Sheehan v Lloyds Names Munich Re Syndicate Ltd

[2017] FCA 1340

Federal Court of Australia

Built by Barristers,
For Australian Law.

1. Insurance
1. accidental loss or damage
1. damage to engine of motor yacht while being operated by insured
1. role of knowledge of insured in determining whether loss or damage unexpected

Whether damage is 'accidental' under an insurance policy is assessed objectively from the perspective of a reasonable person with the specific knowledge and experience of the insured; where the insured was unaware that an alarm related to oil pressure and believed limp mode would protect the engine, the resulting damage was unexpected and accidental despite poor seamanship.
An insured does not 'court the risk' of damage where they lack knowledge of the specific risk materialising, even if a reasonable operator exercising good seamanship would have investigated and discovered it; the doctrine requires awareness of the risk and a conscious choice to take it.
Where a gasket's faulty design caused rapid and massive oil evacuation within seconds, with engine damage commencing only 10-15 seconds after alarm activation, the faulty design was the sole proximate cause of the engine damage rather than the operator's failure to shut down the engine, and the faulty design exclusion applied.