For reasons of length, this analysis will be confined to the use of this word in liability insurance.
This means that the subject matter of an ‘accident’ in this context is the causing of harm to another
that gives rise to the insured’s liability. It is therefore the infliction of harm rather than the nature
of, or state of mind behind, the insured’s act that is fundamental to the cover. However, the
introduction of the element of accident is designed to limit the scope of the cover, and so has a real
function, albeit a subsidiary one, in its own right. In the concept of accident, the insured’s state of
mind in respect of the conduct that causes the harm is important, but the underlying nature and
purpose of the cover is necessarily influential.
The word appears in other forms of insurance, particularly in compulsory liability insurance,
Accident insurance and Workers’ Compensation insurance, but their difference in context and
purpose render them imprecise analogues1. Nevertheless, some judicial observations from those
sources may be useful, particularly in respect of broad general issues or implications arising from
the differences. Detailed discussion of this is outside the range of this analysis.
Constraints of manageable brevity also require limitation of the topic to conduct of the insured2, or
of persons for whom the insured is responsible, causing the harm for which the insured is liable.
For this reason, it will also be convenient to refer to the conduct of the insured rather than to that of
other parties, except where it is specifically indicated.
Possible applications of word
The subject is complicated by the range of relevant features to which the term and its derivatives
can apply. It may apply to the conduct that causes the harm, to an event that is the consequence of
conduct (though they may in some cases be identical) when the event causes the harm, or to the
result, that is, the infliction of harm on the victim (though this too may in some cases be identical
with the original act or the event flowing from it)3. When these features are disparate, the obvious
question is to which does the term apply – or does it apply to all of them? The answer will depend
on the language of the particular policy or implications from it, suitably construed.
In Mutual of Omaha Insce Co v Stats (1978) 87 DLR (3d) 169, 181, the majority of the Supreme Court of Canada
held that an Accident policy was not to be construed differently from an indemnity policy, but, with respect, this is
only as to the ordinary meaning of the word, which may be influenced by considerations as to context and purpose of
the policy in a particular case. A distinction between different forms of insurance appears in other judgments from
time to time when it is relevant, but the general reasoning as to the broad meaning of the word applies across the board.
For convenience, these will be referred to simply as acts or conduct of the insured unless the context demands another
or more specific reference.
For example, in National & General Insce Co Ltd v Chick (1984) 2 NSWLR 86, the insured deliberately pulled the
trigger of a gun, in consequence of which the gun discharged, contrary to the insured’s intention, with the further result
that its bullet killed him, which he certainly did not intend.
The context may affect its meaning so that it plainly refers to the insured’s conduct and not to its
consequences, unless something else is indicated4. For example, if the definition of ‘occurrence’ in
a policy refers to “bodily injury resulting from an accident”, it is implied that ‘accident’ refers to
the cause of the bodily injury and not to that result5. In that case, the issues are which of the
conduct or the consequential event of it is the relevant feature, and then whether that feature was
accidental6. This is not to say that an accident cannot result from an intentional act, and unless the
scope of the element of accident is specifically directed to the act alone, the consequences are also
germane, and possibly the only relevant feature.
By way of further example, “accidental damage arising out of an accident” should require that
both the harm and its cause should be accidental. Importantly, in a liability policy, the nature of
the risk covered means that the expression, “liability arising from accidents”, may refer to
accidental harm rather than an accidental cause of it7. If it is the insured’s conduct rather than its
result that is relevant, the conduct may or may not be accidental. If it is deliberately intended
conduct, it is not accidental as such, even if the consequences are unintended.
In each case, the determination of the feature to which accident applies will depend upon the basic
principle that the agreement is not construed according to any pre-conceived notion, but on the
language used in the context of the policy as a whole and having regard to its purpose.
Function of “Accident”
Every detail of description of the cover diminishes its generality. As with other elements used in
the precise formulation of the cover, a reference to “accident” is a limitation on the scope of the
cover. When it is introduced, the promise of indemnity against liability is limited so that it extends
only to liability for accidental harm, which impliedly excludes cases of non-accidental harm.
This term sometimes appears in the insuring clause, a definition, a condition or an exclusion in the
policy. When it is referred to in a definition of an expression used in the insuring clause, it of
course has the same effect as if it were part of that clause. Sometimes it is in the form of an
exclusion, particularly one referring to liability for harm that is intended or expected by the
Quan v Truck Insce Exchange (1998) 67 Cal App 4th 583, 599; Collin v American Empire Insce Co (1994) 21 Cal
App 4th 787, 810; Nelson v Federal Insce Co 2005 Cal App (Unpub) LEXIS 1406; Uhrich v State Farm Fire &
Casualty Co (2003) 109 Cal App 4th 598, 610; Christensen v Allstate Insce Co 2005 Cal App Unpub LEXIS 1339.
Of course, it does not necessarily refer to the conduct that is the original cause but to an intermediate event that is the
consequence of the conduct. The example is merely to show how the context may give an indication of where the
element is to be placed.
Because of the reference to accidental cause, an equivalent expression, “Bodily injury caused by accident” was held
to mean that both the harm and its cause should be accidental: Australian Casualty Co Ltd v Federico (1986) 160 CLR
513. This may be compared to a reference to “accidental harm”, which plainly attributes the element of accident to the
Mt Albert City Council v New Zealand Municipalities Co-op Insce Co Ltd (supra). In Gray v Barr (1971) 2 QB 554,
the expression referred to liability “caused by accident, and the court was unanimous in looking at the cause rather than
the result. The controversy lay in the identification of the cause. Salmon LJ considered that it was a struggle for
possession of a loaded gun that the insured had aggressively taken to the premises, while Lord Denning thought that it
was the presentation of the loaded weapon in such circumstances. However, in both judgments, one might be excused
for thinking that the test of accident was at least also applied to the discharge of the gun and death of the victim.
Phillimore LJ took a global view.
insured8. Sometimes the exclusion will be limited to deliberate or intended harm, and its omission
of any reference to expected harm may influence its construction or operation. In whatever form
the limitation takes, its efficacy depends primarily on its language.
A major issue in some cases has been whether it refers to the insured’s conduct or its result. If the
latter, then further care must be taken to consider the way in which the matter is expressed,
understanding that the “loss” in this type of cover is the liability of the insured rather than the
injury done to the victim9.
A claimant will often have an interest in preserving the insured’s insurance cover as a fund to meet
an award of damages and avoid a sterile judgment. This may lead to a claim that is framed in such
a way10 as to avoid the policy’s limitation as to accident. Whether this is successful depends on
the gravamen of the claim and not on the manner in which it is framed11 or the cause of action on
which judgment is given12. For example, even if there is an allegation of fraud13, which connotes
intent, if a finding consistent with mere negligence rather than fraud is open, as in the case of a
breach of fiduciary duty or breach of contract, it will be necessary to resolve whether ‘accident’
applies14. When the harm is intended, there can be no cover despite the claimant’s success on a
negligence-based cause of action15. Consequently, when intentional and negligence-based causes
See, for example, Westfield Cos Inc v Quality Signs & Service Inc 2005 Ky App LEXIS 91. It is not intended to enter
into a discussion on a condition that often appears requiring the insured to exercise reasonable care. This has been
refined by interpretation to avoiding courting the relevant risk, and in this way has a broad conceptual relationship with
this subject that would throw only an unnecessary complication into the discussion.
On this topic, see the comprehensive discussion in “Insurance of Wilful Misconduct”. Dr M Clarke (1996) 7 ILJ 173.
In Churchill Insce v Charlton (2001) EWCA Civ 1230, the court’s discussion obiter seemed to assume that the
insured’s deliberate intention to cause harm excluded accident, even in respect of the unintended injury to the claimant,
except where the context of the policy and the surrounding circumstances led to a different construction. On another
plane, apart from the insured’s courting the risk, which will be discussed later, if the insured’s conduct that amounts to
negligence is intentional, but the result is not intentional or expected, then the event is an accident. For example, if the
insured fails to provide adequate security at a public venue and a stranger intentionally fires a gun there, causing harm
to another, the infliction of that harm is an “accident” within the meaning of the insured’s liability policy, because the
insured’s liability flows from the negligent failure to provide adequate security: Koikos v Travelers Insce Co 2003 Fla
Napoli Kaiser & Bern LLP v Westport Insce Corpn 2003 US Dist LEXIS 22497; State Farm Fire & Casualty Co v
Tippett (supra); Curb v Texas Farmers Insce Co 2005 Tex App LEXIS 4480.
Trinity Universal Insce Co v Cowan 945 Sw 2d 819 (Tex 1997); Curb v Texas Farmers Insce Co 2005 Tex App
Fraudulent acts are deemed to be purposeful and not accidental: Chatton V National Union Fire Insce Co (1992) 10
Cal App 4th 846, 861.
Hotel des Artistes Inc v Transamerica Insce Co 1994 US Dist LEXIS 7800; 1994 WL 263429; Napoli Kaiser &
Bern LLP v Westport Insce Corpn 2003 US Dist LEXIS 22497. See also Cowan v Codelia 1999 US Dist LEXIS
17606; 1999 WL 1029729 (allegation of malicious and unlawful disclosure of personal information by defence
lawyers); Park Place Entertainment Corpn v Transcontinental Insce Co 2003 WL 1913709 (allegation of fraud,
intentional interference with contract, bad faith and defamation, but defamation may be negligent).
Quan v Truck Insce Exchange(1998) 67 Cal App 4th 583,596 (sexual misconduct); Swain v California Casualty Insce
Co (2002) Cal App 4th 1, 9 (wrongful eviction); American International Bank v Fidelity & Deposit Co (1996) 49 Cal
App 4th 1558, 1573 (negligent misrepresentation); Hartford Fire Insce Co v Century Properties Inc 2003 Cal App
Unpub LEXIS 2986 (destruction of tenants’ property found to have been the result of intentional action).
of action are premised on the same facts showing deliberate conduct, the cover will not apply to
the claim16. This will not be subverted by an artificial re-characterisation of the conduct in the
Similar limiting features
These express limitations aside, there is a basic rule of public policy that a contract to indemnify an
insured against liability for harm deliberately caused will not be enforced18. Further, accident is
part of the concept of fortuity that is inherent in liability cover, independently of the terms of the
policy. Consequently, if harm is deliberately caused by the insured, the liability for it cannot, as a
matter of basic insurance principle, as well as public policy, come within the policy’s cover19. To
that extent the express limitation is unnecessary,20 but most policies contain some specific
provision. It may be in a form that is stricter than the common law rule because it is not diminished
by qualifications applying to the latter.
In order to satisfy the prescription of the common limitation, the intentional conduct must be the
conduct causing the harm leading to the insured’s liability. If the causal relationship between the
conduct and the result is not otherwise described, proximate cause is required21, and a deliberate
act may not be the proximate cause of the loss22. This distinction between the issues of accident
and causation is essential but, unfortunately, not always acknowledged.
Swain (supra); Calvillo-Silva v Home Grocery (1998) 19 Cal 714, 729; 968 P 2d 65 (disapproved on other grounds
in Aguilar v Atlantic Richfield Co (2001) 26 Cal 4th 465.
Koikos v Travelers Insce Co 2003 Fla LEXIS 273.
Beresford v Royal Insce Co Ltd (1938) AC 586, 604; State Farm Fire & Casualty Co v Wicka 474 NW 2d 324
(Minn 1991); Anderson v State Farm Fire & Casualty Co (supra). It is felt to be offensive to public morality to protect
someone against the civil consequences of deliberate harm caused by that person. There is also an element of
deterrence by removing the offender’s sense of security in the thought that, if caught, he or she will at least be
protected from the consequences of civil liability. For an alternative view, see Insurance of Wilful Misconduct”. Dr M
Clarke (1996) 7 ILJ 173, 180.
Hedtcke v Sentry Insce Co 326 NW 2d 727 (Wisc 1982); State of Wisconsin v Hydrite Chemical Co 2005 Wisc App
LEXIS 238; Trinder Anderson & co v Thames Mersey Marine Insce Co  2 QB 144, 123; Global Tankers Inc v
Amercoat Europa NV & Rust  1 Lloyd’s Rep 61; Burrowes v Rhodes (1899) 1 QB 816. An excellent discussion
of this topic is undertaken in “Insurance of Wilful Misconduct” – Dr M Clarke (1996) 7 ILJ 173.
McQuade v Sun Alliance Insce Co (1992) 7 ANZIC 61.136.
It is of no significance whether the relevant description refers to cause or proximate cause: Ford Motor Co of
Canada Ltd v Prudential Assce Co Ltd et al (1959) 18 DLR (2d) 273; Saundon (supra), and if ‘accident’ alone is used,
it refers to a proximate cause to the result specified by the policy as accidental. If another description of the causal
nexus is used, such as “arising out of”, the cause may not need to be proximate.
For example, if the insured exerts some stress on another’s sound body and an injury results, the insured’s act may
be found to have caused the injury; but if the insured were to exert much less stress on the unsound body of another,
the cause may be said to be the unsoundness of the body.
The policy’s expression of the causal nexus will indicate which factor is relevant to the issue of
accident23. Then, if the cause of the relevant harm is not accidental, the cover will be excluded and
it will not matter if the claim is drafted in terms that raise other causes of action.
Further general consideration of causation is outside the scope of this discussion.
“Accident” for insured or claimant?
There may be a question as to whether ‘accident’ should be considered from the point of view of
the victim or the perpetrator. It is sometimes expressly identified in the policy as being from the
point of view of the insured. Even if that indicator is not present, this is the meaning that should
be adopted in the context of ordinary liability insurance, since it is the insured whose economic
interest is primarily protected by the cover24. Sometimes, the policy’s language means that the
relevant intention is that of the person who commits the wrong25, which might not be the insured
but someone for whose wrongful harm the insured is liable, either vicariously or directly for failing
to prevent the harm.
By parity of reasoning, because the purpose of compulsory insurance is the protection of the
victim, “accident” may be interpreted as accidental from the point of view of the victim so as to
cover deliberate conduct by the insured26. This anomaly is produced by the over-riding force of
the legislative purpose in that particular class of cover, and illustrates the converse, that unless
there is good reason to the contrary, the issue of accident in general liability insurance is regarded
from the point of view of the insured.
Definition of “accident”
No all-inclusive definition of “accident” can be given27, which it is important to remember; some
aspects of it are clear. It plainly does not encompass intentional conduct causing intended or
expected harm28. It has been essentially defined as an untoward event that is not expected or
For example, a reference to harm caused by an accident implies that it is the causal act to which the question of
accident should be directed. This is discussed above.
Kish v Central National Insce Group of Omaha (1981) 67 Ohio St 2d 41, 48; 424 NE 2d 288; Thomson v Ohio Insce
Co 2002 Ohio 6517; 2002 Ohio App LEXIS 6300; Frankenmuth Mutual Insce Co v Masters 460 Mich 105, 114; 595
NW 2d 832 (1999); Allstate Insce Co v McCarn 466 Mich 277, 281; 645 NW 2d 20 (2002); Arbor Woods Associates v
Amerisure Insce Co 2003 Mich App LEXIS 1626; State Farm Fire & Casualty Co v CTC Development Corpn 720 So
2d 1072 (Fla 1998); Koikos v Travelers Insce Co 2003 Fla LEXIS 273. See Insurance of Wilful Misconduct – Dr M
Clarke (1996) 7 ILJ 173.
Nationwide Mutual Fire Insce Co of Columbus v Pipher 140 F 3d 222 (3rd Cir 1998); Allstate Insce Co v Lombardi
2003 US Dist LEXIS 12224.
State Farm Fire & Casualty Co v Tringali (1982) 686 F 2d 821.
The absence of a definition does not necessarily render the term ambiguous and in need of interpretation by the
court; but the factual context may displace this, and it may encompass not only accidental events, but also injuries or
damage neither expected nor intended from the standpoint of the insured: Koikos v Travelers Insce Co 2003 Fla LEXIS
273. The modern tendency is to seek to construe a flexible expression according to the rules of construction, which
may satisfactorily indicate its intended meaning, and the contra proferentem rule is one of last resort.
