These exclusions reflect the common law position that an insured cannot recover in respect of a loss that they deliberately caused. But what exactly is a deliberate or wilful act?
The UK Supreme Court recently gave a judgment that provides the answer.1 We discuss the decision below, and its implications for the New Zealand insurance market.
The case concerned a claim made under a public liability policy. The claim arose from an altercation outside an Aberdeen bar between a bouncer and a person who had been kicked out of the bar. Unfortunately, that person died during the altercation, due to a “neck hold" applied by the bouncer. The bouncer was convicted of assault, and was also liable for the death under Scottish tort law, which gave rise to vicarious liability for the bouncer's employer.
The bouncer's employer had public liability insurance covering liability arising out of accidental injury to people. The deceased person's widow sued the insurer for cover under the policy, under legislation giving her a direct right of action against the insurer. The insurer denied cover, relying on an exclusion clause that excluded cover for “liability arising out of deliberate acts wilful default or neglect by the Insured any Director Partner or Employee of the Insured…".
Supreme Court decision
The insurer argued that the reference to a “deliberate" or “wilful" act in the exclusion clause is not limited to intentional acts, and that recklessness is enough.
The Supreme Court rejected this, ruling that the exclusion applied only to intentional acts, and not reckless ones. It said that while the term “wilful" could include recklessness in some contexts, an exclusion for reckless acts in this case would “lead to a very wide and commercially unlikely exclusion" given the nature of the insured's business, which was inherently likely to give rise to situations in which people were at risk of injury.
The Supreme Court then turned to the meaning of an intentional act, and in particular what the intention must be directed at. Was it enough that the bouncer intended to cause an injury by applying the neck hold? Or was it necessary for the bouncer to have intended to cause the specific injury (i.e., death) that occurred? If this latter interpretation was correct, the exclusion would not apply, because it was common ground that the bouncer did not intend to kill.
The Court ruled that the exclusion only requires the bouncer to have had an intention to cause an injury, not the specific injury that resulted. It said that this was the most natural interpretation of the clause. Further, the terms of the policy did not provide any support for a narrow reading requiring an intention to cause a specific injury. In addition, a narrow interpretation would lead to arbitrary results (e.g., the exclusion could apply if the bouncer intended to break someone's nose by punching someone and did so, but not if the punch instead caused the person to fall and suffer a more serious injury).
Applying these principles to the facts, however, the Supreme Court ruled that the exclusion clause did not apply. Despite the fact that the bouncer had been convicted of assault (which required an intention to perform the act of assault, i.e., the neck hold), no finding had been made that the bouncer intended to cause injury. What he did was “badly executed" rather than “badly motivated", and he believed he was acting in defence of other bouncers working at the bar.
Implications for the New Zealand market
A case on the same facts would be dealt with differently in New Zealand. The death would likely be covered by the Accident Compensation Act 2001, which prevents compensatory claims from being brought in relation to physical injuries covered by the Act. The bouncer's employer would therefore not have any liability to be insured.
However, exclusions for deliberate or wilful acts are found in a range of other policies, which apply in different factual contexts. For example, they are commonly found in D&O policies. The Supreme Court itself noted that its conclusion on the required intention could apply to a similar exclusion in a home insurance policy – a deliberate act would be one where there was an intention to cause damage to the insured premises. Australian courts have also reached similar conclusions in cases relating to home and motor vehicle insurance.
In New Zealand, the requirement for intention under a “deliberate acts" exclusion has not received detailed consideration, and the Supreme Court's decision is therefore likely to be highly relevant to a New Zealand court considering the issue.
However, as the Supreme Court's decision illustrates, the proper interpretation of an exclusion clause in any specific case will depend in part on the context in which the policy has been taken out. As a result, it will not necessarily follow that the Supreme Court's findings in this case will apply in different insurance contexts.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.