Category Legal Affairs

Is continuing to use ship’s engine after alarm accidental loss? (Aus)

11 June 2018 Patrick Bracher, Norton Rose Fulbright
Patrick Bracher from Norton Rose Fulbright.

Patrick Bracher from Norton Rose Fulbright.

The insured pleasure craft was fitted with a diagnostic system and a critical alarm for low oil pressure or high coolant temperature. When the alarm went off the engines automatically went into limp mode and the engine-operating manual required the engine to be switched off.

The insured did not read the manual nor switch off the engine which was damaged beyond repair. ‘Accidental loss or damage’ under the policy meant ‘an event that you did not expect or intend to happen’. The court found that there was an accident and that the insured was entitled to an indemnity.

It was held that the loss was not intended and the test for foreseeability was whether a reasonable person in the insured’s position would have expected the occurrence.

Although the insured had been guilty of poor seamanship, he was unaware of the importance of the alarm and had not deliberately courted the risk of damage. The proximate cause of the loss was the faulty design of a gasket which failed rather than the failure of the insured to shut down the engine. The insured neither expected it to happen nor intended it to happen.

This is a rather generous finding.

You would think the insured would be expected to read the manual when the alarm goes off. The insured said he was concentrating on getting the vessel back to port and had assumed that if it was a major problem, the engine would have shut itself down automatically.

The curious subjective definition of an accident favoured the insured. A subjective approach may sometimes be a consequence of referring to the insured as ‘you’.

The case is Sheehan v Lloyd’s Names Munich Re Syndicate Ltd (Federal Court of Australia).

First published by Financial Institutions Legal Snapshot.

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