Aetna Casualty & Surety Co v Freyer 89 Ill App 3d 617, 619; 411 NE 2d (1980); Bituminous Casualty Corpn v Gust
K Newberg Construction Co 218 Ill App 3d 956, 965; 578 NE 2d 1003 (1991); Whitman Corpn v Commercial Union
Insce Co 2002 Ill App 1105; Owens-Illinois Inc v Aetna Casualty & Surety Co (CA 6 1993) 990 F 2d 865 871; Non-
designed29, but this is a broad generalisation that is not intended to be exhaustive or exclusive, nor
to be strictly applied independently of other proper influences recognised in the rules of
construction of commercial contracts. As a mark of its generality, this definition still leaves open
the issue referred to above, whether it applies to the conduct, its consequent event, and/or the
resulting infliction of harm; nor does it say from whose point of view the issue of expectation
should be regarded. These depend on matters other than the bare definition.
Discussion of the definition
It is sufficient at this stage to note that any reference to intent must reasonably refer to the intent of
the insured, while the reference to expectation30 is more ambiguous, admitting the issue of
subjectivity or objectivity. There is room for argument as to whether the expectation of the
Marine Underwriters, Lloyd’s of London v Scalera (2000) SCR 551; Thomson v Ohio Insce Co 2002 Ohio 6517; 2002
Ohio App LEXIS 6300; Liberty Mutual Insce Co v Hollinger Inc 92004) OJ No 481 (CA); Allstate Insce Co v McCarn
466 Mich 277, 280; 645 NW 2d 20 (2002); Allstate Insce Co v Granger 2003 Mich App LEXIS 2192; Carroll v CUNA
Mutual Insce Socy 894 P 2d 746 (Colo 1995); Fire Insce Exchange v Bentley 953 P 2d 1297 (Colo App 1998).
Examples of intentional harm will be provided below.
Australian Casualty Co Ltd v Federico (1986) 160 CLR 513, 527-8. See also Robinson v Evans Bros Pty Ltd (1969)
VR 885, 891; S & Y Investments(No 2) v Commercial Union Assce Co of Aust Ltd (1986) 82 FLR 130; 44 NTR 14, 22;
Maughan & Chapman v Sun Alliance Insce Ltd (1987) 4 ANZ Ins Cas 60.793; (1987) 4 ANZ Ins Cas 60.820. This is
much the same as the classic definition in Fenton v J Thorley & Co Ltd (1903) AC 443, 448. Showing its colour in
greater depth, but also its flexible imprecision, it has been described as an unlooked for mishap or occurrence,
something that the ordinary reasonable person would not have expected: Canadian Indemnity Co v Walkem Machinery
& Equipment Ltd (1976) 1 SCR 309; Privest Properties Ltd v Foundation Co of Canada Ltd (1991) 57 BCLR (2d) 88;
an unlooked-for mishap or an untoward event that is neither expected nor designed: Martin v American International
Assce Life Co (2003) 223 DLR (4th) 1; Royal & Sun Alliance Insce Co of Canada v Thorne (2003) 230 DLR (4th) 587
an undesigned sudden and unexpected event, usually of an afflictive or unfortunate character, and often accompanied
by a manifestation of force – a misfortune with concomitant damage to a victim, but not the negligence that eventually
results in that misfortune: Century Mutual Insce Co v So Ariz Aviation Inc 446 P 2d 490, 492 (1968); Outdoor World v
Continental Casualty Co 594 P 2d 546, 549 (App 1979); Associated Aviation Underwriters v Wood 2004 Ariz App
LEXIS 142; an unexpected, unforeseen or undersigned happening or consequence from either a known or unknown
cause: Hogan v Midland National Insce Co (1970) 476 P 2d 825; Shell Oil Co v Winterthur Swiss Insce Co (1993) 12
Cal App 4th 715, 755; an unintentional, unexpected, chance occurrence: Modern Development Co v Navigators Insce
Co (2003) 111 Cal App 4th 932, 940; arising from extrinsic causes ; occurring unexpectedly or by chance; or happening
without intent or through carelessness: Northland Insce Co v Briones (2000) 81 Cal App 4th 786, 810; an unexpected,
unforeseen, or undesigned happening or consequence from either a known or unknown cause: Hogan v Midland
National Insce Co (1970 ) 3 Cal 3d 553, 559, 476 P 2d 825; or as an unintentional, unexpected occurrence: St Paul
Fire & Marine Insce Co v Supreme Court (County of Yuba) (1984) 161 Cal App 3d 1199, 1202; Modern Development
Co v Navigators Insce Co (2003) 111 Cal App 4th 932, 940; or as something out of the usual course of events, which
happens suddenly and unexpectedly and without design: State Farm Fire & Casualty Co v Drasin (1984) 152 Cal App
3d 864, 867. For other definitions, see Dicker v Central Surety & Insce Corpn 234 SC 228, 230; 107 SE 2d 342
(1959); Stats v Mutual of Omaha Insce Co (1978) 2 SCR 1153; Murphy v Lloyds of London (2000) OAC 10; Liberty
Mutual Insce Co v Hollinger Inc 2004 ON C LEXIS 468; Taylor v Hartford Accident & Indemnity Co 257 NC 626,
627; 127 SE 2d 238 (1962); NAS Surety Group v Precision Wood Products Inc 2003 US Dist LEXIS 12312; United
States Fidelity & Guaranty Co v Crane Construction Co 2003 Ark LEXIS 397, which discusses whether accidental
harm includes defective workmanship; Atlantic Mutual Insce Co v American Academy of Orthopaedic Surgeons 315 Ill
App 3d 552, 559; 734 NE 2d 50 (2000); Fisher v St Paul Insce Co of Illinois (supra); Canadian Indemnity Co v
Walkem Machinery & Equipment Ltd (1975) 53 DLR (3d) 1, 6, cited in Celestica Inc v Ace INA Insce 2003 Ont C A
LEXIS 364; Viking Construction Management Inc v Liberty Mutual Insce Co 2005 Ill App LEXIS 517.
As to what is “expected”, see Tioxide Europe Ltd v CGU International Insce plc  EWHC 216;  All ER
occurrence of an act, rather than the result of an act, should be assessed on a subjective basis, but
in practice, this rarely arises31.
It should be noted that in order to be ‘accidental’, the relevant features must be both unintended
and unexpected, so that even if it were unintended, it is not accidental if it were not unexpected.
For an intentional act to come within the description of an accident, it must cause an unexpected
and unintended result.32 For example, if the insured both intends the act and expects or intends the
injury to follow from it, axiomatically neither the act nor the resulting occurrence of the harm will
be an accident33. If the act is unintended by the insured, and unexpected, even on an objective
basis, it is an accident, and ex hypothesi there is no issue as to whether the consequence was
intended or expected. The most frequently encountered issues are whether in respect of intention it
applies to the occurrence of harm as well as to the conduct causing it; and whether expectation is
to be determined subjectively to the insured or objectively.
There are some grey areas. For example, because deliberate injury inflicted in self-defence may be
both intentional and expected, so that ‘accident’ according to a strict definition in the above terms
may not extend to such a case34. However, such a result would probably be regarded as an
undesirable limitation contrary to the purpose of the protection of liability insurance. This
exemplifies the need to remember at all stages that the expression is to be construed as reasonable
persons would have understood it at the time of the contract in relation to the particular feature of
it under scrutiny in a particular case. This will be discussed further later.
This will be dealt with below. Precision is important in discussion of the mental element associated with a deliberate
act. In this context, some authorities loosely say that there is no subjective or mental element associated with a
deliberate act. Deliberation predicates a subjective mental intention to do the act. When the policy refers to an
accidental act, it does not allude to any relevant subjective mental element relating to the result of the act; and when the
element of accident extends to the result, it is one view that the insured’s subjective expectation, rather than an
objective one, is not the test. But in any case, if the insured intends both the act and the consequential harm, the
subjective feature is conclusive. In fairness, it should be noted that the authorities referred to were speaking in such a
context; but such imprecision may lead to difficulty when part of these cases is cited.
This, of course, will depend on whether, in the context, the quality of the accident is to be attributed to the cause or
the result. An accident is never present when the insured performs a deliberate act unless some additional, independent
and unforeseen happening that produces the damage occurs: Quan v Truck Insce Exchange (1998) 67 Cal App 4th 583,
599. In Quan v Truck Insce Exchange (1998) 67 Cal App 4th 583, 599, however, it was held that there is no cover
when the acts were deliberate, regardless of whether any harm was intended or expected to come of them. See also
Hartford Fire Insce Co v Century Properties Inc 2003 Cal App Unpub LEXIS 2986. Conversely, in State Farm Fire
& Casualty Co v CTC Development Corpn 720 So 2d 1072, 1076 (Fla 1998) it was held that in the absence of a
definition in the policy, the term encompasses not only accidental events but also harm neither intended nor expected
from the point of view of the insured.
Mt Albert City Council v New Zealand Municipalities Co-op Insce Co Ltd (1983) NZLR 190; Chu v Canadian
Indemnity Co (1990) 224 Cal App 3d 86, 96. There may be an exception in the case of agony-of-the-moment acts: Mt
Albert City Council; Stahl v Northern Assce Co 716 F Supp 626 (MD Ga 1989); State Farm Mutual Insce Co v Cage
874 F Supp 272 (D Haw 1994).
Kaler v Red River Valley Mutual Insce Co (1995) 126 DLR (4th) 700; Aetna Casualty & Surety Co v Freyer 411 NE
2d 1157, 1159 (Ill 1980); State Farm Fire & Casualty Co v Leverton 732 NE 2d 1094 (Ill App Ct 2000); Cincinnati
Insce Co v Allen 2004 US Dist LEXIS 24669. In Gray v Barr (1971) 2 QB 554, Lord Denning said that even if the
harm is done in self-defence, if it is intentional, it is not accidental, but there may be good reason for treating it as such
within the meaning of the expression objectively intended by the parties at the time of contract. This will be discussed
more fully below. Of course, in those circumstances, it is unlikely that the act would attract liability. The same
problem extends to wounding with a weapon in a fight.
Since ‘accident’ is absent if there is either intention to cause the harm or an expectation of it,
which are different things, it is necessary to distinguish between them precisely. Intention requires
a positive purpose to achieve a result, and it may be distinguished from expectation, which refers
to a belief as to the result. There may be an intention to cause a result without any belief, and with
only hope, as to the probability of its occurrence. They are different intellectual functions, but
these distinctions are not always made, which can lead to confusion. By their nature they can both
be proved by circumstantial evidence indicating the state of mind. An obvious substantial
certainty of a particular result of conduct may be circumstantial evidence of intention to bring
about the result if the conduct is pursued.
If an act is intended, as an act it at least is not accidental, even if the consequences are unintended.
In determining whether an act was accidental, matters of fortuity and foreseeability should be
applied in order to judge whether as an act it was unexpected and unusual. ‘Intention’ is directed
to the insured’s personal intent or actual involvement, but this may be altered by the policy’s
language. So far as the element of intent to cause the harm, as distinct from the expectation of it,
is required to displace accident, it is sufficient if the insured has at least the specific intent to cause
harm35, though not necessarily the specific injury that is caused36. However, having regard to the
objective intention of the parties to the contract in using the word, there may be a distinction in
kind between an intention to cause minor harm and resulting major harm of an unintended
Cloud v Shelby Mutual Insce Co 248 So 2d 217 (Fla 3d DCA 1971); Phoenix Insce Co v Helton 298 So 2d 177 (Fla
1st DCA 1974). An injury is expected or intended from the standpoint of the insured if a reason for the act is to inflict
harm, or if the character of the act is such that an intention to inflict an injury can be inferred as a matter of law: Jones
v Norval 203 Neb 549; 279 NW 2d 388 (1979); Harris v Richards 867 P 2d 325; and it need not be shown that the
insured acted with the belief that the action was substantially certain to cause injury: Freightquote.com Inc v Hartford
Casualty Insce Co 2005 US App LEXIS 1990. The critical question is whether the harm that resulted could have been
other than harm intentionally caused: Allstate Insce Co v Mugavero 79 NY 2d 153, 159; 581 NYS 2d 142; 589 NE 2d
Churchill Insce v Charlton (2001) EWCA Civ 1230; State Farm Fire & Casualty Co v Muth 190 Neb 248; 207 NW
2d 364 (1973); AMCO v Haht 490 NW 2d 843 (Iowa 1992); Tower Insce Co v Judge 840 F Supp 679(D Minn 1993);
Smith v State Farm Fire & Casualty Co 870 P 2d 74 (Mont 1994); Farmers Mutual Insce Co v Detlef 265 Neb 655;
2003 Neb LEXIS 53. There are two views. The specific intent rule requires that there be a specific intent to cause the
particular harm. Under the natural consequence rule, if the resulting harm of an intentional act is the natural and
probable consequence of the act, the harm is intentional for the purpose of the exclusion: Aetna Casualty & Surety Co
v Freyer 89 Ill App 3d 617; 44 Ill Dec 791; 411 NE 2d 1157 (1980); Bituminous Casualty Corpn v Gust K Newberg
Construction Co 218 Ill App 3d 956, 1009; 161 Ill Dec 357; 578 NE 2d 1003 (1991); Fisher v St Paul Insce Co of
Illinois 2003 US Dist LEXIS 6525.
Breland v Schilling 550 So 2d 609. See “Insurance of Wilful Misconduct” – Dr M Clarke (1996)7 ILJ 173, 178-180.
There would seem to be very good practical reasons for adopting the principle that once it is intended and expected that
harm should be caused, the degree of harm inflicted should be irrelevant unless it is of such a marked degree of
difference from what might have been reasonably expected as to be something different in kind. That aside, to make a
distinction on the basis that the force was somewhat stronger than intended, or that it was accidentally misdirected to a
more vulnerable part than intended would be to adopt an impractical test. The measure is whether reasonable persons
who were entering into an insurance contract containing this reference to accident would have regarded the result as
being within the meaning of that term if they had considered it at the time of the contract. On this reasoning, Breland
is probably wrong, and is possibly explicable by the tendency of some American courts at that time to favour the
insured, particularly in order to ensure an accessible fund for the victim’s recovery of damages awarded.
There may be an absence of intent as to the consequences of an intentional act if some additional,
unexpected, independent and unforeseen happening occurs that produces unintended damage38. If a
result, as distinct from the conduct that causes it, is unexpected by the insured, again axiomatically,
it is subjectively unintended. It is not enough that the intended act leads to even a foreseeable
result causing the loss, mere foreseeability does not amount to intention. For example, driving in a
dangerous way may be wilful and deliberate but it does not mean that an unintended but
foreseeable collision caused by it comes within the description of intended harm39. While the act
itself, as distinct from the consequences, will not have been accidental, that will not matter if,
expressly or by implication40, the policy confines the limitation of “accident” to the result and not
to the causal act. In such a case, it would not limit the cover to exclude accidental injury arising
from an intentional threat made by the insured41. In some American jurisdictions, it has been held
that in this context the word ‘intentional’ connotes that the insured desires to cause the relevant
consequences or believes that they are substantially certain to result from the act42.
While intended harm may not come within the cover, consequential harm may do so if it is
unexpected and accidental 43. Similarly, an act producing a certain result that is brought about
deliberately may still be unintentional in the sense of referring to other unforeseen and unintended
results.44 Then, the issue will be one of causation.
Expectation - meaning
While intention is an active feature of intellectual function, expectation is passive evaluation of the
probability of the result. There has been some confusion as to whether expectation requires an
understanding that something might happen, whether it will probably happen, whether it is highly
probable that it will happen, or whether it will certainly happen. The distinction is often very
significant, and it is well to keep it in mind throughout any discussion on the subject. There is no
reason why the word should not have its ordinary meaning relating to what will probably happen.
Merced Mutual Insce Co v Mendez (1989) 213 Cal App 3d 41, 50; McNabb v Dept of Motor Vehicles (1993) 20 Cal
App 4th 832, 839.
