Reasonable Precautions Condition

At about noon on March 22, 1975, both reactor units at the Brown’s Ferry Nuclear Power Plant in the US state of Alabama were operating at full power, delivering 2200 megawatts of electricity.

That day, workers were testing the seal of a designed gap through the wall between the reactor building and an electric cable room to ensure that the ventilation system was maintaining the appropriate negative pressure differential within the reactor building.

Workers were using a candle to determine if there were leaks through the seal. When the workers discovered a strong draft, they placed foamed-polyurethane material into the opening to reduce the airflow. When they tested this seal again, the candle flame lit the polyurethane on fire. The fire ignited at about 12:20pm.

The workers at Brown’s Ferry tried to extinguish the fire using various methods: beating it with a flashlight; stuffing rags into the penetration; discharging carbon dioxide fire extinguishers and dry chemical fire extinguishers at the penetration. But none of this worked.

The firefighting was carried out by plant employees even though professional firemen from the Athens, Alabama, fire department had been on the scene since about 1:30 pm.

Despite the fire alarm, the reactor operators in the plant control room did not shut down the two reactors but continued to let them run. At 12:40, five minutes after the fire alarm sounded, the Unit 1 reactor operator noticed that all of the pumps in the emergency core cooling system (ECCS) had started.

Beginning at 12:55, the normal feedwater system was lost; the reactor core spray system was lost; the low-pressure emergency cooling system was lost; the reactor core isolation cooling system was lost; and most of the instrumentation which tells the control room what is going on in the reactor was lost.

In order to prevent the reactor water from boiling off, it was necessary to get more water into the reactor core. Even though the reactor was in shutdown, the heat created by the decay of nuclear fusion products was still very significant. It can typically take a reactor 12-24 hours to fully cool-down after shutdown. A reactor ‘melts-down’ when the hot nuclear fuel assemblies are denied the coolant they require – usually water – heating up due to the decay heat. Eventually the assembly and the fuel ‘melts down’ to the bottom of the reactor vessel.

Throughout the day the Athens Fire Chief informed the Plant Superintendent that the fire was not a chemical fire. The Fire Chief recommended the use of water to extinguish the fire, but the Plant Superintendent and his superiors initially were not receptive of the idea. It was not until 6 P.M., nearly six hours after the fire started, that the Plant Superintendent authorised fire fighters to use water on the fire in the Reactor Building. Within fifteen minutes the fire was essentially extinguished.

The Browns Ferry fire caused a direct insured loss estimated at $10 million and an indirect loss estimated at about $300-500 million (in 1976 dollars), plus 1000 man-years of effort during the 18-month recovery process.

 

Fast Forward forty years to rural Munster and a fire handled by our office under the standard terms of a household policy.

The insured property was a detached bungalow. In the aftermath of the fire loss, the Insured advised our assessor of the background to the incident. He explained that his wife was in the late stages of pregnancy and that the urge to ‘nest’ appeared to be getting stronger. One of his wife’s bugbears was an apparent draught which seemed to be emanating from the attic/roof structure. The Insured was instructed by his wife to get to the bottom of the problem and to fix it as the thought of bringing a new-born infant back to a ‘draughty’ house was intolerable.

The policyholder first decided to find out, once and for all, where the draught was coming from. He accessed the attic crawl space, taking with him a candle and matches. Using the same methods described at the Brown’s Ferry, the Insured employed the lighted candle to trace the source of the draught. Satisfied with the results and with an assurance that he knew what to fix, he exited the attic space and drove to the local DIY store to purchase some expanding PU foam spray – buying two cannisters. He returned home and had lunch before once again entering the attic crawl space with the foam spray. He emptied the first can in an effort to seal the draught. He paused and decided to check to see if this had solved the problem. He once again struck a match to light the draught-finding candle.

Apart from a blinding flash, the Insured remembered nothing else until he awoke in hospital. He suffered burns to his face and body and considered himself fortunate not to have been killed.

The ignition of the gaseous vapours either from the foam or from the propellant in the cannister not only injured the policyholder, but a fire spread quickly within the attic ultimately causing a catastrophic loss in excess of €200,000 in value.

We were mindful that the Insured was feeling rather sheepish, nevertheless, he provided us with a very full and frank account of the circumstances of loss. We, in turn, communicated this to his Insurers and their Loss Adjusters.

