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Determination
Case number | 997632 |
Financial firm | QBE Insurance (Australia) Limited |
Case number: 997632 15 May 2024
The complainant holds a commercial fleet insurance policy with the financial firm (insurer). He lodged a claim for damage to his tractor, saying an unidentified third party contaminated the oil system of the vehicle with silicon and dirt, thereby causing engine damage.
The insurer denied the claim. It says the damage was caused by wear and tear and mechanical failure, which are causes that are excluded under the terms and conditions of the policy. The complainant says mechanical failure or wear and tear could not be the cause of the loss because the engine of the tractor was well maintained and had only operated for about 2,400 hours before it broke down.
The complainant also raised concerns regarding the insurer’s assessment of the claim. He says the insurer should accept the claim and process it accordance with the terms and conditions of the policy.
Due to the nature of this complaint it was referred to a panel for determination.
Yes. The exchanged material shows the damage was caused by mechanical breakdown, wear and tear, which is excluded under the terms and conditions of the policy. It follows the insurer is entitled to deny the claim.
The outcome is fair because the exchanged material demonstrates the damage to the engine of the tractor was not caused by an insured event covered under the policy. Rather, the damage appears to have been caused by mechanical breakdown and wear and tear. These are causes that are excluded under the terms of the policy. Moreover, the insurer’s assessment of the claim was reasonable in all the circumstances.
This determination is in favour of the insurer.
The insurer is not required to take any further action in relation to this complaint.
Yes. The exchanged material shows the damage was caused by mechanical breakdown, wear and tear, which is excluded under the terms and conditions of the policy. It follows the insurer is entitled to deny the claim.
Complainant has onus to establish a valid claim
It is established insurance law that the complainant first has the onus to establish the claimed loss is a result of an event covered under the policy. This must be established on the balance of probabilities, meaning that it is more likely than not.
If the complainant is able to establish a valid claim, the onus shifts to the insurer to show, on the balance of probabilities, it is entitled to rely on an exclusion under the policy or is otherwise entitled to decline the claim.
The terms and conditions of the complainant’s commercial fleet policy policy are set out in the policy documents, including the Product Disclosure Statement (PDS) and the Certificate of Insurance. The parties agree the insurer provided a copy of the policy documents to the complainant. It follows the insurer is entitled to rely upon the contents of the documents.
The complainant’s policy provides cover for various insured events, including accidental damage, subject to policy exclusions. Page 9 of the PDS states:
Section 1 – Loss, damage or theft of your motor vehicle
Cover
Subject to the type of cover you have selected, we will cover you as a result of an accident or theft occurring during the period of insurance for loss of or damage to:
1. Your motor vehicle as shown in your Policy Schedule.
Page 7 of the PDS defines ‘accident’ to mean:
An unforeseen or unintended happening which is not expected or designed.
The panel is satisfied the definition of ‘accident’, in these specific circumstances, includes unintended and unexpected damage which is caused by the malicious act of a third party.
Complainant says third party caused damage
In August 2022 the complainant lodged a claim after the motor of his John Deere model 9620 tractor seized, causing engine damage. The complainant says this was caused by an unknown person deliberately placing dirt in the engine, via the oil cap.
On his claim form dated 11 August 2022, the complainant wrote:
Date of Loss – 7 June 2022. “Malicious Damage” – Employee turned up to site. Ran machine, running not at 100%. Ran diagnostics, changed filter, etc – still not running properly. Called [HC, mechanics] to attend as not working…. found that unknown TP [third party] contaminated machine with silicon, dirt etc. Unit has only done 2,040 hours. Note – Insured authorised his own repairs to continue BAU [business as usual].
The insurer accepts the engine was accidentally damaged in some or other circumstances (although, as set out below, it denies the damage was caused maliciously).
It follows the complainant has established a valid claim for the engine damage under the terms and conditions of the policy. The remaining issue between the parties is whether the cause of the damage is excluded under the terms of the policy. The onus rests with the insurer to establish this, on the balance of probabilities.