In cases of injury caused through the driving of a vehicle by an intoxicated insured, in ordinary circumstances
resulting harm is usually not intended nor expected, particularly because of the insured’s state of mind, and the degree
of culpability and probability of harm will not be so high as to attract any qualification to the subjective test. This
should change in cases of gross intoxication and high risk taking, but in the field of compulsory insurance, the courts
pay greater attention to the situation of the victim in deference to the purpose of the legislation behind the policy; and
this circumstantial context, including sometimes provision for the insurer to recover from the insured reimbursement
for the insurer’s payment to the victim, will change the meaning of an expression such as this. See also the discussion
on negligence below.
The discussion as to whether the description of ‘accidental’ should apply to the causal act or the result of it appears
Sirois v Saindon 44 DLR (3d) 469.
Hanover Insce Group v Cameron 298 A 2d 715 (1973) See also Aetna Casualty & Surety Co v Freyer 411 NE 2d
1157 (1980); RW v TF 528 NW 2d 869, 872 (Minn1995); American Family Mutual Insce Co v Peterson 405 NW 2d
418, 420 (Minn 1987); Anderson v State Farm Fire & Casualty Co 2003 Minn LEXIS 403.
Clayton v Mutual Community General Insce Pty Ltd (1995) 64 SASR 653; 8 ANZIC 61.263; Australian Associated
Motor Insurers Pty Ltd v Wright (1998) 10 ANZIC 61.390.
Evans & Co (Qld) Pty Ltd v Vanguard Insce Co Ltd (1987) 4 ANZIC 60.772; Fire & All Risks Insce Co Ltd v Powell
(1996) VR 513, 519; Clayton v Mutual Community General Insce Pty Ltd (1995) 8 ANZIC 61.263.
Unexpected consequences – subjective or objective?
This subject is confined to the necessary state of mind of the insured in respect of belief as to the
probability of the consequences, rather than to the act that causes them. On this issue, the
competing interpretations are whether the expectation of harm must be subjective, that is, whether
the insured has the actual intention to cause the loss45; whether it is objective in the sense that the
insured will be taken to have intended the reasonable and probable46 consequences of his/her
actions; or whether it is some combination of the two47, applying one or the other according to the
circumstances. Of course, the policy’s language may be explicit, such as by a reference to the
insured’s actual expectation, and in such a case, the words will prevail.
Subjective intention may be established by evidence of actual intention and, if that is unclear, an
inferred intention, the inference being drawn from the inherently injurious nature of the act or the
degree of likelihood of harm48. But this exercise is still directed to ascertaining the insured’s
actual or subjective intention. For objective expectation, that is, the expectation of a reasonable
person, the court applies reasonableness to the circumstances.
This competition between subjectivity and objectivity is the result of a dilemma arising out of
considerations of fairness in respect of competing claims of the insurer and the insured. The
objective test predicates foreseeability49. Because that feature is an essential element of
negligence, its adoption into the concept of ‘accident’ would lead to the exclusion of negligence
claims from the policy’s cover, which would be contrary to a primary purpose of the contract of
liability insurance50. It is a basic rule of insurance law that, absent a special factor, negligence of
The unqualified subjective test was applied by Salmon LJ in Gray v Barr (1971) 2 QB 554, by Asche J in S & Y
Investments (No 2) Pty Ltd (In Liq.) v Commercial Union Assce Co of Aust Ltd (1986) 85 FLR 285; 4 ANZIC 60.780,
and in Mt Albert City Council v New Zealand Municipalities Co-op Insce Co Ltd (1983) NZLR 190. Its difficulty is
that it does not allow for the intention of the parties to the insurance contract in using the expression, “accident”, and
whether they would have intended it to apply to a case of reckless blindness to the consequences of seriously culpable
conduct. This refinement was not present in some of those cases. The unqualified subjective test was rejected in
Cooperative Fire & Casualty Co v Saindon (1976) 15 SCR 735; 56 DLR (3d) 556. In National & General Insce Co
Ltd v Chick (1984) 2 NSWLR 86, the majority adopted a subjective test but subject to the ‘courting the risk’
qualification, which, however, did not apply in the circumstances.
Alternatively described as “natural and ordinary” consequences.
Harris v Richards 254 Kan 549, 867 P 2d 325 328 (Kan 1994).
See “Insurance of Wilful Misconduct” – Dr M Clarke (1996)7 ILJ 173. Woida v North Star Mutual Insce Co 306
NW 2d 570, 573 (Minn1981); State Farm Fire & Casualty Co v Wicka 474 NW 2d 324 (Minn 1991); Anderson v State
Farm Fire & Casualty Co (supra).
In Federico, Gibbs CJ, at 521, and Brennan J, at 535, referred to the possibility of foreseeability as an element,
which would be in line with the objective test, while Wilson, Deane and Dawson JJ at 532 referred to whether the
consequences were foreseen, which would match the subjective test. This discussion is of limited relevance to the
present problem since it dealt with an accident policy, so that foreseeability was not relevant to the risk covered by the
policy, that is, negligence; and in any case, the Court was not confronted with, and did not have to decide upon, one of
the more egregious cases of risk-taking by the insured where the plain foreseeability of the risk goes to the culpability
of the insured in undertaking it. Foreseeability was also the criterion in Interinsurance Exchange v Flores (1996) 45
Cal App 4th 661, 669.
Burrowes v Rhodes (1899) 1 QB 816; Marcel Beller Ltd v Hayden (1976) 2 WLR 845, 852; Canadian Indemnity Co
v Walkem Machinery & Equipment Ltd (1975) 53 DLR (3d) 1; Mutual of Omaha Insce Co v Stats (1978) 87 DLR (3d)
169; Prince George White Truck Sales Ltd v Canadian Indemnity Co (1973) 40 DLR (3d) 616; Trinder Anderson & Co
the insured that causes any loss under the policy provides no defence to the insurer 51. While an
intentional tort is not covered because it is not accidental52, ordinary negligence is regarded as
accidental and within the cover despite that the harm must have been foreseeable to constitute
actionable negligence53. It is not enough that the intended act leads to a result, even a foreseeable
result, causing the loss54. For this reason, on a proper construction of ‘accident’ in accordance
with the parties’ intention in using it in this context, the subjective test of actual expectation is
generally preferred as the appropriate course in ordinary circumstances.
Difficulties arise when the negligence has been seriously culpable and so gross that the resulting
harm cannot reasonably be said to have been unexpected55. If the test is objective, there is still a
v Thames Mersey Marine Insce Co (1898) 2 QB 114, 123; Global Tankers Inc v Amercoat Europa NV ”The Diane”
(1977) 1 Lloyd’s Rep 61. For example, in Dunn v Pain (1992) 7 ANZ Ins Cas 61-100, the insured unintentionally
injured the victim by deliberately pushing him into the shallow end of a swimming pool. While the harm was plainly
foreseeable and the deliberate action was foolish, the insured did not subjectively intend or expect the injury, nor was it
so highly probable that it would excite an expectation that harm would probably follow. The resulting infliction of
harm met the description of ‘accident’. Even if foreseeability were confined to the idiosyncratic capacity for foresight
of the insured, it would still exclude most of the cover, which is a non-commercial result that militates against such a
construction. The competition is between foreseeability, which is all that is available in an objective test, and actual
foresight of the probable harm, which is solely within the province of the subjective test. For convenience of
discussion, it is better to confine the subjective test to what is actually foreseen by the insured.
Gray v Barr (supra) per Salmon LJ at 579; Allstate Insce Co v SF 518 NW 2d 37 (Minn 1994); Kallos v
Saskatchewan Govt Insce 4 DLR (4d) 34. The contrary view in SL Industries v American Motorists Insce Co 607 A 2d
1266 is plainly wrong.
Argonaut Southwest Insce Co v Maupin 500 SW 2d 633 (Tex 1973); Federated Mutual Insce Co v Grapevine
Excavation Inc 197 F 3d 720, 723 (5th Cir 1999); Gehan Homes Ltd v Employers Mutual Casualty Co 2004 Tex App
Massachusetts Bonding & Insce Co v Orkin Exterminating Co 416 SW 2d 396 (Tex 1967); Great American Insce
Co v Calli Homes Inc 236 F Supp 693 (SD Tex 2002); but it is an issue as to whether this applies to faulty
workmanship: Gehan Homes Ltd v Employers Mutual Casualty Co (supra). For a discussion as to the effect of
unintentional results to intentional acts see King v Dallas Fire Insce Co 85 SW 3d 185, 187-92 (Tex 2002); Hallman v
Allstate Insce Co 114 SW 3d 656, 660 (Tex App Dallas 2003). While deliberate assault that causes harm is not
accidental, where the infliction of the harm in a struggle is merely negligent, it is accidental: Kaylor v Radde 2005 US
Dist LEXIS 3483.
For example, driving in a dangerous way may be wilful and deliberate but it does not mean that an unintended
collision caused by it comes within the description. And if the description is limited to the insured’s liability for injury
intentionally caused by or at the insured’s direction, it will not apply to injury deliberately caused by the insured’s
agent if it is not at the insured’s direction, even if the insured is vicariously liable for it: Seligman v Fireman’s Fund
Insce Co (1963) 40 DLR (2d) 554. A series of Texas cases demonstrate the difficulty in identifying when negligence
is accidental and when it is not: Argonaut Southwest Insce Co v Maupin 500 SW 2d 633 (Tex 1973); Republic National
Life Insce Co v Heyward 536 SW 2d 549 (Tex 1976); Mid-Century Insce Co of Texas v Lindsey 997 SW 2d 153 (Tex
1999); Trinity Universal Insce Co v Cowan 945 SW 2d 819 (Tex 1997); Curb v Texas Farmers Insce Co 2005 Tex
App LEXIS 4480. While recognising that simple negligence may be accidental, they say that to be accidental, an
effect could not reasonably have been anticipated from the conduct that produced it, and the insured cannot be charged
with the design of producing; and that the injury must not be of a type that would ordinarily follow from the conduct
and could not be reasonably anticipated from the use and the means, or an effect that the insured could be charged with
producing. These descriptions are no more than references to negligence or gross negligence. The cases themselves
were really cases of intentional harm or at least seriously culpable recklessness of resulting harm.
This was the basis of the dissenting judgments in Canadian Indemnity Co v Walkem Machinery & Equipment Ltd
(1975) 53 DLR (3d) 1; and Mutual of Omaha Insce Co v Stats (1978) 87 DLR (3d) 169, where the insured was said to
have courted the risk by driving a vehicle fast while heavily intoxicated, a concept that is used in respect of the
condition, sometimes found in policies, that the insured will take reasonable care. (The effect of the condition has been
diminished in that way, and there is a certain consistency in adopting the same concept in this context.) The majority
question whether the description, “accident”, would still apply in some very high-risk cases where
the consequences are, objectively, manifestly foreseeable. Even in those cases, there is an issue
whether mere foreseeability is sufficient to oust ‘expectation’ in a strictly subjective sense. Lord
Macnaughton said that a consequence is unexpected “if it not expected by the man who suffers it
even though every man of common sense who knew the circumstances would think it certain to
happen.”56 Consequently, this test of simple foreseeability has a serious flaw in this context.
Negligence does not necessarily equate with accident if, for example, the harm is foreseen to the
point of expectation but the conduct is recklessly followed.
There are three points of difficulty. The first is whether recognition of an obvious risk is to be
attributed to the insured when in fact there is no recognition. If there is evidence sufficient to rebut
the inference of the insured’s actual recognition of the risk, must the consequent harm be
unexpected? Secondly, when the insured recognises only a risk of possible harm, the difficulty is
whether it can strictly be said that the consequent harm is expected without the insured’s actual
expectation of the consummation of the risk; or whether the lacuna is filled by recourse to the
objective presumption of a person’s knowledge of the reasonable and probable consequences of his
or her actions. The third difficulty is whether even a recognition of the probability of a
consequence amounts to expectation of it within the meaning of “accident” in this context. These
must be discussed together, but the distinct issues should be remembered.
If the test is purely subjective, the difficulties of proof of the insured’s subjective mental state as to
intent and/or expectation may in many cases be a major difficulty. Through recklessness or
indifference of the consequences, the insured might not turn his or her mind to the obvious
consequences of intended and seriously culpable conduct, so that there is no subjective recognition
of the risk or actual expectation as to the relevant possible consequences. While inferences may be
drawn from the obvious nature and degree of the risk, there may be difficulty associated with the
insured’s evidence of subjective innocence of appreciation of it. Further, there would be
considerable unfairness if the insured could escape the limitation through recklessness or
indifference of the consequences, but would be caught by it by exercising some foresight that
produces the relevant expectation.
This has led to modifications to the subjective approach, mainly through the liberal inference of
expectation in cases where it is clear from the circumstances that the insured intended the harm or
at least must have expected an obvious result. In some cases, this may be resolved by direct
judgments found that the taking of a calculated risk by driving a vehicle fast while heavily intoxicated, while
amounting to gross negligence, did not provide the necessary mental state to produce expectation. Assuming that the
insured did not subjectively expect the harm to be the result of such conduct, the ‘courting the risk’ qualification to the
subjective test of expectation should take into account whether the resulting harm is highly probable, such as whether
the insured was, despite the intoxication still driving as carefully as the intoxication allowed or highly recklessly, the
extent of the insured’s recognition of the risk, and general culpability of the insured’s conduct in terms of creating the
danger and indifference to the risk. Further, the legislative purpose of compulsory motor vehicle insurance in the
protection of the victim by the provision of an insurance fund may affect the construction of those policies in issues
such as this. See also Candler v London & Lancashire Guarantee & Accident Co of Canada (1963) 40 DLR (2d) 408
(balancing on a high coping of a building); Robinson v Evans Bros Pty Ltd (1969) VR 885 (discharging noxious smoke
known to cause damage). In National & General Insce Co Ltd v Chick (1984) 2 NSWLR 86, the insured was playing
Russian roulette with a gun in the mistaken belief that he was employing a system that would be safe, which reduced
his culpability and the otherwise high probability of the harm, both of which would otherwise have supported the view
that he was courting the risk and that the harm was “expected”, at least within the meaning of “accident” in the policy.
Clover Clayton & Co Ltd v Hughes (1910) AC 242, 250. See the discussion in Principles of Insurance Law in
Australia and New Zealand – Kelly & Ball at 7.116.
evidence or by circumstantial indications leading to the appropriate inference as a matter of fact57.
For example, fraudulent and intended acts are by their nature purposeful of harm to the victim,
though that may not be the primary motive, and because the consequential harm is necessarily
intended, it is not accidental58. This is distinct from the case where the act is intentional but the
harm is not necessarily consequential, intended or expected, such as in the case of ordinary
negligence, as discussed above. This much is fairly uncontroversial, but it is about here that the
distinction between the subjective and objective tests becomes complicated.
In the United States and Canada, there is a somewhat similar theory that when the risk of injury is
inherent in the insured’s deliberate conduct as its natural and probable consequence, the intention
to pursue that conduct is the intention to cause the injury59. While it is acknowledged that the
insurer must show that the injury was expected or intended60 (according to the relevant terms of
the policy), in cases of conduct in which it is inherent that the risk of harm will be created as its
natural and probable consequence, which may be the subject of judicial notice, the act itself
supports a powerful, and even irrebuttable, inference of intention to cause the harm that is inflicted
despite the actor’s denial of any such subjective intent or expectation61. The result need not be
inevitable. In some cases, this is somewhat different from fraud, where the actual causing of harm
The same issues arise as to an exclusion in relation to loss deliberately caused, intended or expected.
Chatton V National Union Fire Insce Co (1992) 10 Cal App 4th 846, 861. The same reasoning applies to malicious
prosecution: Ledford v Gutowski 877 P 2d 80.