It would have been our expectation that, given the traumatic circumstances, the Insurer would have been mindful to admit the claim quickly and to place their Insured in funds in order that alternative accommodation arrangements could be made.

Instead, and to our surprise, the Insurer took a different turn. The ‘reasonable care condition’ was raised at the outset and it was evident to us that the Underwriter was manoeuvring to repudiate liability on the grounds that their Insured was in breach of this policy condition. The Insurer retained the services of a forensic engineer and formally took a statement from their [injured and traumatised] policyholder.

At all times, it was our view that any such contention was without any basis in law. Whilst we were sure of our position, it should be said and noted that the Insurer’s approach created considerable anxiety and feelings of guilt in their Insured. We were confident that no such repudiation could stand however the policyholder faced the terrible prospect of believing that he had destroyed his family home and that he would not be indemnified for it.

Of course, an admission of liability was ultimately extracted from the Underwriters and the reinstatement project was funded with the Insured reoccupying the family home with his growing family some eight months later.

The Law

Although the reasonable care condition initially started-out life in liability policies, it is now commonplace to find them in first-party property insurances. It is clear that such a term will be construed in the same way as in liability policies, so that mere negligence by the Insured will not preclude recovery.

In Fraser v B.N. Furman (Productions) Limited (1967) the Court of Appeal [UK] commented upon the Insured’s omission to take care or precautions,

“…must be at least reckless, made with actual recognition by the Insured himself that a danger exists, and not caring whether or not it is averted.”

In another UK case of Sofi v Prudential Assurance Company Limited [1993] conditions requiring the insured to take ‘reasonable care to avoid loss’ in a domestic all risks policy and a travel policy were interpreted in favour of the policyholder. In this instance, the insured, who was travelling to France from England by ferry, arrived at the Dover terminal early. He left his car for 15 minutes in the unattended car park at Dover Castle with almost £50,000 worth of valuables locked in the glove compartment. The car was broken into and the valuables were stolen. Insurers repudiated on the basis that their insured had breached the condition mentioned. The Court of Appeal held against the Insurers finding that the policyholder was entitled to recover, not having – on the facts – acted recklessly. Lord Justice Lloyd also said in this case that there was no distinction in the application of the reasonable care condition as between liability and first party insurances. This case is also noteworthy as it reaffirmed that the Insurer who wishes to plead breach of the reasonable care condition must prove the assertion.

The key difficulty arises from the requirement for the insurer to prove that, before the loss occurred, the insured recognised the risk which subsequently caused the loss or damage.

This is a purely subjective question which focuses on the insured’s perception of the risk. What must be proved is the actual state of mind of the actual insured at the relevant time, no matter how foolish or unreasonable it might have been. It is not enough to show that the insured reasonably could or should have recognised the danger.

Having crossed this ‘subjective knowledge’ threshold, the insurer has another difficult point to prove. It must show that, having recognised the risk, the insured consciously and deliberately acted in a reckless manner which exposed it to the particular risk which it had recognised.

The concept of ‘recklessness’ is distinct from negligence. It requires a:

  1. a) recognition that a specific danger exists; and
  2. b) conscious indifference as to whether it is averted.

It is inherently difficult to prove the subjective state of mind of the insured, especially where there is little or no documentary evidence.

Conclusion

While it sometimes produces infuriating results for an Insurer, there are good reasons why this standard is applied. Practitioners should be aware of any developments in an Underwriter’s approach to claims that might seek to avoid otherwise genuine and valid claims. The application of the ‘reasonable precautions’ or ‘reasonable care’ condition really is quite settled and cannot and should not be reinterpreted. From nuclear power plants to bungalows, fires often start as a result of a foolish act – but this should not automatically be suggestive of ‘recklessness’ on the part of the Insured. Moreover, and in a wider sense, an Insured must not be coerced or tricked into believing that they are not covered or that they should not claim simply because a loss may have occurred as a result of an error on their part.

If you (or your insured client) believe that they are being denied their contractual entitlements on the grounds that they failed to take reasonable precautions please call us on 1890 29 39 49 and we will discuss the case – and a pathway to resolution – with you.

John O’Donoghue – Managing Director

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