Insurer says cause of damage is mechanical failure and wear and tear
The insurer says the engine was likely damaged by failure or breakdown of a mechanical nature and wear and tear, which are expressly excluded under the terms of the policy. The insurer points to the general policy exclusions which are set out on pages 15 to 17 of the PDS. In particular, the insurer relies upon the following policy exclusions:
We will not cover:
loss of or damage to your motor vehicle or any resultant mechanical damage:
[Emphasis added]
HC, heavy vehicle mechanics, inspected the tractor on site shortly after it broke down and, subsequently, undertook the required repairs. HC reported:
Customer contacted [HC] with 9620R engine hard starting and excessive oil consumption. Travelled to machine and checked over engine… Carried out an oil sample test. Oil sample returned with a high contamination in the engine oil… drained engine oil, flushed out sump and found high amount of silicon and dirt.
HC concluded:
The high amount of contamination was introduced to the engine sump by an unknown source when left unattended at work site.
CS, oil specialists, analysed a sample of oil taken from the engine of the complainant’s tractor on 24 June 2022. CS reported:
wear metals are within acceptable limits, although elevated considering oil hours
iron and lead are indicating possible lower end wear on crank and bearings
dust particle contamination is extremely high with a high number of dust particles visible and silicon reading high and could be causing filter blockage.
CS concluded:
Dust levels are abnormal and could be suspicious in origin, possibly a result of malicious activity. Continued operation is not recommended until dust entry source has been identified and rectified with oil change and further flush.
After repairs had been completed AR, specialist equipment assessor, conducted a desktop assessment for the insurer. AR’s report written pursuant to that assessment is dated 28 October 2022. The report adds little to the analysis of the issue of causation, apart from the following speculation:
The evidence suggests the contamination was done maliciously by an unknown Third-Party while the machine was parked overnight on an unsecured worksite, where soil was added to the engine sump through the engine oil filler cap.
The insurer then engaged KE, engineer, to assess the tractor. KE arranged for the engine to be dismantled prior to its ultimate inspection. KE noted a worn and fractured piston ring was observed during dismantling of the engine. Moreover, part of the damaged piston ring had detached into the sump. KE concluded the cause of the engine damage was mechanical failure.
In addition, KE did not dispute the presence of dirt in the oil. Rather, it concluded the dirt likely entered through the air intake system, rather than via a deliberate and malicious act. KE based this conclusion on its discussions with the complainant’s repairer and review of the tractor’s service and repair history.
HC disagreed with KC. HC said there were no errors or inconsistencies in its assessment and report.
CM, the manufacturer of the engine, then assessed the tractor’s engine and provided a report dated 22 February 2023. CM concluded:
All evidence is indicating that the engine has had high amounts of dust enter the engine intake system causing excessive premature wear on all combustion components… the [piston rings] are broken due to being weakened from the amount of abrasive wear.
The complainant then raised concerns about KE’s conduct and history. To address this particular issue and assuage the complainant’s concerns, the insurer appointed TW, forensic mechanical engineer, to review all exchanged material and provide an opinion regarding causation.
TW’s report is dated 14 December 2023. It is comprehensive, logical, reasoned and is supported by illustrative diagrams and photographs. TW noted, amongst other things:
Much of the engine damage was to the pistons and the bores of the cylinders in which the pistons were installed… [HC] reported the extent of the damage was such that the engine required replacement…
[CM] reports that the engine damage was caused by dirt having entered the engine through its air inlet tract. That is, the engine failure did occur because of the entry of dirt, but not dirt introduced (maliciously or otherwise) directly into the engine oil.
TW concluded:
It is my opinion… the engine damage is consistent with the engine having operated… with the air filter element not properly sealing in the air cleaner housing.
The available evidence indicates to me that the engine damage is, as opined by [CM], a consequence of dirt having entered the engine through its air inlet tract. In other words, it is my opinion that the engine has been dusted.