Cooperative Fire & Casualty Co v Saindon (1976) 15 SCR 735; 56 DLR (3d) 556, Sansalone v Wawanesa Mutual
Insce Co (1998) 158 DLR (4th) 385; Albert v Fram Bureau Mutual Insce Co of Michigan NW 2d 282 (Mich App
1991); University of Cincinnati v Arkwright Insce Co 51 F 3d 1277 (6th Cir 1995); Wilkinson-Valiente v Wilkinson
(1996) ILR 1-3351. The same reasoning has been applied to “expectation” as to the result of the intended action,
which amounts to knowledge or belief that the conduct is substantially certain or highly likely to result in the kind of
damage that is in fact suffered: Shell Oil Co v Winterthur Swiss Insce Co (1993) 12 Cal App 4th 715, 737; Zoura v
Acceptance Insce Co 2002 Cal App Unpub LEXIS 10326. For example, there is no accident in intentional conversion
of property: American Home Insce Co v Osbourn 47 Md App 73, 81; 422 A 2d 8 (1980); USAA Casualty Insce Co v
Mummert 2002 US Dist LEXIS 14590; or deliberate assault: Harpy v Nationwide Mutual Fire Insce Co 76 Md 474;
545 A 2d 718 (1988); or deliberate force-placing of collateral protection insurance by a bank: US Fidelity & Guaranty
Co v Omnibank 812 So 2d 196 (Miss 2002), or deliberate infringement of patent rights, including derivative claims:
Farmland Mutual Insce Co v Scruggs 2004 Miss LEXIS 1174. In Gray v Barr (1971) 2 QB 554 at 587, Phillimore LJ
seemed to apply the ‘natural and probable consequences’ rule, but in the circumstances of that case, the ‘manifest
danger’ and ‘high probability’ factors that were probably intended to be recognised by his associated reference to the
insured’s recklessness were also present. It would probably be a mistake to read this passage as endorsing a simple
Physicians Insce Co of Ohio v Swanson (1991) 58 Ohio St 3d 189; 569 NE 2d 906; Buckeye Union Insce Co v New
England Insce Co 87 Ohio St 3d 280, 283; 720 NE 2d 495; 1999 Ohio 67; Hodgkinson v Economical Mutual Insce Co
(2003) OJ No 5125; Liberty Mutual Insce Co v Hollinger Inc 2004 ON C LEXIS 468; Baker v White 2003 Ohio 1614;
2003 Ohio App LEXIS 1540; Gordon v Metropolitan Life Insce Co 256 Md 320; 260 A 2d 338, 339 (Md 1970);
Jackson v National Life & Accident Insce Co 130 Ga App 208; 202 SE 2d 711, 712 (Ga App 1973); Wiley v State
Farm Insce Co 995 F 2d 457 (3rd Cir 1993); Aetna Casualty & Surety Co v Roe 437 Pa Super 414; 650 A 2d 94 (Pa
Super 1994); Benefit Insce Co v Haver 555 Pa 534; 725 A 2d 743 (1999); Minnesota Fire & Casualty Co v Greenfield
2002 Pa Super 260; LEXIS 2442.
Cooperative Fire & Casualty Co v Saindon (1976) 15 SCR 735; 56 DLR (3d) 556, Sansalone v Wawanesa Mutual
Insce Co (1998) 158 DLR (4th) 385; Albert v Fram Bureau Mutual Insce Co of Michigan NW 2d 282 (Mich App
1991); Wilkinson-Valiente v Wilkinson (1996) ILR 1-3351. The same reasoning has been applied to “expectation”,
which in some jurisdictions is said to amount to knowledge or belief that the conduct is substantially certain or highly
likely to result in the kind of damage that is suffered: Shell Oil Co v Winterthur Swiss Insce Co (1993) 12 Cal App 4th
715, 737; Zoura v Acceptance Insce Co 2002 Cal App Unpub LEXIS 10326.
is necessary to the exercise, as distinct from being an inherent risk of it; but the distinction is not
always present nor always observed in the discussions.
This reasoning applies in cases of inherent harm, such as child abuse62, non-consensual sexual
assault63, the commission of an offence where knowing misconduct is an element64, the supply of
an illegal and inherently dangerous substance such as heroin, shooting at a moving car 65, robbery
with loaded arms66, or the ramming of a car that had just entered a parking lot when it was likely
that someone was still in or near it, or repeated conduct such as the dumping of waste over a long
period causing pollution67. Murder comes within this rule, even though it be pleaded as
negligence68; and a “substantial certainty” employer tort will also come within the exclusion
irrespective of the employer’s actual subjective intention69.
Gearing v Nationwide Insce Co (1996) 76 Ohio St 3d 34; Doe v Schaffer 90 Ohio St 3d 388; 2000 Ohio 186. It is
sometimes said that, as a matter of public policy, an intent to injure is inferred in law when an adult sexually assaults a
child: State Mutual Inse Co v Russell 185 Mich App 521, 526; 462 NW 2d 785 (1990); Weekley v Jameson 221 Mich
App 34, 38; 561 NW 2d 408 (1997); Allstate Insce Co v Granger 2003 Mich App LEXIS 2192. The authorities are
collected in: “Insurance Coverage in Sexual Misconduct Cases” - Kloss & Mariano (1992) 42(2) FICC Q 191. Most
forms of sexual assault will lead to an inference that foreseeable harm was intended and expected Gordon v
Metropolitan Life Insce Co 256 Md 320; 260 A 2d 338, 339 (Md 1970); Jackson v National Life & Accident Insce Co
130 Ga App 208; 202 SE 2d 711, 712 (Ga App 1973); Wiley v State Farm Insce Co 995 F 2d 457 (3rd Cir 1993); Aetna
Casualty & Surety Co v Roe 437 Pa Super 414; 650 A 2d 94 (Pa Super 1994); Benefit Insce Co v Haver 555 Pa 534;
725 A 2d 743 (1999); Minnesota Fire & Casualty Co v Greenfield 2002 Pa Super 260; LEXIS 2442. In cases of
serious violence, there is some disagreement as to whether intent to harm, with accompanying expectation, will be
irrebuttably presumed; but the nature of the act virtually amounts to conclusive evidence by inference that harm that is
substantially certain to result was intentional and therefore expected, except perhaps when there is mistake having
some foundation in fact: RW v TF 528 NW 2d 869, 872 (Minn1995); American Family Mutual Insce Co v Peterson
405 NW 2d 418, 420 (Minn 1987); Anderson v State Farm Fire & Casualty Co 2003 Minn LEXIS 403).
Anderson v State Farm Fire & Casualty Co (supra); Allstate Insce Co v Mugavero 79 NY 2d 153; 589 NE 2d 365,
370; 581 NYS 2d 142 (NY 1992); Allstate Insce Co v Oles 838 F Supp 46, 54 (EDNY 1993); Sphere Drake Insce Co v
72 Centre Ave Corpn 238 AD 2d 574; 657 NYS 2d 65 (App Div 1997); Bd of Education v Continental Insce Co 198
AD 2d 816; 604 NYS 2d 399 (App Div 1993); State Farm Fire & Casualty Co v Tippett 2003 Fla App LEXIS 17625;
Worcester Insce Co v Fells Acres Day School Inc 558 NE 2d 958 (1990); Allstate Insce Co v Thomas 684 F Supp
1056, 1059 (WD Okla 1988); Allstate Insce Co v Roelfs 698 F Supp 815, 818 (D Alaska 1987); Whitt v Deleu 707 F
Supp 1011, 1016 (WD Wis 1989); Foremost Insce Co v Weetman 726 F Supp 618, 620 (WD Pa 1989); JC Penney
Casualty Insce Co v MK 804 P 2d 689 (1991); Allstate Insce Co v Troelstrup 789 P 2d 415, 417n (Colo 1990); Auto-
Owners Insce Co v Gardipey 434 NW 2d 220 (1988); NN v Moraine Mutual Insce Co 450 NW 2d 445 (1990); United
Services Automobile Assn v Doe 2003 Mass App LEXIS 832.
Chicago Insce Co v Borsody 165 F Supp 2d 592, 597 (SDNY 2001).
Woida v North Star Mutual Insce Co 306 NW 2d 570, 573 (Minn1981).
Continental Western Insce Co v Toal 309 Minn 169, 177; 244 NW 2d 121, 122 (1976).
County of Broome v Aetna Casualty & Surety Co 146 AD 2d 337; 540 NYS 2d 620 (App Div 1989). The exclusion
of cover as non-accidental has a chequered history in pollution cases. See Liability Insurance on Pollution Damage –
Dr MA Clarke (1994) JBL 545; Insurance of Wilful Misconduct”. Dr M Clarke (1996) 7 ILJ 173, 183.
Preferred Risk Insce Co v Gill (1987) 30 Ohio St 3d 108; 30 OBR 424; 507 NE 2d 1118, cited in Cincinnati Insce
Co v Anders 2003 Ohio 3048; 2003 Ohio LEXIS 1668.
This is based on the inference in the circumstances as a matter of law that the employer must have had the intention
of causing the harm that was so plainly consequential: Altvater v Ohio Casualty Insce Co 2003 Ohio App LEXIS 4296.
It is doubtful if the ordinary words of the expression can be ignored in this way, but since the tort is confined to the
circumstances when the inference is inescapable, the error has little consequence.
The rule, however, has a narrow applicability70. It would not apply if the act, such as burglary, is
not inherently dangerous 71. While any properly pleaded derivative claim, such as negligence,
against the insured wrongdoer will be subsumed into the intentional act for the purpose of the
exclusion72, it does not apply to a derivative claim against the insured for negligence in failing to
prevent the intentional harm by the wrongdoer even though, depending on the terms of the policy73.
It is left open whether a vicariously liable insured may lose cover for failure to prevent the act in
breach of an order of the court74; and it would depend on the circumstances whether it applies to
unintended injury while intending to elude police75. ‘Accident’ may include an occurrence of
medical malpractice76, but not an assault77, nor conversion of personal property, of which, absent
bizarre circumstances, an intent to exercise ownership over property that belongs to another is an
essential element78; nor employment discrimination; nor, for the same reason, interference with
contractual relations79. Defamation, even if alleged to be malicious, may not necessarily
intentional80. According to this rubric, a criminal conviction involving a mental state of knowingly
committing the criminal act may be sufficient to establish such intent conclusively81. Procuring the
act has the same result, and it does not matter if the results of the intended harmful act were
Aetna Life & Casualty Co v Barthelemy 33 F 3d 189; 192 (3d Cir 1994).
Eisenman v Hornberger 438 Pa 46; 264 A 2d 673 (Pa 1970).
Underwriters Lloyd’s of London v Scalera (2000) 185 DLR (4th) 1; Sansalone v Wawanesa Mutual Insce Co (2000)
185 DLR (4th) 57.
Nationwide Mutual Fire Insce Co of Columbus v Pipher 140 F 3d 222 (3rd Cir 1998); Allstate Insce Co v Lombardi
2003 US Dist LEXIS 12224, which also confirmed that the relevant intention is that of the person who commits the
wrong. However, this may not extend to the insured who may be liable in some way, such as vicariously, for those
acts by another person.
United Ohio Insce Co v Myers 2002 Ohio 6596; 2002 Ohio App LEXIS 6391.
Southern Guaranty Insce Co v Saxon 379 SE 2d 577 (1999).
Thomson v Ohio Insce Co 2002 Ohio 6517; 2002 Ohio App LEXIS 6300.
Bluebird Cabs Ltd v Guardian Insce Co of Canada 1996 BCSC 95/4378. For example, intentional shooting: Allstate
Insce v Grayes 454 SE 2d 616 (1995) .In such cases, it is said that it is not to the point that the insured did not intend
to do the harm if it was the natural and ordinary consequence of the intentional act: and consequently on this reasoning
it has been held that this applies to self-defensive intentional acts: Aetna Casualty & Surety Co v Freyer 411 NE 2d
1157, 1159 (Ill 1980); State Farm Fire & Casualty Co v Leverton 732 NE 2d 1094 (Ill App Ct 2000); Cincinnati Insce
Co v Allen 2004 US Dist LEXIS 24669; but this is controversial. See the discussion above.
Collin v American Empire Insce Co (1994) 21 Cal App 4th 787, 803; Tradewinds Escrow Inc v Truck Insce
Exchange (2002) 97 Cal App 4th 704, 714; Hartford Fire Insce Co v Century Properties Inc 2003 Cal App Unpub
Ibid.; Quelimane Co v Stewart Title Guaranty Co (1998) 19 Cal 4th 26, 55; 960 P 2d 513.
Wilkinson v Security National Insce Co (1999) ABQB 675.
Allstate Insce v Cole (1998) 129 Ohio App 3d 334, 336; 717 NE 2d 816; Baker v White (supra). :
Amrheim v Acuity 2004 Wisc App LEXIS 151.
An underlying basis of this reasoning is that the circumstances inferentially demonstrate the
subjective intent and expectations of the insured. But some of these cases have adopted the theory
that, in this context, the result of an intended act is an accident only if it is objectively unexpected,
that is, that the result must not be reasonably foreseeable as a consequence of the intended act; and
it is irrelevant that the insured may not subjectively have expected it83. This, of course, is
incompatible with the importance of the cover of negligence by liability insurance.
This line has recourse to the proposition that, for the consequence of an intended act to be
accidental, there must be some additional, unexpected, independent and unforeseen happening that
produces the damage84. This also calls upon the presumption85 that a person is deemed to know
the reasonable and probable consequences of his or her actions, which is something less than
knowing their merely foreseeable consequences, which refers to possible consequences86. Put
another way, although the relevant intention or expectation is that of the insured, an inference of
constructive intention or expectation may be drawn, and so an expectation will be found if the
insured should reasonably have expected the result of his/her conduct87. This makes it
unnecessary to examine the insured’s subjective intent.
This is understandable in those cases where the only inference is that the intent must necessarily
have been to cause harm. However, the cases where that is not available do not explore the issue
whether the deemed intention, the presumption, is rebuttable, or if not, why not. That the risk is
obvious would justifiably be rebuttable inferential proof that the insured was aware of it, and
courted the risk; but it could be rebutted by evidence that the insured was not aware of it. Simply
to rely on a presumption without discussion as to whether the subjective element, which plainly
applies in negligence cases, is displaced leaves the solution unresolved in these cases.
In parts of the United States, this has been expressed in different ways. Some supporters of
subjectivity insist that there must be actual expectation of the result. The determination of whether
the loss was unexpected must be made from the point of view of the insured, rather than by an
objective determination. Others temper the strictness of this by introducing an objective element;
but even then the trend has been to retain the subjective element to the extent of requiring at least
that the insured should have some appreciation of a serious risk of harm so that to proceed was
reckless88. This cannot be present when a recognised risk, although obvious, is not great. The
actual resulting harm must be the harm that is appreciated89.
While departing from the theory that requires the reference to be limited to the insured’s subjective intention, this
flirtation with objectivity is tied up with evidentiary inferences as to the insured’s subjective intention, and it will be
discussed later in that context.
Christensen v Allstate Insce Co 2005 Cal App Unpub LEXIS 1339 (supra); Quan v Truck Insce Exchange (1998) 67
Cal App 4th 583, 599; Freedman v Cigna Insce Co 976 SW 2d 776 (Tex App – Houston 1st Dist 1998); State Farm
Lloyds v Kessler 932 SW 2d 732 (Tex App – Fort Worth 1996); Allstate InsceCo v Hicks 2003 Tex App LEXIS 7915.
See also Compaq Computer Corpn v St Paul Fire & Marine Insce Co 2003 Minn App LEXIS 1078.
As Samuels JA pointed out in Chick, which is discussed elsewhere, this is an inference rather than a presumption,
which would restore the element of subjectivity.
This is a matter of inference rather than of principle, and accordingly is subject to superior evidence: National &
General Insce Co Ltd v Chick (1984) 2 NSWLR 86 per Samuels JA at 103-5.
Allstate Insce Co v JJM 254 Mich App 418; 645 NW 2d 20 (2002); Allstate Insce Co v Granger 2003 Mich App
LEXIS 2192 where the facilitation of a criminal act led to the a finding that it was expected.
