Reasonable Recklessness – A Guide to "Reasonable Care Conditions"

If you asked someone why they have insurance in the first place, the most common reaction is peace of mind.  However, a lack of caution can mean a breach of your insurance, with insurance companies commonly citing a “failure to take reasonable precautions” as a reason for the policy being breached, with cover being declined as a consequence.

What is “reasonable”, and moreover, what would count as a “reasonable precaution” is relatively wide, but Courts have interpreted the word “reasonable” as actually meaning “reckless” – with “reckless precaution” being a significantly higher threshold.  This article looks at the differences between “reasonable” and “reckless” precautions, and how this might affect your own insurance cover, should you need it.

The requirement to take reasonable precautions is usually articulated by clauses/terms in the relevant policy.  These clauses are collectively often referred to as “reasonable care conditions”.  The exact wording in policies can vary, but generally they state some sort of requirement that an insured takes “all reasonable steps to prevent loss or damage for item/property X”.  In other words, the insured must avoid being negligent.  A plain reading of these reasonable care conditions mean you are not covered for careless actions – for instance, accidentally leaving your phone or wallet in a taxi – because this was due to your own negligence, as opposed to an event outside of your control. 

Somewhat fortunately, the Courts read these clauses through a different, stricter lens, starting with the 1967 English Court of Appeal.  The Court in Fraser v B N Furman (Productions) Limited found that such clauses were completely at odds with one of the main principles of insurance – that being, to protect against acts of negligence.  Diplock LJ found that the standard should instead be assessing on if the insured had knowingly taken risks they normally wouldn’t, knowing they would be covered – to go back to our example, suppose our insured person decided to lose their phone deliberately in a taxi, knowing they would then get a pay-out from their insurer.  In this instance, the insurer could decline cover, citing an abuse of the insurance policy.  This distinction between an insured’s negligence, and an insured’s recklessness, is the standard that has now been adopted in New Zealand.

There is still a continuing debate in New Zealand on the differences between subjective (i.e. the person’s own viewpoint) and objective (i.e. a reasonable person’s viewpoint) recklessness, and which “type” of recklessness should be required.  However, it is clear that recklessness, not just a lack of reasonable care, is the standard required to breach a reasonable care condition.

In Roberts v State Insurance General Manager [1974] 2 NZLR 312 (NZSC), it was argued that an insured motorcycle owner was reckless for leaving his broken down motorcycle on the side of the road, though he was planning to come back and collect it.  The motorcycle was subsequently stolen.

While the insurance company accepted that the required standard was recklessness, they argued that the insured could have taken a number of alternative steps, such as pushing the motorcycle along the road, or asking local authorities for help, in order to reduce the risk of theft.  In other words, the insured had not taken all reasonable steps under the insurance policy, to safeguard the motorcycle from loss.

The Court rejected this argument.  In applying the test of Fraser outlined by Diplock LJ, the Court noted the insured had not contemplated that his motorcycle could be stolen, and had actually made arrangements to collect the motorcycle (albeit, the day after it had broken down).  In summing up the decision, McMullin J held:

He [the insured] neither appreciated the risk that his motor cycle might be stolen and chose to ignore it nor did he act in a grossly negligent way. His claim for indemnity ought to have succeeded.

Reasonable care conditions are a part of nearly all insurance contracts, and it is important to understand how those clauses are interpreted, should the policy be required.  This is even more important when we consider the recent extreme weather events in New Zealand, which have had far reaching, and often devastating consequences. 

Conclusion

Making an insurance claim can be a stressful and time consuming process at the best of times.  To give yourself the best chance of a successful claim, it is important to consider the following:

• Were you aware of the risks, prior to the incident? If so, at what time were you made aware of the risks?
• Would a “reasonable person” in your situation know those risks?
• Did you, being aware of those risks, proceed anyway?
• When you proceeded, did you believe those risks had been mitigated?
• What alternatives (if any) were considered, and why were they not taken?

If you are considering making a claim, we can assist you with both the preparation and the claim process itself.

Andrew is a Solicitor in our Dispute Resolution Team and can be contacted on 07 958 7447.