I say this because:
- the wear that I can see in photos of the cylinder bores and the piston rings is of the type that, in my experience, arises from an engine being dusted
- [CM] reports finding dirt in the air inlet tract, which cannot be explained by dirt having been introduced directly into the sump
- the intercooler required replacement, without any other cause being described.
There is no evidence, I can see, of the claimed event having actually occurred.
It is my opinion that the engine was dusted because it was not satisfactorily maintained. In particular, it is my opinion that during servicing of the tractor, the air filter element was not properly re-installed in the air cleaner housing.
Damage can have more than one cause. For instance, in this matter the complainant says the damage was caused by the malicious act of a third party. In contrast, the insurer says the damage was caused by mechanical failure and wear and tear, which are causes that are excluded under the terms and conditions of the policy.
In deciding whether the policy responds, it is necessary to identify the proximate cause of damage. The proximate cause is not necessarily the first or the last or the sole cause of the loss. It is the effective or dominant or operative cause of the loss.
If there are several causes of a loss operating contemporaneously, each must be examined for the qualities of reality, predominance and efficiency as the active, efficient cause that sets a relevant chain of events in action. If one cause would have caused the harm in any case, and the other would not have done so in the absence of the first, the first is the proximate cause.
Having considered all the exchanged material in detail, the panel is satisfied the proximate cause of the engine damage is mechanical failure and wear and tear, rather than a malicious act. This is because of the following considerations:
each of the experts appear to have sufficient experience and qualifications to comment on the cause of damage. Nevertheless, the panel accepts TW’s report is more analytical and compelling, and the conclusions set out therein are persuasive
TW found no evidence of a malicious act having caused the damage
TW’s conclusions about causation are broadly consistent with those of CM
TW’s conclusions are also consistent with some results found by CS during analysis of the tractor’s oil sample on 24 June 2022, specifically that:
> wear metals present in the oil sample are within acceptable limits, although they are elevated considering the oil hours of the sample
> iron and lead levels in the sample indicate possible lower end wear on the crank and bearings.
The panel also considers that, apart from the assumptions of the complainant, CS and HC, there is no persuasive independent evidence that malicious damage occurred. For instance:
the complainant’s supposition that a malicious act caused the damage is not supported by evidence of trespass or interference with the vehicle. The complainant provided no photographs of any visible damage to the tractor or evidence of trespass into the area where the tractor was stored when the malicious act was supposed to have occurred
the complainant did not provide a statement from his employee who was the first to operate the tractor on 7 June 2022. There is nothing to show the employee noticed anything unusual or out of the ordinary about the tractor, or in the immediate area where the tractor had been stored
the complainant did not provide any forensic analysis of the tractor or the scene of the alleged malicious act.
In summary, it appears the complainant, CS and HC assume a malicious act caused the damage. However, their hypothesis about causation is not supported by independent mechanical or forensic evidence.
In the circumstances, the panel is satisfied the proximate cause of the damage to the engine of the tractor was mechanical failure and wear and tear, and not a malicious act. It follows the insurer is entitled to deny the claim.
Given the panel accepts the loss is not covered by the policy, there is no need to examine the evidence about prejudice due to the complainant undertaking repairs.
The outcome is fair in all the circumstances because:
the exchanged material demonstrates the damage occurred due to mechanical breakdown or failure and wear and tear, as opposed to a deliberate malicious act
the insurer has established it is entitled to rely on policy exclusions to deny the claim
moreover, the insurer was not given an opportunity to assess the cause of damage prior to repairs being completed by the complainant.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
the legal principles
applicable industry codes or guidance
good industry practice
previous decisions of AFCA or its predecessor schemes (which are not binding).
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
Due to the nature of this complaint, we referred it to a panel for determination. The panel includes:
an ombudsman
a member with significant experience in consumer and small business advocacy
a member with extensive experience in the relevant field.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
available documents
the recollections of the parties
all relevant circumstances.
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information. If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
