INSURANCE COMMERCIAL BANKING

Court of Appeal confirms onus on insurer to

prove exceptions within an insuring clause
McLennan v Insurance Australia Ltd [2014] NSWCA 300
Priya Paquet & Nicholas Maiorana | September 2014 | Insurance & Financial Services

Summary
On 2 September 2014, the NSW Court
of Appeal upheld an appeal from the
decision of the District Court of NSW
that the applicant had not proven an
entitlement to cover under the policy of
insurance.
The decision reaffirms that if an insurer
relies on an exception contained within
an insuring clause to deny or refuse
a claim, the onus of proving that the
exception applies rests with the insurer
in the same way it does with a standard
exclusion.
The Dispute
Jaqueline McLennan (McLennan) was the owner of
a property at Orange in NSW (the premises) which
was damaged by fire on 27 December 2006 (the fire).
The building and contents were insured with Insurance
Australia Ltd t/as NRMA Insurance (IAL).
IAL alleged that McLennan or someone she knew had
started the fire. IAL refused McLennans claim and
asserted that McLennan had failed to satisfy all the
elements of the insuring clause of the Policy:
if your home or contents suffer loss or damage caused by
fire we will replace or repair your damaged contents
rebuild or repair that part of your home that was damaged
However, we will NOT cover loss or damage as a result of
fire started with the intention of causing damage by you or
someonewith your consent

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It is the usual course that an insured bears the onus of

proving that the claim meets the insuring clause and
then the onus shifts to the insurer to prove any exclusions
apply.
IAL asserted that as the exception was in the insuring
clause, the onus was reversed and the insured was
required to positively prove that the fire had not been
started by her or someone she knew.

First Instance
The primary judge, Neilson DCJ, accepted IALs
submission that in order to make out an entitlement for
indemnity under the Policy. McLennan needed to not
only establish that her home was damaged by fire, but
that the fire had not been intentionally caused by either
herself or someone with her consent because McLennan
had the onus of proving that her loss fell within the
insuring clause.
His Honours decision was based on the premise that
the insuring clause constituted an exception clause and
therefore the onus of establishing an entitlement to cover
rested with McLennan.
His Honour found that McLennan had failed to discharge
that onus and ordered a verdict and judgment in favour
of IAL.

Appeal
McLennan appealed the District Court decision. The
issue on appeal was whether in fact she had the burden
of proving that her loss fell outside of the exception to
the insuring clause by establishing that the fire was not
deliberately started by her or someone else.
The Court observed that it is generally accepted that an
insurer must prove that a loss falls within an exception.1
However, the Court also acknowledged that a contract of

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insurance may also make express provision as to which

party bears the burden of proving the existence or nonexistence of a particular fact.2
The Court noted that when considering an insuring
clause, a distinction is drawn between an insuring clause
that qualifies the scope of cover with one that excludes
particular examples from the operation of that cover.
Not surprisingly the Court found that the qualification or
exception to cover in the insuring clause that was relied
on by IAL was constructed as an exclusion clause and
therefore the onus rested with IAL to prove the exception
applied.
The Court upheld the appeal and found that the primary
judge erred in concluding that McLennan had the burden
of proving that the fire was not deliberately lit by her or
someone with her consent.

For more information,

please contact:
Priya Paquet
Senior Associate
T: 02 8257 5729
M: 0434 115 260
priya.paquet@turkslegal.com.au

Nicholas Maiorana
Lawyer

Implications for Insurers

1. It remains imperative that an insurer has sufficient
evidence to substantiate the denial of a claim when
relying on a policy exclusion whether in an insuring
clause or not as, in the absence of a clear agreement
in the policy, the onus rests with the insurer to prove
that the exclusion applies.
2. A policy may include express provision detailing which
party bears the onus of proving the existence or nonexistence of a particular fact. If insurers wish to reverse
the usual onus regarding exclusion clauses this must be
explicitly set out in the policy.
3. When assessing a claim for indemnity under a policy, a
determination of where the legal burden of proof lies is
informed by the content and scope of the insuring
clause and a proper construction of the policy.
1

Wallaby Grip Ltd v QBE Insurance (Australia) Ltd [2010] HCA 9

Levy v Assicurazione Generali [1940] AC 1971 and Spinneys (1948) Ltd

v Royal Insurance Co Ltd [1980] 1

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