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Background
On 10 January 2015, a waste burn-off on a rural lifestyle block in Canterbury re-ignited and spread to neighbouring properties. The fire was originally lit almost a month earlier when the defendants, Mr and Mrs Legg, burned-off waste from the life style block and their business, Evolving Landscapes Ltd (Evolving), which also operated from the property.
A subsequent investigation found the heap had reignited because of deep remaining heat, coupled with high temperatures and strong winds, as opposed to having fresh materials placed or lit on the heap.
The NZSC and Selwyn District Council sought to recover the costs of fighting the fire from Leggs and Evolving under s43 of the Forest and Rural Fires Act 1977 (Act). The Leggs admitted liability prior to the commencement of the hearing) and Evolving (after the conclusion of evidence).
The main issue was therefore whether AMI (the Leggs’ insurer) and Lumley (Evolving’s insurer) were obliged to indemnify the defendants for their liability under the Act.
Evolving’s indemnity claim
Evolving’s cover was subject to a reasonable precautions condition (that it would take all reasonable precautions to comply with statutory obligations, bylaws or regulations imposed by a public authority for the safety of persons or property). Lumley argued that Evolving had breached this policy condition by placing flammable material on the fire heap in breach of fire restrictions that were in place at the time (so as to cause the heap to reignite).
In order for a claim to be declined based on such reasonable care conditions, more than mere negligence is required. Instead, there must be a significant or substantive failure by the insured akin to “recklessness” or “gross carelessness”. A “reasonable precaution” to take depends on the particular circumstances. The greater the foreseeable risk of loss the greater the precautions which may be required.
In this case, more care could have been taken but the carelessness was not so gross as to breach the reasonable precautions condition.
Leggs’ indemnity claim
The Leggs also had liability cover. This too was subject to a reasonable precautions condition as well as an exclusion for liability arising out of “business or trade not directly connected with [their] farming operations”.
As with the Lumley policy, the Leggs believed the fire was out and any carelessness by them did not meet the recklessness standard required to breach the reasonable precautions condition.
As for the exclusion clause, the heap contained both domestic and business waste. AMI argued that cover was excluded by the presence of business waste from Evolving. In support of this, AMI relied on the Wayne Tank principle, which provides that where there are two proximate causes of a loss, and one cause is covered and the other is excluded, the policy will not respond (i.e. the exclusion prevails).
Nation J considered that the Wayne Tank principle is limited to situations where there are concurrent causes of liability and subject always to the specific policy wording. In this case, for the exclusion to apply, the Leggs’ liability needed to “arise out of or be in connection with” Evolving’s business activities. This meant it was not enough that burning business waste (in addition to domestic waste) might have been a contributing factor; AMI had to prove it was causative of the fire.
On the facts, AMI was unable to show the heap would not have re-ignited if the business material had not been burned. The fire was still of a size and nature that could have resulted from the normal use of the lifestyle block, meaning that the risk of fire was no greater than what AMI reasonably anticipated under the policy. The exclusion therefore did not apply.
The Court also considered (in obiter) s11 of the Law Reform Act 1977. Under s11 essentially, an insurer cannot rely on an exclusion clause if the excluded circumstances did not cause or contribute to the loss. If the exclusion clause here had been prima facie effective to exclude AMI’s indemnity obligation, s11 would not have applied. The burning of waste from Evolving’s business contributed to the fire that resulted in the Leggs’ liability.
Conclusion
The Court held that the Leggs and Evolving were entitled to judgment against AMI and Lumley respectively.