Gray v Barr (1971) 2 QB 554 per Lord Denning and Phillimore LJ. The latter spoke in terms of foreseeable harm,
but also of recklessness. Lord Denning, relying on the policy’s reference to accidental cause, found that the insured’s
It was formerly said that in other than exceptional cases, there is injurious intent only when the
insured either consciously desires the actual physical result of the act, whatever its likelihood; or,
irrespective of desire, where the insured knows that the result is substantially certain to follow
from the conduct90. This amounts to expectation of it, and, it might be remarked, for the insured to
pursue the course of conduct in those circumstances is the equivalent of courting the risk. This
evolved into the view that the subjective intent of the insured is the key and not what an average or
ordinary reasonable person would expect or intend91; and ‘accident’ is absent only in the case
taking a loaded gun to confront his wife’s lover was a proximate cause of the unintended shooting of the lover in the
course of a struggle, and was a deliberate act that was not an “accident” within the meaning of such a provision. He
also seemed to imply that in any case the result was no accident because the insured’s conduct was reckless and
culpable in that the serious danger must have been obvious to the insured. However, he distinguished a case of gross
negligence in an insured’s unintended shooting of another while on a shooting expedition. The distinction lies in the
deliberate and culpable nature of the insured’s action in bringing a loaded gun to the place in such circumstances,
despite recognition of the obvious danger. Salmon LJ, dissenting, looked only at the narrow circumstances of the
shooting that occurred accidentally in a struggle, and consequently did not deal with insured’s culpability in recklessly
taking a loaded gun into a situation of hostility where the risks were manifestly very high. This authority was not
applied in Marcel Beller Ltd v Hayden (1978) 2 QB 694, which was concerned with gross negligence by an intoxicated
driver. The views of Salmon LJ were preferred, but there may well be serious points of distinction, particularly in the
insured’s culpability as to the deliberate taking of the risk and the magnitude of the probability of harm. S &Y
Investments (No 2) Pty Ltd v Commercial Union Assce Co of Aust Ltd (1986) 44 NTR 14 was a case of deliberate
shooting in the direction of a suspected intruder by a servant of the insured without intention to strike him. This is not
relevant here because the policy required that the cause of the harm should be accidental; and the insured was not the
party who fired the shot. See Sutton: Insurance Law in Australia 3rd ed paras 10.60 – 86. However, in discussion,
Asche J preferred the reasoning of Salmon LJ in Gray v Barr to that of Phillimore LJ, sayinig that the latter was
confusing the question of accident with the question of culpability. With respect, there was no confusion. It is a
question as to the extent to which the insured’s grossly culpable and reckless disregard of the highly likely
consequences may affect the construction of the expression, “accident”, as the parties to the contract would have
intended it in such circumstances. Had Asche J applied the reasoning of Lord Denning and Phillimore LJ, he should
still have come to the same conclusion as to accident because the insured’s servant did not intend or expect to shoot the
victim, the probability of such harm was not of the required degree to oust accident, and his relevant conduct in
pursuing the act or disregarding the consequences did not have the culpability that would do so. This is discussed
The extent of the harm might be relevant to the culpability of the insured in taking the risk or in disregarding the
probability of harm; or where the actual harm might be considered to be accidental because it proved to be more than
might have been reasonably expected.
United Services Auto Assn v Elitzky 358 Pa Super 362; 517 A 2d 982 (Pa Super 1986); Woida v North Star Mutual
Insce Co 306 NW 2d 570, 573 (Minn1981); State Farm Fire & Casualty Co v Wicka 474 NW 2d 324 (Minn 1991);
Anderson v State Farm Fire & Casualty Co (supra). A plea of guilty to a charge of reckless endangerment vitiates any
suggestion that the injury was not expected or intended: Pennsylvania Millers’ Mutual Insce Co v Rigo 256 AD 2d
769; 681 NYS 2d 414, 416 (3rd Dept 1998); International Business Machines Corpn v Liberty Mutual Fire Insce Co
2002 US App LEXIS 18352. There is a view that the element of recklessness is not dispositive, and the factual
situation will determine the matter. See SM Brickell Ltd Partnership v St Paul Fire & Marine Insce Co 786 So 2d
1024 (Fla 3d DCA 2001) (reckless defamation); Castro v Allstate Insce Co 724 So 2d 133 (Fla 3d DCA 1998), both
discussed in Barry University Inc v Fireman’s Fund Insce Co of Wisconsin 2003 Fla App LEXIS 7047. Conduct,
though reckless, that is not inherently harmful does not fall within this description: Slayko v Security Mutual Insce Co
98 NY 2d 289, 293; 746 NYS 2d 444; 774 NE 2d 208; Peters v State Farm Fire & Casualty Co 2003 NY App Div
LEXIS 6813. See also Allstate Insce Co v Zuk 78 Ny 2d 41, 46; 571 NYS2d 429; 574 NE 2d 1035; Matijiw v New
York Cent Mutual Fire Insce Co 292 AD 2d 865; 740 NYS 2d 177; State Farm Fire & Casualty Co v Wicka 474 NW
2d 324 (Minn 1991); Anderson v State Farm Fire & Casualty Co (supra).
. See Pique v Saia 450 S0 2d 654(La 1984); Bazley v Tortorich 397 So 2d 475 (La 1981); Breland v Schilling 550 So
2d 609 (La 1989); United Services Auto Assn v Elitzky 358 Pa Super 362; 517 A 2d 982 (1986); Young v Brown 2003
La App LEXIS 1055; Miller v Continental Insce Co 40 NY 2d 675, 677; 389 NYS 2d 565; 358 NE 2d 258; Agoado
Realty Corpn v United International Insce Co 95 NY 2d 141, 145; 711 NYS 2d 141; 733 NE 2d 213; Siage v National
where the insured deliberately undertakes an appreciated manifest risk of high probability 92
because it predicates an expectation of possible harm, or, with reckless culpability of a high order,
disregards it. It should be noted however that is not limited to an expectation that the harm will
necessarily follow. There is still controversy as to this theory93.
There may be some difficulty caused by the absence of actual expectation because of recklessness,
thoughtlessness, intoxication or other mind-disordering state, which would, on this theory, convert
the undertaking of a plainly gross risk into an accident when, for example, the harm is caused by
an insured of unsound mind through natural causes or intoxication. It may deprive the insured of
the capacity to form an intent or to have an expectation, but those faculties may remain and the
insured’s state of mind may simply explain motivation. If such an insured were to shoot someone
deliberately, knowing that the victim would be hurt, that is enough94. Whether an inference of
intent and/or expectation will apply when the insured is suffering from an impaired mental state,
will depend on whether, on a subjective standard, the insurer can show, directly or by inference,
that the insured intended to harm the victim, that is, whether the consequential harm was intended
or understood because of the obvious nature of the act; but usually it will not be inferred to be
Fire Insce Co of Pittsburgh PA 2003 NY App Div LEXIS 6430. Because it is a question of the mind set of the insured,
an act of deliberate harm by an employee of the insured who was not acting within the scope of his employment or in
any manner on the employer’s behalf in assaulting a customer with a length of pipe was held not to have been intended
or expected by the insured employer, even though the presence of the pipe was known: Siage (supra); Park Terrace
Arms Corpn v Nationwide Insce Co 268 AD 2d 297; 701 NYS 2d 390.
In Marcel Beller Ltd v Hayden (1976) 2 WLR 845, 852.
Van Fossen v Babcock & Wilcox Co 522 NE 2d 498 (1988); Wedge Products Inc v Hartford Equity Sales Co 509 NE
2d 74 (1987); Diocese of Winona v Interstate Fire & Casualty Co 89 F 3d 1386, 1391 (8th Cir 1996); American Family
Mutual Insce Co v M.B. 563 NW 2d 326, 328 (Minn App 1997); The Travelers Indemnity Co v Bloomington Steel &
Supply Co 2005 Minn App LEXIS 452. Contra: Graham Brown Foundation Inc v St Paul Fire & Marine Insce Co
814 SW 2d 273 (Ky 1991); Patrons-Oxford Mutual Insce Co v Dodge 426 A 2d 888 (1980); City of Johnstown v
Bankers Standard Insce Co 877 F 2d 1146 (2nd Cir 1989); Westfield Cos Inc v Quality Signs & Service Inc 2005 Ky
App LEXIS 91, where it was held that there must be a subjective expectation. In Continental Western Insce Co v Toal
244 NW 2d 121, 125 (Minn1976) Bituminous Casualty Corpn v Bartlett 240 NW 2d 310, 313 (Minn 1976); Ohio
Casualty Insce Co v Terrace Enterprises Inc 260 NW 2d 450, 452 (Minn 1977) and Domtar v Niagara Fire Insce Co
563 NW 2d 724 (Minn 1997), it was held that “expected” required a certainty of harm on the part of the insured greater
than foreseeability as used for liability; that it was equated with reckless conduct that could be proved through
circumstantial evidence or proof of wilful blindness; but that it must be the insured’s actual expectation. There could
be some confusion here. Recognition of the probability of the harm is enough for subjective expectation if that can be
established. Substantial certainty is a level applied when there is a denial of subjective expectation in respect of
seriously culpable conduct, and the subjective test is departed from. In a practical sense, it is also useful as inferential
proof of the insured’s subjective understanding of the probable consequences of seriously risky conduct.
Whaley v Cartusiano 68 DLR (4th) 58. Some surprising examples of a finding of intent are: State Farm v Victor 232
Neb 942, 442 NW 2d 880 (Neb 1989) – insured admitted intent to cause bodily harm to one but shot another, the intent
to cause harm to someone being enough; Commercial Union Insce Co v Ballowe 671 F Supp 421 (WD Va 1987) –
Insured broke down door and fired numerous times while shouting, “You are both dead”; Stout v Grain Dealers’
Mutual Insce Co 201 F Supp 647 (MD NC) Aff 307 F 2d 521 (4th Cir 1962) – Insured shot victim 15 times and pleaded
guilty to voluntary manslaughter. For a finding to the contrary, see Titan Indemnity Co v Cameron (supra). There is
an implication, as a matter of law, of intention that is generally drawn when the nature and circumstances of the
insured’s act are such that harm is substantially certain to result, will apply when the insured is suffering from a mental
illness will depend on whether under a subjective standard the insured can be shown by the insurer, directly or by
inference, to have intended to harm the victim, that is, whether the consequential harm was intended or understood
because of the obvious nature of the act; but usually it will not be inferred to be intentional: Clemmer v Hartford Insce
Co 22 Cal 3d 865; 587 P 2d 1098, 1110; 151 Cal Rptr 285 (Cal 1978); Ruvolo v American Casualty Co 39 NJ 490; 189
A 2d 204, 207 (NJ 1963)State Farm Fire & Casualty Co v Wicka 474 NW 2d 324 (Minn 1991); Anderson v State
Farm Fire & Casualty Co (supra).
intentional95. Subject to these qualifications, the ordinary principles relating to the subject should
apply. Serious problems of proof will often arise in respect of an insured’s mental state, which is
impalpable and susceptible to feigning.
There is reasonable debate as to whether engaging in egregiously dangerous conduct as a result of
serious voluntary intoxication, such as driving a motor vehicle in that state will admit of a finding
of accident in the event of an unintended and, from the insured’s subjective point of view,
unexpected collision when the high risk is plainly foreseeable to an objective mind. The trend of
the authorities to the present time has favoured a finding of accident in these cases on the basis of
the insured’s subjective intention and expectation. This has caused some concern to those trying to
detect a logical ratio through the cases because seriously intoxicated driving may be just as
dangerous and culpable as, for example, taking a loaded gun into a situation of emotional
confrontation. The issue of courting the risk, which will be considered below, has not been
seriously addressed in these cases, which have directed their scrutiny to the issue of the subjective
or objective test, without full consideration of any qualification of the subjective test in the case of
gross culpability. Aside from the influence of the purpose of protecting the victim in cases of
compulsory insurance, there is no reason for any distinction in such cases. Although the serious
danger of driving at all may be manifest objectively, a seriously intoxicated driver may still try to
exercise care, so that such culpability will be less than the reckless driving of a similar driver. It
would be wrong to apply an inflexible rule in all cases, and the simple answer would seem to be
that the overall culpability in becoming so intoxicated in such circumstances, driving in such a
state, and the manner of driving should be considered in deciding whether the insured courted the
risk or was guilty of such culpable conduct that in either case the parties would not have intended
to have come within the meaning of “accident” when they used that word in their contract.
Generally, the trend of the authorities has adhered to the subjective test for an ordinary claim of
negligence, but has qualified it by a refinement in cases of serious recklessness in the face of
obvious risk from seriously culpable conduct not involving intentional harm. This has led those
courts that have abandoned pure subjectivity to discuss the nature of the insured’s conduct that
would not be ‘accidental’ when the insured does not actually, that is, subjectively, expect the
consequences that are manifestly likely. They did this by recourse to the concept of the insured’s
‘courting the risk’. This is much to the same effect as the American ‘substantial certainty’ of the
harmful result since courting the risk requires taking an obvious risk when the likelihood of harm
is very high96. The precise formulation of the definition of these concepts for all circumstances has
not been easy, which is not necessarily a flaw, for it may be applied flexibly under the over-riding
: Clemmer v Hartford Insce Co 22 Cal 3d 865; 587 P 2d 1098, 1110; 151 Cal Rptr 285 (Cal 1978); Ruvolo v
American Casualty Co 39 NJ 490; 189 A 2d 204, 207 (NJ 1963); State Farm Fire & Casualty Co v Wicka 474 NW 2d
324 (Minn 1991); Anderson v State Farm Fire & Casualty Co (supra); But see Mallin v Farmers Insce Exchange 108
Nev 788; 839 P 2d 105 (1992). Despite voluntary intoxication, the insured may still be found to have had the
necessary intention, for an insane or intoxicated person may be capable of forming an intention although the mental
state may affect motivation or inhibition: Recelle v State Farm Fire & Casualty Co 120 Nev Adv Rep 5. In order to
counter this, some policies now contain an addition to the exclusion to the effect that it applies even if the insured is
lacking in mental capacity to govern his or her conduct; and it will apply in an appropriate case: Allstate Insce Co v
Lombardi 2003 US Dist LEXIS 12224, where it was also held that the insuring clause’s requirement of accident
through the definition of “occurrence” also kept the claim outside the cover.
This approach has not been universal. In Physician Insce Co v Swanson 569 NE 2d 906, no qualification to the
subjective test was applied to the insured’s shooting a gun to scare the victim but unintentionally injuring him. This
may be reconciled on the ground that the conduct was not sufficiently culpable and the probability of harm not
sufficiently high to attract the qualification.
and broader concept of the parties’ intention as to ‘accident’ when they adopted that expression in
The formulation has been limited to those cases where the insured’s conduct is so hazardous and
culpable, and the insured’s knowledge and reasonable appreciation of the risk was necessarily so
high as to lead to the inference that the risk was or must have been recognised and was voluntarily
undertaken. Gross negligence alone is not enough97. The alternatives within the range of this
limitation are that the insurer knows the risk and its high likelihood of harm and proceeds to take it;
that the insurer knows of the risk but recklessly did not advert to its magnitude despite that it was
manifest; and that the insured recklessly disregards all these things.
On one view, the insured must actually foresee the risk and the high likelihood of harm so that
objective foreseeability is not enough. Because the necessary degree of the obvious danger for the
matter to come into contention at all, there would be few occasions when subjective foresight could
be absent, but it may appear in cases where the insured’s mind is so deranged for various reasons
that foresight of the risk does not necessarily accompany its manifestation. As it has been
remarked, derangement of the mind does not necessarily exclude intention or expectation of harm:
these may be present and the condition merely explains why the risk is undertaken.
This line of reasoning seems to follow these steps. Expectation is not the equivalent of desire, for a
person may expect to cause damage without a desire to do so, the desire relating to some collateral
matter. Intention is not necessarily limited to desire. Nor is intention equated with recklessness,
since the result of recklessness need not be inevitable. But there is a point where the risk, and the
insured’s reasonable realisation of it, is so high that the state of mind is indistinguishable from
expectation that the result might occur in some circumstances and the intention that it should do so
in those circumstances, despite the absence of desire, design or planning98. Presumably the courts
implied that by undertaking the recognised risk, the insured, though not wishing that the harm
would be caused99, knew that the risk would be consummated if things fell that way and expected it
to be highly probable.
This reference to the reasonableness of the insured’s appreciation of the risk seems to import an
objective test to the feature of realisation of the degree of the risk and its highly probable results. It
may be intended to meet the case where the culpability of the insured’s recklessness in not
recognising these things is so excessive that the parties to the contract could not have intended to
include it within the meaning of the imprecise term, “accident”100.
