with illegality because the insured issued a false invoice to deceive the German customs.

Howard v. Shirlstar Container Transport Ltd. [1990] 1 W.L.R. 1292. -

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English Court of Appeal: It would not constitute an affront to public conscience to allow a pilot, who committed an offence while escaping from a life threatening situation, to enforce the contract. A pilot was engaged to fly an aircraft from Nigeria to England. Defendant agreed to pay a sum of £25,000 for "successfully removing the aircraft … from Nigerian territorial airspace.” Pilot took off in the aircraft without obtaining airport clearance after he was warned that his life was in danger if he did not leave Nigeria immediately. Defendants: It was illegal for the pilot to fly the aircraft out of Nigeria without permission from the air traffic control authorities ASK: Has the affront to public conscience become the test now?  Answer: NO! Rejected in Tinsley v Milligan by HL  Came from Euro-Dam and Howard cases  Is there any basis?

Tinsley v. Milligan [1993] 3 W.L.R. 126. -

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House of Lords: The enforcement of a contract where there was some criminal conduct depended on whether the plaintiff had to rely on the conduct to establish his claim and not whether it constituted an affront to the public conscience. Plaintiff and defendant operated a lodging-house purchased with a loan and their joint contributions.

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Property was registered in the sole name of the plaintiff, so the defendant could continue to make false claims on the Department of Social Services. In 1988, the parties parted company and the plaintiff sought possession of the premises. Defendant claimed that there was a resulting trust of the property in her favour. Plaintiff: The Court could not give effect to an equitable interest arising from an unlawful transaction.

Motor insurance policies Would the commission of a criminal offence by an insured motorist constitute a bar to recovery by an injured third party? -

ASK: Common Factor - What is the single thread that runs through all the cases where the courts are willing to allow recovery even though the insured’s conduct involved an intentional crime?

Tin Line v. White Cross Insurance Association [1921] 3 K.B. 327. -

Bailhache J.: An insured motorist was entitled to be indemnified for causing a third party’s death even though he was found guilty of manslaughter. A motorist was insured against liability for causing "accidental personal injury”. Driving down Shaftesbury Avenue, the insured knocked down three persons crossing the street, injuring two and killing the third. Insured pleaded guilty to a charge of manslaughter after the allegation of drunkenness was withdrawn. Insurers: Insured's negligence was so gross and excessive that a man was killed and the crime of manslaughter committed. It was contrary to public policy to allow recovery. If the law is not logical, public policy is even less logical, for, by common consent, these third party indemnity insurances have been treated as valid and effective

James v. British General Insurance Co. [1927] 1 K.B. 311. -

Roche J.: Public policy was not intended to apply to an insured motorist who inadvertently breached the law even though he was guilty of manslaughter. Insured was in a state of intoxication when his car collided with a motor-cycle. The motorcyclist was injured and his pillion rider killed. Insured was convicted on a charge of manslaughter. Insurers: Insured was guilty of a serious crime in connection with the accident. It was contrary to public policy to allow recovery. Rejected. ASK: Was this inadvertent?

Hardy v. M.I.B. [1964] 2 All E.R. 742. -

English Court of Appeal: A motorist was required by law to be insured against the negligent as well as deliberate and intentional criminal use of an insured vehicle. A security guard at a large metal factory stopped a van displaying a stolen road fund licence. While the guard was holding onto the open van door with his head inside, the driver drove off, dragging the guard along the road and causing him bodily injury.

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The driver was charged and convicted of maliciously inflicting grievous bodily harm on the guard. M.I.B.: First, a motorist’s deliberate criminal conduct was not a risk required to be insured by law. Secondly, a policy covering an insured’s deliberate criminal conduct was unenforceable as it was contrary to public policy. ASK: PCC asks if this is a new policy slant?

Gardner v. Moore [1984] 2 Lloyd's Rep. 135. -

House of Lords: Public policy would not preclude a third party injured by a motorist’s deliberate criminal conduct from claiming against the motorist’s insurers. Plaintiff was walking along a pavement when the defendant deliberately drove his vehicle at the plaintiff in an attempt to run the plaintiff down. The plaintiff was seriously injured. The driver was convicted of causing grievous bodily harm and sentenced to a term of three years’ imprisonment. M.I.B.: As there was a close parallel between this case and that of Hardy's, the House of Lords was asked to decide on the correctness of Hardy's case Lord Hailsham considered the previous rule of law that says that a person may not profit by their own wrong. He also considered the case of Hardy v. MIB [1964] 2 QB 745. Section 149 of the Road Traffic Act 1972 (now section 151 of the Road Traffic Act 1988) imposed on the insurer for the benefit an innocent third party an obligation to recompense him for the liability incurred by an uninsured third party in respect of a liability for which he should have been insured under section 143 and sections 145.  The MIB Agreement imposed on the MIB an obligation to underwrite this liability so far as regards uninsured or untraceable tortfeasors.  This was a principle of public policy and could not be pushed aside by the rule that an insured cannot claim on his insurance policy by reason of his wrongdoing.

Charlton v. Fisher [2002] Q.B. 578 -

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English Court of Appeal: An insured who deliberately injured a third party was not entitled to be indemnified against the liability. A rear seat passenger in a stationary Vauxhall car at a hotel car park was injured when the first defendant deliberately reversed his Ford Sierra into the car.  The defendant was convicted of causing criminal damage.  Claimant commenced legal proceedings against the defendant but his insurers disclaimed liability. Insurer: An insured was not entitled to be indemnified for a loss caused by his intentional criminal or tortious conduct. ASK: Is the insured’s conduct more reprehensible than those in Hardy and Gardner?

