Cooking up an Insurance Claim: Why Insurers Should Not Rely On Wilful Act Exclusions

Financial Lines Insurance

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DATE PUBLISHED: May 13, 2021

Cook v Sirius International Insurance Corporation Australia Branch [2020] NSWSC 1631

The NSW Supreme Court has found that an insurer was not in breach of insurance policy by declining indemnity in respect of loss that resulted from two fires deliberately lit by an insured at a hotel/motel in Cowra, NSW on 7 September 2010. In Cook v Sirius International Insurance Corporation Australia Branch [2020] NSWSC 1631, the court considered factual circumstances relevant to the insurer’s onus to prove that the fires were lit by an insured.


FACTS

The plaintiffs (Mr and Mrs Cook) were the sole directors and shareholders of a company that, in October 2007, purchased the Townhouse Hotel Motel in Cowra for approximately $3.5 million. The hotel/motel comprised of the hotel bar, restaurant and dining room, an upstairs function room, a maintenance room, an office (with adjoining manager’s flat) and a separate 35 room motel complex. 

There was an indemnity policy insuring the plaintiffs’ company against property damage which included a clause that excluded cover for loss or damage directly or indirectly occasioned by a wilful act of the Insured (the Wilful Act Exclusion).

In the early hours of 7 September 2010, two fires were lit within the hotel. One fire originated within the maintenance room (on the ground floor), and the other originated in the second-floor function room. It was not in dispute that the fires were deliberately lit, although no accelerant was found.

The hotel was fitted with smoke alarms and a PIR (Passive Infrared) sensor system. The alarm company’s records identified that the system had been engaged at 9:25 pm on the previous evening. According to Mr Cook, he then retired to bed in the manager’s flat.

There was a window near the staircase through which access to the hotel would have been possible by means of negotiating a roof or awning if the window was left open or entry was forced. A PIR sensor (that detects motion rather than smoke) near that staircase and the manager’s flat was activated at 2:23 am on 7 September 2010. An unanswered call was made by the alarm company to the hotel’s phone at 2:23 am, and then a call was made to Mr Cook’s mobile. According to Mr Cook, after receiving that call, he went to the hotel’s office and turned off the alarm system. He then walked around various parts of the hotel, checking that the doors were locked (he did not see anything unusual at that time) before he re-engaged the alarm system (at 2:42 am) and again retired to bed. 

Multiple PIR sensors detected movement at 2:48 am, possibly due to a fire in the maintenance room burning through alarm cables. Mr Cook suggested that a subsequent call from the alarm company roused him from bed and that he then went to the reception area of the hotel, where he could see a large amount of white smoke. He then called 000.

It was not disputed that, at the time of the fires, the running of the hotel business was generally unsuccessful. The hotel had been listed for sale for over 12 months before the fires.


REASONING AS TO LIABILITY

The court considered the possibility that unidentified intruder(s) had entered the hotel and lit the fires. However, the court found that there was compelling circumstantial evidence that Mr Cook was the only person in the hotel when the fires were lit. In this regard:

(a)    Only one PIR sensor had been triggered before the fire burning through alarm cables. Noting that fires originated in two locations within the hotel, if unidentified intruder(s) had entered the hotel by any ground floor access points, multiple sensors should have been triggered. The court found that the triggering of only one PIR sensor by unidentified intruder(s) was implausible;

(b)    The alarm sensors had been deactivated for 16 minutes after the initial alarm. Thereby allowing ample time for Mr Cook to move around the hotel and light the fires without further triggering PIR sensors;

(c)    The court found it was inherently improbable that, after the initial triggering of the PIR sensor, the unidentified intruder(s) would have waited until the fire burnt through alarm cables (20 minutes after the initial alarm) before exiting the hotel;

(d)    Mr Cook had not led any evidence to suggest that the window near the staircase (being a possible access point above ground level) was unlocked. Also, there was no evidence of forced entry via that window and the dust and debris on the sill of the window was undisturbed; and

(e)    Evidence of a police constable who had questioned first responders at the scene included reference to the window near the staircase being opened by the fire brigade “to allow for airflow”. The court used caution in placing weight on the accuracy of such evidence. In any event, the court identified that it was material that there was no evidence of entry or exit through that window.

The court also considered, in relation to possible motivation for lighting the fires, it was sufficient to identify that the plaintiffs would have benefited if the premises had burnt down (noting that the fire brigade was unable to prevent a total loss) in that the plaintiffs stood to be “rescued” from a deteriorating business. The court also identified that the plaintiffs’ calculation of their losses, in excess of $1 million, demonstrated a possible motivation for lighting the fires and making insurance claims. 

The court acknowledged the tests relating to standards of proof required in cases involving serious allegations (such as fraud and deceit) that are based on principles outlined in Briginshaw v Briginshaw (1938) 60 CLR 336 and Palmer v Dolman [2005] NSWCA 361. The court identified that the insurer needed “only persuade the Court, on the balance of probabilities regarding all the circumstances, including the seriousness of the allegations, that Mr Cook lit the fires” [at 159]. The court considered that the relevant threshold was met and dismissed the plaintiff’s claim, thereby affirming the insurer’s decision to decline the claim.


IMPLICATIONS

This case provides guidance to insurers looking to rely on Wilful Act Exclusions. The onus to prove an entitlement to rely on such an exclusion and therefore prove alleged deceit or fraud rests with the insurer. The relevant standard of proof must take into account the seriousness of the allegations. However, an insurer is not required to negate, beyond reasonable doubt, all possibilities other than fraud or deceit by an insured.

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