Gray v Barr (1971) 2 QB 554 per Lord Denning and Salmon LJ (since Lord Denning found that the insured courted
the risk, this expressed view may be obiter; and Salmon LJ was in the minority); Mt Albert City Council v New
Zealand Municipalities Co-op Insce Co Ltd (1983) NZLR 190, applied in Hurley Contractors Ltd v Farmers Mutual
Assn (1991) 6 ANZ Ins Cas 61.076. The matter is still within the insurer’s control in the drafting of the policy. While
a reckless disregard of the danger might not meet the description of a “wilful or deliberate act” since that is held to
refer to deliberately intending the harm or loss: Daniel v Accident Insce Mutual Holdings (1996) 9 ANZIC 61.297, it
may meet the description of “wilful misconduct”: Wood v Associated National Insce Co Ltd (1985) 1 Qd R 297.
Clayton v Mutual Community General Insce Pty Ltd (1995) 8 ANZIC 61.263.
The court used the description that the insured has to invite or woo the appreciated loss, but the context does not
support the meaning that the insured desired it to happen.
National & General Insce Co Ltd v Chick (1984) 2 NSWLR 86, for example, is consistent with this. The insured
was playing Russian roulette with a gun in the mistaken belief that he was employing a system that would be safe. This
precaution, defective as it proved to be, reduced to foolish negligence the culpability of his conduct and the otherwise
high probability of foreseeable harm. If he had not cause to believe that he was reducing the risk significantly, both
It is no doubt designed to avoid the undesirable result of a finding that the consequence is not
‘expected’, no matter how unreasonable that blindness of it may have been. Defeating an inference
of expectation would be unusual, having regard to the high risk that is necessarily involved, but
because in theory the insured could still succeed, the test at that point departs from the subjectivity
principle and introduces an objective element because the insured’s culpability in respect of the
subjective feature requires departure from it and the substitution of objective reasonableness. This
is also consistent with the influence of the absence of culpability in cases of intentional harm by the
insured in self-defence or the taking of a manifest and high risk by a rescuer, where accident would
still be found101. This answer may be defended on the ordinary meaning of ‘accident’ as the parties
to the contract would have intended it in this context.
In the case of self-defence102, for example, having regard to the nature of the policy and its
purpose, an acceptable view is that, because the dominant purpose is defence with the virtual
absence of choice, the harm is not intended or expected as understood by the use of “accidental” in
the limitation of the cover. In other words, the insured’s intention or expectation of the harm that
is inflicted is so lacking in culpability that in the insured’s underlying situation, which is accidental
for the insured, the parties to the insurance contract would have intended their use of “accidental”
to encompass even such deliberate infliction of harm.
This would be consistent with the observation associated with the leading early authorities that the
meaning of the expression in this context is imprecise and that no comprehensive definition can be
formulated. Because it is a word of wide and flexible nature, its particular purpose in the context
of the whole contract is very influential. That purpose is to limit the insurer’s obligation to provide
indemnity within the general promise of protection of the insured afforded by the cover. The word
should be understood in a sensible and businesslike way so as to give reasonable efficacy to its
purpose in its application to a wide variety of circumstances.
It is fully consistent with principle to consider whether the parties would have intended the
expression to encompass such extreme cases. The classic definition of the word is not intended to
be construed strictly as to its own terms in all cases, including extreme and unusual cases where
the limits of the words used in the definition prevail over the primary source of enlightenment, the
intention of the parties in using the original word for their intended purpose and in the
circumstantial context in which it appears103.
The adoption of a generally subjective test, modified slightly by an objective test in respect of a
feature where a different result produced by a subjective test would be unfair and unlikely to have
degree of the risk and his culpability in taking it or in disregarding it would have amounted to courting the risk and the
harm would have been “expected”, at least within the meaning of “accident” in the policy.
It also explains the distinction between the result in Gray v Barr (supra) and Prudential Property v Swindal 622 So
2d 467 (Fla 1993) where the circumstances were fairly similar but the insured’s intention and conduct were less
See fn 33.
For example, if, when the insurer and the insured were negotiating the terms of the policy in Gray v Barr, they had
asked a reasonable person whether, hypothetically, “accident” as used in the policy should apply to the extreme type
of conduct that later emerged, the response would likely have been, “No. The result may not have been intended or
even subjectively expected, but that is not the kind of accident that is intended by the parties to be covered.” This was
the view of Phillimore LJ at p. 587.
been intended by the parties, is consistent with this. A flexible application of such a general
expression harmoniously with the parties’ reasonable intention as to the competing purposes
behind the language is both principled and practical. It eschews a rigid analysis of “unintended
and unexpected”, into determinative issues of strict subjectivity and objectivity.
This meets the general purpose of the contract to provide protection to the insured against liability
in respect of such things as negligence and even recklessness, despite foreseeability, by the
application of the subjective test. Conversely, having regard to the purpose of the limitation, the
protection of the insurer, in the most serious cases of recklessness where the insured might not
have had a subjective expectation of harm, but the parties could not have reasonably intended that
the insurer should indemnify the insured, the objective test of reasonableness in cases of the
insured’s taking gross risks is introduced.
The word does not change its meaning. Its meaning, as the parties reasonably intended it,
encompasses both conclusions according to the circumstances so that one or the other will be
paramount in particular circumstances. The primary issue is not whether there is subjective or
objective expectation, but which is applicable to the circumstances of the particular case. In some
cases, subjective and objective perspectives may well be relevant for different purposes, even if
Understandably, there has also been little effort to formulate any precise test as to the point at
which recklessness as to a perceived risk, which alone is not enough to oust ‘accident’, becomes
courting the risk, which does. Guidance may be obtained by comparing the cases where accident
has been found and when it has been rejected. It is consistent with the strength of the reasons for
the general adoption of the subjectivity test that any departure will occur only at a very high level
of risk, as connoted by the expressions adopted, “courting (or wooing) the risk” or “substantial
certainty of harm”. With these indicators and an understanding of the reasoning behind them, their
application becomes a pragmatic exercise in the particular circumstances.
In the end, within these parameters, the critical issue in any particular case is always whether a
reasonable insured, understanding the purpose of the cover and of the limitation, would regard the
relevant feature as being “accidental” within the ordinary meaning of the language of the policy.
This test is objective in accordance with the usual rule of construction of contracts.
Act perpetrated by other than the insured
If there are more than one insured and both are liable though the occurrence is attributable to only
one of them, the question will then be whether deliberate or expected harm by one of them is
enough to exclude the element of accident for the other. The insurer will be entitled to deny cover
to the guilty insured, and in respect of any payment made on behalf of the innocent insured, will
have subrogated rights against the other, providing that the liability is at least several, even though
it may also be joint.104
If the policy provides that the insured are insured severally, then each insured’s position must be
considered separately; and the mere vicarious liability of one for the other does not mean that the
P Samuel & co Ltd v Dumas (1924) AC 431; Lombard Aust Ltd v NRMA Ltd (1968) 72 SR (NSW) 45; V L Credits
Pty Ltd v Switzerland Gen Insce Co Ltd 91989) 5 ANZIC 60.936. See also Art: “Composite Policies” - The Hon Mr
Justice Brownie (1991) 4 ILJ 250, “Insurance Coverage in Sexual Misconduct Cases” - Kloss & Mariano (1992) 42(2)
FICC Q 194. See also McQuade v Sun Alliance Insce Co (1992) 7 ANZIC 61.136.
absence of accident for one can be attributed to the other. In Canada the usual test is whether the
interests are inseparably connected;105 but it will depend on the nature and the terms of the
Similarly, where the act of one for whom the insured is vicariously liable is non-accidental, it may
still be an accident to the insured. Apart from the obvious need to look at the actual existence of
expectation by the insured, or the other party, and the participation by the insured in the harmful
act, the vicarious aspect relates to liability only and not to acts or fault, and consequently, unless a
provision of the policy has the contrary effect, the mere presence of vicarious liability does not
invest the insured with the intent or expectation of the wrongdoer107. However, in the United
States, in some cases an insured may not be covered for the intentional acts of employees, who
were also insured under the policy, and acting in the course of their employment though their acts
were unauthorised108. In particular, if the employee’s prior conduct created a substantial
probability that certain consequences would flow from his actions109. In the case of a company, its
claim for indemnity will be defeated only when the act of the individual said to be acting on its
behalf is to be regarded as that of the company itself110.
Loss arising from breach of contract to perform work.
Peters v Fireman’s Fund Insce Co of Canada 93 DLR (4th) 637.
Clayton (supra). See also the discussion on the condition relating to fraudulent claims, as to which the same
principles should apply.
Bluebird Cabs Ltd v Guardian Insce Co of Canada (1999) 173 DLR (4th) 318.
Zoura v Acceptance Insce Co 2002 Cal App Unpub LEXIS 10326.
Diocese of Winona v Interstate Fire & Casualty Co 89 F 3d 1386, 1391 (8th Cir 1996); American Family Mutual
Insce Co v M.B. 563 NW 2d 326, 328 (Minn App 1997); The Travelers Indemnity Co v Bloomington Steel & Supply
Co 2005 Minn App LEXIS 452.
Lombard Australia v NRMA Insce Ltd (1968) 3 NSWR346; S & Y Investments (No 2) Pty Ltd (In Liq.) v
Commercial Union Assce Co of Aust Ltd (1986) 85 FLR 285; 4 ANZIC 60.780; Entwells Pty Ltd v National & General
Insce Co Ltd (1991) 6 WAR 68; 6 ANZIC 61.059; Noosa Shire Council v Caverdeen Pty Ltd (1995) 16 Qd Lawyer
100. In the United States, in respect of some policies it seems to be reasonably established that it is whether it is an
accident from the point of view of the insured and not another person who may have committed the act: General
Accident Insce Co v Allen 708 A 2d 828 (Pa Super 1998); Mohn v American Casualty Co 326 A 2d 346 (1974); Roque
v Nationwide Mutual Insce Co 467 A 2d 1128, 1129 (1983); Nationwide Mutual Fire Insce Co of Columbus v Pipher
140 F 3d 222 (3rd Cir 1998); Allstate Insce Co v Lombardi 2003 US Dist LEXIS 12224, which also confirmed that the
relevant intention is that of the person who commits the wrong; but it may be different in liability insurance in respect
of the conduct of another person who commits intentional harm, for whose conduct the insured may be indirectly
liable: Donegal Mutual Insce Co v Baumhammers 2004 Pa Super 397; 2004 Pa Super LEXIS 3832; Miller v
Continental Insce Co 40 NY 2d 675, 677; 389 NYS 2d 565; 358 NE 2d 258; Agoado Realty Corpn v United
International Insce Co 95 NY 2d 141, 145; 711 NYS 2d 141; 733 NE 2d 213; Siage v National Fire Insce Co of
Pittsburgh PA 2003 NY App Div LEXIS 6430. Consequently, an act of deliberate harm by an employee who was not
acting within the scope of his employment or in any manner on the employer’s behalf in assaulting a customer with a
length of pipe was held not to have been intended or expected by the insured employer, even though the presence of
the pipe was known: Siage (supra); Park Terrace Arms Corpn v Nationwide Insce Co 268 AD 2d 297; 701 NYS 2d
390. An employer company that is wholly owned by the employee is to be regarded separately from the employee
where they are both insured for their separate interests; but as the owner/employer knows of his own tendency to
commit the harm to the extent that it is a highly probable risk, the company through him is reckless to the extent of
courting the risk if it permits him to be placed in that position: The Travelers Indemnity Co v Bloomington Steel &
Supply Co 2005 Minn App LEXIS 452.
The question has arisen often in North America as to whether a liability policy covers claims
against an insured contractor for defects in the contract works through poor workmanship in breach
of the contract, and causing harm only to the works themselves111, as distinct from harm to other
property of the claimant. A similar question arises in respect of defective products supplied by the
insured where the only harm is inflicted by the defect on the product alone. This issue appears in
such forms of liability insurance as Contractors’ Policies in relation to breach of contract for works
and Products Liability policies in relation to defective products.
In addition to argument based on public policy or an implication arising from the element of
accident, as an added precaution some insurers attempt to exclude it from the cover by means of an
“expected from the standpoint of the insured” or “your work” exclusion112 or by a similar limitation
in a definition of a term of the insuring clause.
In the United States and Canada, there is conflict between jurisdictions as to whether this limited
infliction of harm can amount to an accident113. In some cases where cover has been denied, the
Custom Planning & Development Inc v American National Fire Insce Co 2004 Ga App LEXIS 1332.
This exclusion is sometimes limited, such as by an exception relating to the work of a sub-contractor. Conversely,
there may be completed work cover that immediately affects the position.
It is said that the question of these claims “lies in chaos”: Is Defective Construction Covered under Contractors’
and Subcontractors’ Commercial General Liability Policies? - W Lyman 491 PLI / Real 505, 513 (April 2003. See
the conflicting cases cited in Gehan Homes Ltd v Employers Mutual Casualty Co 2004 Tex App LEXIS 9412. The
more widely held view in North America, is that it is not an accident because the insured’s liability should be expected
because it is in breach of a contractual obligation; and “occurrence” is usually defined in terms of accident. It is also
said that without further harm to other property, faulty workmanship or product does not involve property damage.
