Lost on loss: It was stolen so why won’t my insurer pay?

Adam owed a vintage Chrysler. The Chrysler’s cylinder head needed to be serviced and Adam arranged for it to be serviced at a specialist mechanic in Christchurch.

Adam lived in Otago, however, he had a friend that was driving through Christchurch. Adam gave his friend the cylinder head to deliver to the mechanic on his way through Christchurch.

When the friend arrived at the mechanic’s premises, it had shut for the day. The package containing the cylinder head was only small so the friend pushed the package through the mechanic’s fence and into the forecourt. The friend also got a stick to push the package further into the forecourt and out of arm’s reach.

Overnight the package was stolen from the mechanic’s forecourt. The bars of the fence had been bent for the person to steal the cylinder head.

A police report confirmed that the cylinder head had been stolen as a result of a burglary.

Adam made a claim to his motor vehicle insurance company for the cylinder head, worth $4,500. The insurance company declined Adam’s claim.

 

The insurance company’s position

The insurance company said it would only accept Adam’s claim if the cylinder head had been stolen from a ‘locked or secured building’. The insurance company declined Adam’s claim as the mechanic’s forecourt could not be considered to be a ‘locked or secured building’.

 

Adam’s position

Adam believed his claim should be paid as the cylinder head was stolen and his policy covered stolen parts. Adam argued that the burglar had bent the fence bars to reach the package and this would have taken more effort than breaking a glass window. Adam complained to FSCL.

 

Review

It was not disputed that Adam’s cylinder head had been stolen or that he had suffered a loss. The issue to be determined was whether the burglary of Adam’s cylinder head was covered under his insurance policy.

The insurance policy included a specific section for ‘Vehicle spare parts’. This section provided that:

“vehicle spare parts that belong to but are not fitted to the vehicle we will cover these up to $5,000…. This cover is restricted to accidental physical loss and accidental physical damage during the period of cover arising from burglary from a locked or secured building”

For Adam’s claim to covered under this section, the cylinder head must be a ‘spare part’ and the mechanic’s premises must be a ‘locked or secured building’.

 

Was the cylinder head stolen from a ‘locked or secured building’?

The mechanic’s forecourt had three solid brick walls which supported a roof covering the entire forecourt. At the front side of the forecourt there was a metal bar gate that was padlocked after hours.

As the insurance policy did not define ‘locked or secured building’, we looked at various definitions of ‘building’. We found that ‘building’ had a wide definition and that the forecourt could be considered to be a ‘building’. The forecourt was locked at the time the cylinder head was stolen. As such, we found that the forecourt was a ‘locked or secured building’.

We said that if the insurance company wanted to restrict the interpretation of ‘locked or secured building’, it could have provided its own specific definition in the policy wording.

 

Was the cylinder head a ‘spare part’

The ‘vehicle spare parts’ section only applied to ‘spare parts’. In our view, the cylinder head was not a ‘spare part’. Rather, it was an essential part of the vehicle which was only removed for it to be serviced.

We considered that the ‘vehicle spare parts’ section did not apply to Adam’s cylinder head or any other essential vehicle part.

 

Was there any cover for a cylinder head under the policy?

We found that the cylinder head (and other essential vehicle parts) were covered under the policy as they fell within the policy’s definition of ‘vehicle’. This meant that all policy sections which referred to ‘vehicle’ applied to Adam’s cylinder head.

 

Did Adam take reasonable care?

The policy set out a number of conditions which needed to be met before a claim would be paid, including that the insured must take all reasonable steps to prevent loss or damage.

We appreciated that Adam was relying on his friend to safely deliver the cylinder head to the mechanic and that his friend thought he was taking steps to prevent the cylinder head being stolen by pushing the cylinder head further into the forecourt. The package containing the cylinder head was visible from the street and the cylinder head was able to be taken from where it had been left.

We considered that the mechanic’s forecourt was not a suitable place for Adam’s friend to leave the cylinder the head. As such, Adam had failed to take reasonable care of the cylinder head.  

On this basis, we found the insurance company was entitled to decline Adam’s claim.

 

Our insight

Understandably, Adam was disappointed with our decision. However, we found that the insurance company should not be held responsible for the friend’s decision to leave the cylinder head in the forecourt, or for Adam’s loss.

It is common for policies to include a general condition that a claim will only be paid if you have taken reasonable care to prevent your loss. This means, that if you haven’t taken reasonable care to prevent your loss, an insurance company may be able to decline your claim. For example, if you leave your laptop on the passenger seat of your car and a person breaks into your car to steal it, an insurance company may find that by not hiding the laptop from sight, you did not take all reasonable steps to prevent your loss.