Fall asleep and pay the price

IAG v Forde [2020] NZHC 3233

Background

The defendant, Mr Forde, had his insurance claim declined following a car crash.  Mr Forde and his fiancée, Ms Day, were returning home along State Highway 1, south of Dunedin.  Ms Day, who held a learner licence, was driving the car whilst Mr Forde, who held a full licence, was a passenger.

Although weather conditions were fine and the road was straight with good visibility, the car crossed the centre line and crashed into an oncoming campervan.  The campervan driver braked heavily but was unable to avoid the collision.  Ms Day took no evasive action at all.  All three occupants suffered serious injuries.  Ms Day was subsequently charged with two charges of careless use causing injury.  While she could not remember the accident, she accepted she fell asleep at the wheel.

Claim under insurance policy

Mr Forde, who was insured by IAG, made a claim under his insurance policy for the damage to both vehicles involved in the crash.  IAG declined the claim, relying on the exclusion clause in the policy which stated that there was “no cover if your vehicle is being driven by or in the charge of any person who…is not driving according to the conditions of his or her driver licence”.

IAG argued that Ms Day was not driving in accordance with the conditions of her learner licence because Mr Forde, as a fully licensed driver, was not “in charge” of the vehicle as required by the Land Transport (Driver Licensing) Rule 1999 (the Rule).  IAG considered it was “almost an irresistible inference” that he must have been asleep at the time of the accident as he had not alerted Ms Day or taken other actions to correct the vehicle.  Therefore, IAG declined Mr Forde’s claim.

The Insurance and Financial Services Ombudsman (IFSO) Scheme

The declined claim was referred to the IFSO for resolution.

The responsibility for exercising the powers and duties of the Scheme is vested in the Ombudsman who is to make decisions according to what is, in its opinion, “fair and reasonable in all the circumstances” and having “regard to any applicable rule of law”.  The Ombudsman has some latitude to depart from a strict legal approach when considering complaints and issuing decisions.

The IFSO issued its initial decision and concluded that IAG should meet the claim under the policy.  In so doing, it referred to the fact that Ms Day had been charged with operating a vehicle carelessly causing injury but not with breaching the conditions of her learner licence.

The IFSO stated that it was clear in the context of the policy that to be “in charge of” meant to take responsibility for, or be in supervision of, and was not the same as taking control of the vehicle in an active, physical sense.  It concluded that the exclusion clause did not apply since Mr Forde was “in charge of” Ms Day, even if he was asleep, not paying attention, or otherwise negligently performing his duty to supervise Ms Day. 

The High Court’s interpretation of the policy wording

IAG did not accept the IFSO’s decision and commenced proceedings in the High Court seeking various declarations to provide legal clarity on whether a person who is asleep is “in charge” of a vehicle.  It stated that this issue had important consequences for its business and that of other insurers.  

IAG argued that the clear purpose of the Rule was to improve road safety by targeting the risks associated with novice drivers.  To allow for a sleeping person to be “in charge” would defeat the purpose of the requirement because such a person simply could not exercise the supervision required under the Rule.  

Mr Forde argued that “in charge of” simply meant to be responsible for and having legal control of the vehicle.  He argued that it was impractical for the licensed driver to be actively supervising the learner driver throughout the journey.  For example, if the licensed driver were to be momentarily distracted, then according to IAG’s interpretation, the owner would be uninsured. 

The Court drew a distinction between a driver that was asleep and one which was momentarily distracted.  For the purposes of the declaration, it assumed that Mr Forde was asleep and couched the declaration in these terms.

Comment by Philippa Fee

Ordinarily, a motor vehicle policy insures the policy holder for his or her negligence, including when he or she falls asleep at the wheel.  This is presumed to be the commercial intent of the policy, as between the insurer and the insured. 

In contrast, the consequence of the Court’s decision in this case is that an insured will be uninsured if the learner driver causes an accident while the licensed driver is asleep.  Because of the way the declaration was drafted, it remains to be seen whether a court would come to the same conclusion if the licensed driver were merely distracted. 

This decision also highlights the importance of having an invalidation clause, which preserves the insured’s indemnity where the vehicle is being driven contrary to the terms of the licence, provided the insured was unaware of the non-compliance.   

Philippa Fee is a Partner at Fee Langstone