The rule is also justified on the ground of public policy, primarily on the long-founded notion that the cost of repair
and replacement of damage to the contracted work or product is a business risk not covered by such a policy: Nas
Surety Group v Precision Wood Products Inc 271 F Supp 2d 776 MDNC 2003); LaMarche v Shelby Mutual Insce Co
390 So 2d 325 (Fla 1980). See also McAllister v Peerless Insce Co 474 A 2d 1033, 1036 (1984); Ohio Casualty Insce
Co v Bazzi Construction Co 815 F 2d 1146 (7th Cit 1987); JZG Resources Inc v King 987 F 2d 98 (2nd Cir 1993); RN
Thompson & Assoc v Monroe Guaranty 686 NE 2d 160 (Ind App 1997); Indiana Insce Co v Hydra Corpn 615 NE 2d
70 (1993); US Fidelity & Guaranty Co v Advance Roofing 163 Ariz 476; 788 P 2d 1277 (Ariz App 1989); Heile v
Herrmann 136 Ohio App 3d 351; 736 NE 2d 566 (1999); Pursell Construction Inc v Hawkeye-Security Insce Co 596
NW 2d 67 (1999); Standard Fire Insce Co v Chester-O’Donley & Associates Inc 972 SW 2d 1 (1998); RN Thompson
& Assoc Inc v Monroe Guaranty Insce Co 686 NE 2d 160 (1997); United States Fidelity & Guaranty Corpn v Advance
Roofing & Supply Co Inc 163 Ariz 476; 788 P 2d 1227 (CT App 1989); Radenbaugh v Farm Bureau Insce Co 240
Mich App 134; 610 NW 2d 272 (2000); Etoll Inc v Elias/Savion Advertising Inc 2002 Pa Super 347; 811 A 2d 10 (Pa
Super 2002); State Farm Fire & Casualty Co v Tillerson 334 Ill App 3d 404; 777 NE 2d 986, 991(2002); Yocca v
Pittsburgh Steelers Sports Inc 806 A 2d 936 (Pa Cwlth 2002); American Guaranty & Liability Insce Co v Fojanini 90
F Supp 2d 615, 622 (ED Pa 2000); Manufacturers’ Assn Insce Co v LB Smith Inc 2003 Pa Super 322; 2003 Pa Super
LEXIS 2724; Jim Barna Log Systems Midwest Inc v General Casualty Insce Co 2003 Ind App LEXIS 1256; Pace
Construction Co v United States Fidelity & Guaranty Insce Co 934 F 2d 177 (8th Cir 1991); Yegge v Integrity Mutual
Insce Co 534 NW 2d 100 (Iowa 1995) and Union Insce Co v Hottenstein 2003 Colo App LEXIS 1857; Jim Johnson
Homes Inc v Mid-Continent Casualty Co 244 F Supp 2d 706 (ND Tex 2003); Viking Construction Management Inc v
Liberty Mutual Insce Co 2005 Ill App LEXIS 517 and the cases collected therein. Many of these authorities say that a
breach of such a contract is not an accident. See also Wm C Vick Construction Co v Pennsylvania National Mutual
Casualty Insce Co 52 F Supp 2d 569 (EDNC 1999); ACS Construction Co Inc v CGU Insce Co 2003 US App LEXIS
11877; 332 F 3d 885 (5th Cir 2003); Norwalk Ready Mixed Concrete v Travelers Insce Co 246 F 3d 1132 (8th Cir
2001); JZG Resources Inc v King 987 F 2d 98 (2nd Cir 1993); US Fidelity & Guaranty Corpn v Advance Roofing &
Supply Co 163 Ariz 476; 788 P 2d 1227, 1233 (Ariz Ct App 1990); McCallister v Peerless Insce Co 124 NH 676; 474
A 2d 1033 (NH 1984); Hawkeye Security Insce Co v Vector Construction Co 185 Mich App 369; 460 NW 2d 329, 334
(Mich Ct App 1990); Maryland Casualty Co v Reeder 221 Cal App 3d 961; 270 Cal Rptr 719 (Cal Ct App 1990);
Western World Insce Co v Carrington 90 NC App 520; 369 SE 2d 128 (NC Ct App 1998); Snyder Heating Co v
Pennsylvania Manufacturers’ Assn Insce Co 715 A 2d 483, 487 (Pa 1998); Pursell Const v Hawk-eye Security Insce
Co 596 NW 2d 67, 71 (Iowa 1999); Penn American Insce Co v Valade 28 Fed Appx 253, 258 (4th Cir 2002); Lenning
courts have sustained the refusal of cover on this ground. Their rationale is that the claimant’s
allegations of negligent construction or design practices do not fall within the broad cover of
liability for property damage caused by an “occurrence”, which is defined to have an element of
accident. This is because the harm and consequential liability are not accidental in the sense that
the insured must know that faulty workmanship might lead to a faulty result with a high likelihood
of liability in damages for breach of contract. As the loss suffered in relation to the defective and
v Commercial Union Insce Co 260 F 3d 574, 583 (6th Cir 2001); L-J Inc v Bituminous Fire & Marine Insce Co 350 SC
549; 567 SE 2d 489 (SC App 2002); American ire & Casualty Insce Co v Doverspike 36 Va Cir 263 (Va Cir Ct 1995);
Hotel Roanoke Conference Center Commission v The Cincinnati Insce Co 2004 US Dist LEXIS 2539; Auto-Owners
Insce Co v Home Pride Cos Inc 2004 Neb LEXIS 145. This may be contrasted with Wells Dairy Inc v Travelers
Indemnity Co 241 F Supp 2d 945 (ND Iowa 2003), where the breach of contract was caused by an explosion and not
poor workmanship. Fidelity & Deposit Co of Maryland v Hartford Casualty Insce Co 189 F Supp 2d 1212 (D Kan
2002); Joe Banks Drywall v Transcontinrntal Insce Co 753 So 2d 980 (La App 2000); Erie Insce Exchange v Colony
Development Corpn 136 Ohio App 3d 406; 736 NE 2d 941 (1999); Colard v American Family Mutual Insce Co 709 P
2d 11 (Colo App 1989); United States Fidelity & Guaranty Co v Bonitz Insulation Co of Alabama 424 So 2d 569
(1982); U S Fidelity & Guaranty Co v Wilkin Insulation Co 144 Ill 2d 64; 578 NE 2d 926; (Ill 1991); Ohio Casualty
Insce Co v Terrace Enters 260 NW 2d 450 (Minn 1977) say that it is an accident. In JSUB Inc v United States Fire
Insce Co 2005 Fla App LEXIS 3612,accident was found because, in the absence of a wider definition of the term, it
was given a stricter meaning as to what was intended or expected by the wrongdoer rather than the natural and
probable consequences of the act; and because of indications and implications flowing from the exclusions. This case
also traces the history of the movement of opinion in that jurisdiction from the opposing view, and provides reference
to several commentaries on the matter. This issue is often academic because of ‘your work’ exclusions as to liability
for defective workmanship, which usually contains exceptions, and other specific provisions, e.g., Freestone v New
England Log Homes Inc 2003 Pa Super 24; 819 A 2d 550 (Pa Super 2003) Pa Super LEXIS 31; American Family
Mutual Insce Co v American Girl Inc 773 NW 2d 65 (2004); Erie Insce Exchange v Colony Development Corpn
(supra); or as to “expected” damage from the standpoint of the insured. See that exclusion in Chapter 10. See also the
topic, Property Damage, this chapter. In AXA Global Risks (UK) Ltd v Haskins Contractors Pty Ltd (2004) 13 ANZ
Ins Cas 61.611, there was no discussion as to some of the reasons supporting this view, it was held that the breadth of
the language of the cover and in the absence of any suitable exclusion, the liability cover applied to the remedial costs
of defective work for which the insured was responsible; but the cover was more than liability cover and was always
intended to cover the works against loss from physical damage from any cause. See also Kitchiner Silo Inc v CIGNA
Insce Co of Canada (1991) ILR 1-2764 (Ont Gen Div); Erie Concrete Products Ltd v Canadian General Insce (1969)
2 OR 372 (HC); Carleton Ironworks Ltd v Ellis Don Construction Ltd (1996) ILR 1-3373 (Ont Gen Div); Harbour
Machine Ltd v Guardian Insce Co of Canada (1985) 10 CCLI 72 (BCCA); Tsubaki of Canada Ltd v Standard Tube
Canada (1993) OJ No 1855 (Ont Gen Div); Celestica Inc v Ace INA Insce 2003 Ont C A LEXIS 364; Kish v Central
National Insce Group of Omaha (1981) 67 Ohio St 2d 41, 48; 424 NE 2d 288; Thomson v Ohio Insce Co 2002 Ohio
6517; 2002 Ohio App LEXIS 6300; Frankenmuth Mutual Insce Co v Masters 460 Mich 105, 114; 595 NW 2d 832
(1999); Allstate Insce Co v McCarn 466 Mich 277, 281; 645 NW 2d 20 (2002); Arbor Woods Associates v Amerisure
Insce Co 2003 Mich App LEXIS 1626; Arco Industries v American Motorists Insce Co 448 Mich 395, 404; 531 NW
2d 168 (1995); Frankenmuth Mutual Insce Co v Masters 460 Mich 105; 595 NW 2d 832 (1999); Animal Behaviour
Institute Inc v Auto-Owners Insce Co 2003 Mich App LEXIS 3169; Republic National Life Insce Co v Heyward 536
SW 2d 549, 557 (Tex 1976); Mid-Century Insce Co v Lindsey 997 SW 2d 153 (Tex 1999); Tealwood Construction Inc
v Scottsdale Insce Co 2003 US Dist LEXIS 20993. The relevant intention is that of the person who commits the
wrong; Nationwide Mutual Fire Insce Co of Columbus v Pipher 140 F 3d 222 (3rd Cir 1998); Allstate Insce Co v
Lombardi 2003 US Dist LEXIS 12224, (compulsive action due to mental incapacity still not accidental). In
compulsory motor insurance, where the purpose is the protection of the victim, “accident” may be interpreted as
accidental to the victim so as to cover the case of deliberate conduct by the insured: State Farm Fire & Casualty Co v
Tringali (1982) 686 F 2d 821. In Privest Properties Ltd v Foundation Co of Canada Ltd (1991) 57 BCLR (2d) 88;
(1991) 6 CCLI (2d) 23, 72, it is explained that the insured’s receiving payment twice for the work or product, and the
issue of incentive to do work properly are also policy reasons supporting this approach. By way of contract, the
insured’s accidental dropping of a part into a pipe system that put the system at risk comes within the description:
Canadian Equipment Sales & Service Co Ltd v Continental Insce Co Ltd 59 DLR (3d) 333, 336; Alie v Bertrand &
Frere Construction Co Ltd (2003) 222 DLR (4th) 687. A different result may follow a special definition of
“occurrence” and “property damage”: Askren Hub States Pest Control Services v Zurich Insce Co 721 NE 2d 270 (Ind
Ct App 1999). The insured’s negligence in hiring an employee is not an accident since the hiring is intentional: Erie
Insce Co v American Painting Co 678 NE 2d 844 (Ind Ct App 1997); Jim Barna Log Systems Midwest Inc v General
Casualty Insce Co 2003 Ind App LEXIS 1256.
damaged work or product relates to the satisfaction of the contractual bargain, it cannot be
unforeseen that defective work would be in breach of the contract; and in this context, it should be
neither unexpected nor unforeseen that the other party will be entitled to the damages.
This may be contrasted with the case where the breach causes unexpected damage to property that
is unrelated to the contract and not part of the contract works or product114. This is typically the
kind of liability that such policies are intended to cover, and the distinction demonstrates the point.
Then, liability for the resulting damages is usually covered if not excluded by other terms of the
policy, such as a ‘business risk’ exclusion 115; and if this limitation is imposed on the cover by both
a reference to ‘accident’ and appropriate exclusions116, and if both features are so intertwined that
they must be analysed together, factual issues may arise117.
Support for this construction of ‘accident’ in this context is drawn from the nature of the policy’
cover. Liability insurance is not intended to protect an insured from liability for contract claims
that involve the costs of repairing or replacing the insured’s defective work or products. Its
purpose is to provide cover against liability for harm done to the person or property of others rather
than to provide a performance bond for the performance of the contract when there is only
economic loss through the provision of a defective product and through harm to it from the defect.
Quintette Coal Ltd v v Bow Valley Resources Services Ltd (1987) 21 BCLR (2d) 203 (SC); Privest Properties Ltd v
Foundation Co of Canada (1991) 6 CCLI (2d) 23 (BCSC); Pier Mac Petroleum Installation Ltd v Axa Pacific Insce
Co (1997) 41 BCLR (3d) 326, 334; 47 CCLI (2d) 229 (S); FW Hearn/Actes v Commonwealth Insce Co  ILR – I-
3870; Knutson Construction Co v St Paul Fire & Marine Insce Co 396 NW 2d 229, 234 (Minn 1986); US Fidelity &
Guaranty Co v Advance Roofing 163 Ariz 476; 788 P 2d 1277 (Ariz App 1989); JZG Resources Inc v King 987 F 2d
98 (2nd Cir 1993); Pekin Insce Co v Richard Marker Assoc 682 NE 2d 362 (1997); Wm Vick Construction Co v
Pennsylvania National Mutual Insce Co 52 F Supp 2d 569 (EDNC 1999); Pursell Construction Inc v Hawkeye-
Security Insce Co 596 NW 2d 67 (1999); Heile v Herrmann 136 Ohio App 3d 351; 736 NE 2d 566 (1999); Auto
Owners Insce Co v Tripp Constructions Inc 737 So 2d 600 (Fla App 1999); Radenbaugh v Farm Bureau Insce Co 240
Mich App 134; 610 NW 2d 272 (2000); Thommes v Milwaukee Mutual Insce Co 622 NW 2d 155, 159 (Minn App
2001), affd 641 NW 2d 877 Minn 2002); Dewitt Construction Inc v Charter Oak Fire Insce Co 307 F 3d 1127, 1134
(9th Cir 2002); Standard Construction Co Inc v Maryland Casualty Co 2004 US App LEXIS 4226; RN Thompson &
Assoc v Monroe Guaranty Insce Co 686 NE 2d 160 (Ind Ct App 1997); L-J Inc v Bituminous Fire & Marine Insce Co
350 SC 549; 567 SE 2d 489 (SC App 2002); Jim Barna Log Systems Midwest Inc v General Casualty Insce Co 2003
Ind App LEXIS 1256; Auto-Owners Insce Co v Home Pride Cos Inc 2004 Neb LEXIS 145; Alpine Florist & Food
Market Ltd v Axa Pacific Insce Co 2004 BCSC 1731; 2004 BC.C LEXIS 2882; Indiana Insce Co v Hydra Corpn 615
NE 2d 70 (Ill 1993); Viking Construction Management Inc v Liberty Mutual Insce Co 2005 Ill App LEXIS 517. In
Ellett Industries Ltd v Laurentian P & C Insce Co (1994) BCJ No 1540, on app (1996) BCJ No 500, the same principle
was followed, but its application was questioned in respect of a claim that equipment failure was due to negligent
design, analysis, fabrication or supply in certain circumstances.
Lerner Corpn v Assurance Co of America 120 Md App 525, 536; 707 A 2d 906 (1998); Harbor Court Assoc v
Kiewit Construction Co 6 F Supp 2d 449 (1998); Mutual Benefit Group v Wise M Bolt Co Inc 2002 US Dist LEXIS
Erie Insce Exchange v Colony Development Corpn (1999) 136 Ohio App 3d 406; 736 NE 2d 941; Hahn’s Electrical
Co v Hartford Casualty Co 2002 Ohio 5009 at p 37; Zanco Inc v Michigan Mutual Insce Co (1984) 11 Ohio St 3d 114;
11 Ohio B 413; 464 NE 2d 513; Acme Construction Co Inc v Continental National Indemnity Co 2003 Ohio 434;
National Engineering & Contracting Co v United States Fidelity & Guaranty Co 2004 Ohio App LEXIS 2091.
Sawhorse Inc v Southern Guaranty Insce Co of Georgia 2004 Ga App LEXIS 1034; Bituminous Casualty Corpn v
Northern Insce Co of NY 548 SE 2d 495 (2001); Canal Indemnity Co v Blackshear Farmers Tobacco Warehouse Inc
490 SE 2d 129 (1997); Sapp v State Farm Fire & Casualty Co 486 SE 2d 71 (1997); Custom Planning & Development
Inc v American National Fire Insce Co 2004 Ga App LEXIS 1332.
This remains the case even if the product or work suffers additional harm through the defect. It is
not that the insured causes harm to such property. The additional harm is merely the consequential
harm flowing from the breach of the contract in the provision of a defective product. Strictly, if
the insured’s fault has been simple negligence, this does not depend on any want of accident
except to the extent that the insured must expect that the provision of a defective product must lead
to liability, and it is here that accident is missing.
It must be remarked, that the result will fall according to the language of the policy. If ‘accident’
is associated with the causing of the harm rather than to the attraction of liability, the theory must
depend on the foreseeability of not only the presence of a defect in the work but also any harm that
might be done to the contract work or product by the defect. In this respect, the fallback on
objective foreseeability is contrary to well-established principle, such as applies when there is also
damage to property other than the work or product. This throws into doubt the validity of the
reasoning based on accident118, though there are other seemingly good grounds for the same
result119. Nevertheless, the reason has been adopted in several jurisdictions, though it is rejected in
In a mild related digression, it might be observed that upon the same reasoning as to the need for
‘accident’, a claimant’s economic loss as the result of the insured’s misrepresentation in a contract
whereby the property sold under the contract has a lower value than represented is not an
“occurrence”120; but the reduction in value of a third party’s product by contamination by the
insured’s defective property that is added as an ingredient amounts to an “occurrence” of property
damage121. There is no broad rule that a claim sounding in contract is not based on an
“occurrence”: it is necessary to consider whether it is based on tort, contract or some other cause of
In Mt Albert City Council v New Zealand Municipalities Co-op Insce Co Ltd (1983) NZLR 190, it was held that
“liability arising from accidents” referred to the accidental incurring of liability rather than incurring liability through
accidental means, in which case the insured’s expectation of liability rather than of the harm was the relevant point of
enquiry; but since an expectation of liability predicates an expectation of harm, there is no difference there. However,
an expectation of harm may in some cases not predicate an expectation of liability.
See, for example, the grounds identified in Viking Construction Management Inc v Liberty Mutual Insce Co 2005 Ill
App LEXIS 517.