Public liability policies How would you reconcile the courts’ application of public policy in cases involving only the insured’s own losses Gray & Anor. v. Barr [1971] 2 All E.R. 949.

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English Court of Appeal: An insured who killed a third party by accident after threatening him with a loaded shotgun was not entitled to be indemnified under a public liability policy as it was contrary to public policy. Mrs. Barr was insured under a household policy which also provided coverage against public liability. Two families, the Grays and the Barrs lived in the same neighbourhood.  Mr. Gray fell in love with Mrs. Barr.  Mr. Barr went to the home of Mr. Gray in search of Mrs. Barr. He came with a loaded shotgun.  Mr. Barr insisted on going upstairs to look for his wife. In the ensuing struggle, two shots were fired. The first hit the ceiling but the second killed Mr. Gray. Insurers: Mr. Gray’s death was not accidental. Secondly the claim was barred by public policy. This was accepted. ASK: Was the court’s condemnation of the insured’s conduct a lame excuse for departing from the principle established in the motor insurance cases?

Beller Ltd. v. Hayden [1978] 1 Lloyd's Rep. 472. -

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Judge Fay Q.C.: The offences of dangerous driving and driving while under the influence of alcohol involved an element of moral culpability or moral turpitude. Policy excluded: “deliberate exposure to exceptional danger ... or the insured person's own criminal act.” Mr. McCredie, a project manager, was insured under a personal accident policy for £15,000. McCredie died when his car crashed through an iron railing bounding a reservoir. Insurers: McCredie’s death was caused by his own criminal conduct, in particular, driving while under the influence of alcohol contrary to section 5 of the Road Traffic Act 1972 and driving at a speed and/or in a manner which was dangerous to the public contrary to section 2 of the same Act A person whose blood alcohol content was 261 mg. per ml. while he was driving a motor car was not deliberately exposing himself to exceptional danger for the purpose of a claim on his personal accident policy. ASK: Can reconcile with motor insurance cases?

Lancashire County Council v. Municipal Mutual Insurance Ltd. [1996] 3 W.L.R. 493. -

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English Court of Appeal: It was not desirable to extend the rule of public policy to preclude recovery of exemplary damages. Lancashire County Council was insured against third party risks. Exemplary damages were awarded against the Council for two sets of claims.  First, a claim by a solicitor for wrongful arrest, false imprisonment, malicious prosecution, assault and trespass to the person.  Secondly, claims by persons who were abused whilst in care at one of the council’s children’s homes. Insurers: First, the policy was not wide enough to cover exemplary damages. Secondly, it was contrary to public policy to allow an insured to claim an indemnity for exemplary damages.

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ASK: Does the award of exemplary damages reflect on the moral conduct of the insured?  How about criminal conduct?

KR v. Royal & Sun Alliance Plc. [2007] 1 All E.R. (Comm.) 161. -

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English Court of Appeal: The deliberate conduct of a person controlling a policyholder could be imputed to the policyholder. A policyholder’s director’s deliberate criminal conduct could be attributed to company. A company operating care homes for children was insured under a liability policy which excluded “any deliberate act or omission of the insured his partners directors or managerial employees.” In 1995, the company’s founder, a Mr. Allen was convicted of six offences of indecent assault on young male residents between 1972 and 1983 and sentenced to six years’ imprisonment. Class actions were brought by the inmates against Allen for physical and/or sexual abuse.

Suicide and life policies Suicide - Is an insurer obliged to pay under a life insurance policy if an insured commits suicide? -

Note: In Singapore suicide is a crime! Is it in the UK? Defences - What possible defences would be available to an insurer if an insured commits suicide? Might it be contractually covered?

Beresford v. Royal Insurance Co. [1938] A.C. 586. -

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House of Lords: A term making a policy payable upon an insured’s suicide constituted an agreement to insure against the risk of suicide. However, the agreement would not preclude an insurer from relying on public policy. Policy stated: “If the life assured ... shall die by his own hand … within one year … the policy shall be void.”  Major Rowlandson took out several policies on his own life in 1925 totalling £50,000. In 1934, the assured could not pay the premium on the policies.  Shortly before the payment period expired, assured shot himself hoping to benefit his creditors. Insurers: It was contrary to public policy to allow recovery as the law should not assist a person to recover the fruits of his own crime. This was accepted

Dunbar v. Plant [1997] 3 W.L.R. 1261. -

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English Court of Appeal: A beneficiary who aided and abetted a policyholder’s suicide was barred by public policy from benefiting under the policy but the Court had a discretion to allow recovery. Miss Plant met and fell in love with a Mr. Dunbar. The couple bought a house jointly, maintained joint bank accounts and took out two insurance policies. Miss Plant was accused by her employers of false accounting and theft and was threatened with prosecution and imprisonment.

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She became emotionally upset. She mentioned her contemplated suicide to Mr. Dunbar and Mr. Dunbar went about planning their own suicide. Dunbar’s father: Defendant being a party to his son's unlawfully killing should not be allowed to benefit from the death of his son as it would offend against the rule of public policy.  Note: UK Courts have a discretion to allow recovery where justice so requires. (Forfeiture Act 1982).