By Bronwyn Ackland, Partner

The Supreme Court of Queensland has recently dismissed a $10M insurance claim made against Chubb Insurance.

The core facts of the case were (briefly):

• The Third Applicant, PBR Properties Pty Ltd (PBR) owned a luxury rural property (“Wirraway”) in Queensland. PBR was the trustee of the Richardson’s Property Trust. The acquisition and renovation of Wirraway had been paid for by PBR through funds sourced from a sibling company, Project Gas Services (PGS). This had left an intercompany loan in excess of $14M being owed by PBR to PGS.
• Mr and Mrs Richardson were the persons who sat behind PBR and PGS. Mr and Mrs Richardson separated prior to December 2016.
• The property was insured by Chubb for the period 15 May 2016 to 30 June 2017 under a policy covering the residence and buildings for approximately $10M (the Policy).
• There was a mortgage in favour of the National Australia Bank (NAB) and stood as security up to $8M for a $10,879,734 loan debt, which PGS then owed to NAB. It was uncontentious that NAB had appointed receivers to PBR.
• Early in the morning on 28 December 2016 a significant fire destroyed much of the residence, and a claim was lodged under the Policy.
• Mr Richardson was the only person present at the property when an emergency call was made.
• The cause of the fire was undetermined by the experts.
• Chubb denied indemnity relying on an exclusion for deliberate or intentional acts (i.e. arson).

The key issue at trial was whether Mr Richardson deliberately lit the fire. If yes, it was common ground between the parties that the Policy would not respond to the claim due to the relevant exclusion within the policy. If no, it was common ground that the Policy would respond, in which case a second issue concerning quantum would arise.

The onus of proof with respect to the first issue lay with Chubb to prove on the balance of probabilities that Mr Richardson deliberately lit the fire, and the exclusion would apply. In discharging the onus, the Briginshaw[1] principle applied due to the seriousness of the finding that Chubb had asked the Court to make.

Three experts were retained to provide evidence on the cause of the fire.  Two of the experts agreed that the destruction was so complete that neither the cause nor the ignition point could be identified. It also meant that there was no evidence to establish that the fire was instigated by intentional human intervention.  As to the use of accelerant, the fire was so destructive that if an accelerant had been used, it was unlikely that there would have been any detectable residue left.

In consequence, there were 4 theories of the fire instigation namely:

• A fire through human intervention;
• A fire in the roof space;
• A fire as a result of mechanical damage to the lighting sconces within the hallway; or
• A fire in the ESC.

All of the theories sought to rely on assumptions, some of which had been proved incorrect. The Court was not satisfied that the expert evidence itself was capable of meeting the onus of proof which the respondent bore to establish the fire had been deliberately lit by Mr Richardson.

The Court turned to a consideration of the circumstantial evidence which included a background that prior to the fire the Insured had been in a significantly dire financial position, had a longstanding history of drug abuse (including the regular and excessive use of cocaine and methamphetamine) and had acted aggressively and violently, including to coerce third parties into buying him drugs and lending him money under false pretences of financially stability and company successes when he in fact had no significant income through his companies.  He was financially desperate by the end of 2016 and took his own life on 11 November 2018 before the matter reached trial.

Sullivan J found the circumstantial evidence supported a reasonable and definite influence of arson.  He considered the burden of proof wherein the insurer bears the onus of proving the application of an exclusion which was the intentional act and found this could be satisfied through inference from surrounding facts.  He concluded that the experts’ inability to determine the cause did not preclude a finding of a deliberate fire.

The case reinforces that insurers can successfully deny claims for arson without definitive forensic evidence and relying on circumstantial proof.  It highlights the importance of credibility and surrounding facts in insurance litigation.

[1] Briginshaw v Briginshaw (1938) 60 CLR 336