Safeco Insce Co v Andrews 915 F 2d 500 (9th Cir 1990) – failure to disclose facts materially affecting the value of
the property; State Farm Fire & Casualty Co v Brewer 914 F Supp 140, 143 (SD Miss 1996) – pre-existing termite
damage; ML Foss Inc v Liberty Mutual Insce 885 P 2d 284, 285 (Colo App 1994); discussed in Cyprus Amax Mineral
Co v Lexington Insce Co 2003 Colo LEXIS 494. Freedman v Cigna Insce Co 976 SW 2d 776 (Tex App – Houston 1st
Dist 1998); State Farm Lloyds v Kessler 932 SW 2d 732 (Tex App – Fort Worth 1996); Allstate InsceCo v Hicks 2003
Tex App LEXIS 7915. The definition of the word usually includes the element of accident.
Zurich American Insce Co v Cutrale Citrus Juices US A Inc 2002 WL 1433728at 3 (MD Fla 11 Feb 2002); Chubb
Insce Co of NJ v Hartford Fire Insce Co 1999 WL 760206 at 8 (SDNY 27 Sept 1999); General Mills Inc v Gold Medal
Insce Co 622 NW 2d 147, 152 (Minn Ct App 2001); Shade Foods Inc v Innovative Products Sales & Marketing Inc 78
Cal App 4th 847; 93 Cal Rptr 2d 364, 376 (Cal Ct App 2000); Thomas J Lipton Inc v Liberty Mutual Insce Co 34 NY
2d 356; 314 NE 2d 37, 39; 357 NYS 2d 705 (NY 1974); National Union Fire Insce Co of Pittsburgh v Terra Industries
Inc 2003 US App LEXIS 21050. This does not translate to contamination to the insured’s own product by the addition
of a contaminated ingredient: Kartridg Pak Co v Travelers Indemnity Co 425 NW 2d 687 (Iowa Ct App 1988).
Auto Owners Insce Co v Toole 947 F Supp 1557 (MD Ala 1996); Union Insce Co v Hottenstein 2003 Colo App
LEXIS 1857; Vandenberg v Superior Court (1999) 21 Cal 4th 815, 839; Bailey v Gerling America Insce Co 2004 Cal
App Unpub LEXIS 579.
As it has been remarked, this theory has come under judicial challenge. If the insured knowingly
performs the work so badly that the damage must be expected, then of course it would not be
accidental; but if there is mere negligence so that it cannot be said that the insured must have
expected the damage caused by the defect, as distinct from the product’s inadequacy to meet the
terms of the contract, the counter-argument is that the damage to the work was accidental within
the accepted meaning of that term. It is difficult in logic to discriminate on the basis of accident
between damage to the contract works and damage to other property, which is acknowledged to be
Further, specific terms are available, and now often used, to exclude cover for liability for harm
caused to the insured’s product or works, if that is intended. If they are not used, the inference is
that the exclusion was not intended. Because of this diversity of judicial opinion as to whether
reliance on the element of ‘accident’ is an appropriate tool to achieve this result, an insurer who
wishes to exclude cover in such circumstances would be advised to say so explicitly by means of a
Special features of exclusions
An exclusion is construed strictly against the insurer123. . If it is framed in terms such as “damage
caused by any intentional act”, the word, “intentional”, may refer to the act or to its result, and
unless the meaning intended is established by other means, the term may be found to be ambiguous
and construed favourably to the insured124. In that case it will mean that there must be an intent to
injure.125 More usually, the exclusion is directed to intentional or expected harm, that is, the focus
of the element of accident is the result rather than the conduct causing it126. The language of the
policy should be very influential here.
While a reckless disregard of the danger might not meet the description of a “wilful or deliberate
act” since that is held to refer to deliberately intending the harm of loss,127 it may meet the
For these reasons, the authorities on the questions of accident, where deliberate courting of the risk is relevant, and
wilful misconduct or exposure to danger, are not relevant: Clayton v Mutual Community General Insce Pty Ltd (1995)
8 ANZIC 61.263; Daniel v Accident Insce Mutual Holdings (1996) 9 ANZIC 62.297. They are considered under their
Non-Marine Underwriters, Lloyd’s of London v Scalera (2000) 1 SCR 551; 185 DLR (4th) 1; Gamblin v O’Donnell
(2002) 207 DLR (4th) 469; United Serv Auto Assn v Elitzki 358 Pa Super 362, 517 A 2d 982, 986 (Pa Super Ct 1986);
Titan Indemnity Co v Cameron 2002 US Dist LEXIS 14156; Physician’s Insce Co v Swanson 58 Ohio St 3d 189; 569
NE 2d 906 (1991); Monticello Insce Co v Hale 2003 US Dist LEXIS 17365; Mallin v Farmers Insce Exchange;
Recelle v State Farm Fire & Casualty Co 120 Nev Adv Rep 5. In some jurisdictions, it is the act that must be
intentional, and then the question of causation follows. This does not emasculate the cover since most claims relate to
damage caused by negligent acts: Sansalone v Wawanesa Mutual Insce Co (2000) 185 DLR (4th) 57.
Non-Marine Underwriters, Lloyd’s of London v Scelera (2000) 1 SCR 551 (para 37).
See Insurance of Wilful Misconduct”. Dr M Clarke (1996) 7 ILJ 173 at 176.
The word ‘wilful’ does not connote much more than does the word ‘deliberate’. It means that the will must have
accompanied the act, and the whole phrase means that something has been done by the exercise of will and with an
intention to do what has been done. While a reckless disregard of the danger might not meet the description of a
“wilful or deliberate act” since that expression has been held to refer to deliberately intending the harm of loss: Daniel
v Accident Insce Mutual Holdings (1996) 9 ANZIC 61.297, it may meet the description of “wilful misconduct”: Wood v
Associated National Insce Co Ltd (1985) 1 Qd R 297.
description of “wilful misconduct”128 if that is excluded by the policy. That expression is distinct
from gross negligence or wanton negligence, and requires conscious and intentional conduct with
the knowledge that it is wrong. It is the misconduct, not the conduct, must be wilful129. When they
are part of the policy’s language, the precise connotation of the words “deliberate” or “wilful” 130
depends on the context, but they cannot be construed too strictly lest they artificially and
unacceptably diminish the scope of the cover. The wilfulness must be directed at the exposure to
peril and it is not enough that it relates only to the commission of the act. It is the causing of harm
rather than the performance of the act to which the description of deliberateness applies, and the
parties should not be taken to have intended that by that expression the unintended results of the
insured’s acts were to be excluded from the cover. Such an expression imports the connotation
that the insured desired to cause the harm or that the result was intended, though not necessarily
desired, as a means to achieve some desire collateral purpose131. Of course, the drafting may be
more explicit, in which case the formulated standard will prevail132.
In this context, recklessness is not equated with such an intention or expectation except where the
high probability of the harm is realised to the point of substantial certainty and the risk is still
taken.133 If the language of the policy so permits, recklessness may be enough to activate the
exclusion; and if so, it may operate without offence to the utility of the cover since non-reckless
negligence is covered.134
Advance of Defence Costs
In Wilkie v Gordian Runoff Ltd135 and Rich v CGU Insurance Ltd; Silbermann v CGU Insurance
Ltd 136(“the Rich case”) differing results obtained in relation to claims by insureds for advances of
their respective costs of defence of criminal charges of dishonesty brought against each of them by
ASIC for dishonesty. Although the terms of the policy were in principle similar in relevant
respects, the difference arose from the respective approaches taken by the insured to the litigation.
Wood v Associated National Insce Co Ltd (1985) 1 Qd R 297.
Lewis v Great Western Ry LR3QB 195, 206, 210; R v Dahl (1936) 4 DLR 629, 647; McCulloch v Murray (1942)
SCR 141, 145; 2 DLR 179; Conohan v Cooperators (2001) 2 FC 238. This does not include negligence associated
In some jurisdictions, there is a statutory implication of a term excluding liability for wilful harm. Although the
section must be construed as a statute rather than as a contractual term, it still means a deliberate act for the express
purpose of causing damage or intentionally performed with knowledge that damage is highly probable: Harry W Low v
Golden Eagle Insce Co 2003 Cal App Unpub LEXIS 8881.
Morley v United friendly Insce Plc (1993) 1 WLR 996.
E.g., North Carolina farm Bureau Mutual Insce Co v Mizell 138 NC App 530, 530 SE 2d 93, 94 (NC Ct App), rev
den 352 NC 590, 544 SE 2d 783 (NC 2000); Barton v Allstate Insce Co 527 So 2d 524, (La Ct App).
Clayton v Mutual Community General Insce Pty Ltd (1995) 64 SASR 353; 8 ANZIC 61.263; Australian Associated
Motor Insurers Ltd v Wright (1998) 10 ANZIC 61.390.
Morley v United friendly Insce Plc (1993) 1 WLR 996.
 HCA 17; (2005) 13 ANZ Ins Cas 61-641.
 HCA 16; 2005); 13 ANZ Ins Cas 61-642.
While the construction of a policy will depend on its particular language, and that a difference of
language may preclude any attempt to apply the prior construction of another policy, that was not
the reason for the disparity of the result here.
The policies had broadly similar extensions for the advance by the insurer of costs for the insured’s
defence in litigation of the relevant kind. In effect, they provided that if the insurer did not take
over the defence and did not refuse to confirm cover, the insurer could, at its discretion, advance
the defence costs of which it approved, subject to the right to recover them if in the end it were
found that the cover did not apply. The trouble was that the enforcement of this right might prove
be barren, but in Wilkie, it was enforceable severally against the other insured parties, including the
company, and to that extent it was less insecure.
Both policies also carried exclusions of cover for claims relating to dishonesty. The essential
feature was whether they engaged before the dishonesty was established in litigation.
The critical point in both cases was the qualification to the exclusion. In Wilkie, it appeared in the
phrase, “… where such act, omission or breach has in fact occurred…’, (our emphasis) and the
words, “in fact”, were defined to mean that the conduct referred to is admitted by the insured or is
subsequently established to have occurred following the adjudication of any court, tribunal or
arbitrator. In the Rich case, it read, “ However, this exclusion shall only apply to the extent that the
subject conduct has been established by a judgment or other final adjudication adverse to the
Director or Officer”.
In each appeal, the principal issue was whether the insurer could be required to advance the costs
of the defence to the prosecution before there was an adjudication establishing the insured’s
dishonesty on which the exclusion rested. In Wilkie, it was conceded by the insured that the
“adjudication” could be that made in proceedings between the insurer and the insured. In Rich, the
insured claimed in the prior proceedings that it was confined to the “claim” made against the
insured, and particularly the prosecution of the insured for dishonesty. In the High Court, they did
not appeal against the adverse finding.
In Wilkie, the insured applied for a declaration that he was entitled to the advance of his defence
costs, and for an injunction. On the hearing of the question of his entitlement, as distinct from the
insurer’s right to decline to indemnify, the issue was general in form – whether the insurer was free
of any obligation to advance defence costs by reason of its reliance at that time on the dishonesty
exclusion. That was the only ground on which it relied, and if it could not do so at that time, the
insured was entitled to the benefit of the extension.
Under that provision, the insurer had the discretion as to whether it would advance the costs, but if
the exclusion did not apply or did not yet engage so that it had no present contractual right to refuse
to make the advance, utmost good faith would require it to exercise its discretion favourably. This
was implicitly accepted, and was not the subject of discussion.
In the Rich case also, the insured sought to establish and enforce the insurer’s liability to advance
the defence costs. The insurer cross-claimed that it was not so liable because of the dishonesty
exclusion, and further that it had avoided the policy for fraudulent non-disclosure or
misrepresentation. At first instance and on appeal to the Court of Appeal, three questions had been
postulated to the Court – (i) whether the insurer could rely on the exclusion in the absence of an
existing judgment establishing the insured’s dishonesty; (ii) whether the insurer could establish the
necessary dishonesty in the action between it and the insured, as distinct from having to rely on the
findings inn the proceedings in which the claim or charge against the insured was brought; and (iii)
whether the exclusion applied to the indemnity relating to the advance of defence costs.137
These had all been answered against the insured in both earlier proceedings, and before the High
Court, they abandoned any suggestion of error as to the last two answers, and directed their appeal
to the answer to the first, which was reformulated to ask, in effect, whether the insurer was obliged
to advance defence costs until the issue of dishonesty was determined in the action between them.
The position of the respective parties before the High Court was, accordingly, markedly different.
In the Rich case, it was accepted that the exclusion applied to the claim for defence costs, but in
Wilkie, the issue was whether it could do so while there was yet no adjudication on the dishonesty
issue. The difference in the results turned on this.
In Wilkie, the Court found that by the terms of the policy, the exclusion did not engage until the
insured’s dishonesty was established. The exclusion was not enlivened by the existence of
dishonesty but by the adjudication of that fact.
The Court noted the purpose of the contract, and observed the practical commercial importance to
the insured of the advance of defence costs. It also invoked the rule of construction that the
contract should be read as a whole, and in particular that a congruent operation of its various
components should be sought. Since the insured was also engaged in the insurance business, the
majority approved the restraint of insured’s counsel by refraining from invoking the contra
The Court found that the terms of the exclusion, referring to “Loss arising out of any Claim”,
which included defence costs, was aptly drafted for the general promise of indemnity covering the
totality of liability and defence costs in one part of the policy; but it was not apt for the special
form of indemnity provided in the extension by an advance of defence costs, because they typically
arise before the result of the dishonesty issue can be established. The exclusion could have been
expressed in a way that would have applied to the extension directly and immediately, but it did
not do so and in those circumstances the inapplicabililty of the exclusion until the later stage was
consistent with the inherent conflict of the provisions . Although the extension was subject to the
terms and conditions of the policy, the exclusion was not yet one of those terms because it was not
This all fitted in logically with the features of the extension, that the advance of costs would be
made, provided that the insurer had not denied indemnity for the claim, and that the insurer could
recover any costs advanced if it should turn out that the cover did not apply, which predicated that
the matter of cover could not at that stage be determined138. The insurer could not do that until the
exclusion came into operation, and it could not use an exclusion that was not in operation on the
basis of notional anticipatory completion of its requirements. The mere refusal of the insurer to
Note that the third question was directed at whether the exclusion applied to the rights contained in the
endorsement, and not when it was engaged. In Wilkie, the exclusion’s application to the benefit was not in issue. The
sole issue was whether the exclusion was engaged before any adjudication as to the insured’s dishonesty. In the Rich
case, the courts below had found that it did.
It does not matter whether this right reserved to the insurer might in the end prove to be barren. Its importance is
that the term is contained in the policy, and that presence has an appropriate influence in pointing to the intention of the
parties on the major issue. It anticipates that the insurer may advance costs when it may later prove that the cover does
provide indemnity, based exclusively on a term that was not yet available to it could not amount to
a denial of indemnity sufficient to support the proviso to the obligation to advance costs.
This postponement of the operation of a factor that would justify the insurer’s right to refuse to
advance the costs may be distinguished from an immediate factor, such as another exclusion that is
immediately engaged or a right to avoid the policy ab initio139. Then, although the determination
of its validity may be delayed, it will still have been in operation at the time when the insurer will
have relied on it to refuse to advance costs.
None of this merited discussion in the Rich case because the insureds’ acceptance of the adverse
answers to questions (2) and (3) meant that they could not possible have a favourable answer to the
remaining question. This was a purely technical result that depended on the way in which the
proceedings fell; and it does not detract from the principles or reasoning followed in Wilkie.
Until the matter of rescission is determined, in the United States, the insured is entitled to defence costs despite the
insurer’s claim that the insurance was properly rescinded: Wedtech Corpn v Federal Insce Co 740 F Supp 214, 221
(SDNY 1990); Federal Insce Co v Tyco International Ltd 784 NYS 2d 920; 2004 WL 583829 (NY Sup 2004); Pepsico
Inc v Continental Casualty Co 640 F Supp 656, 660 (SDNY 1986); In re Worldcom Inc 2005 US Dist LEXIS 1466.
Because of the different emphasis in approach to construction of contracts generally, and insurance policies in
particular, and an apparent lack of identity between significant features of the policies, it is unsafe in Australia to rely
on United States authorities in this area: Wilkie v Gordian Runoff Ltd  HCA 17; (2005) 13 ANZ Ins Cas 61-641,
though Callinan J seems to have adopted this view as to when rescission is effective. Presumably, it is still useful to
use them to observe the issues raised and such arguments that might accord with Australian principles and rules of