AFCA Mandates Insurer Payout for Engine Overheating Incident

In December 2022, a Mack prime mover, insured under a rural plan policy, suffered significant engine damage due to overheating. The vehicle was being operated by a casual employee in New South Wales at the time. The driver acknowledged awareness of the engine's rising temperature, noting the warning light and a temperature gauge reading of 120 degrees Celsius. Despite these indicators, the driver continued to operate the vehicle, resulting in severe engine damage.

The insurer, IAG, declined the accidental damage claim, citing a mechanical failure exclusion clause in the policy. They argued that the damage was due to mechanical failure rather than an accident, thereby falling outside the policy's coverage.

However, the truck owner's expert assessment indicated that the engine failure was directly caused by the driver's negligence in continuing to drive despite clear signs of overheating. The expert noted that the vehicle may have been driven for up to 44 kilometres under these conditions, significantly increasing the risk of damage.

AFCA's ruling highlighted that the proximate cause of the engine damage was the driver's negligence, not an inherent mechanical defect. The authority stated that the insurer is not entitled to deny the claim based on the mechanical failure exclusion when the damage resulted from the employee's negligent actions.

As a result, AFCA ordered IAG to pay the complainant $39,500, representing the sum insured minus a $500 excess.

This case serves as a critical reminder for truck owners and operators about the importance of understanding the nuances of insurance policies, particularly concerning exclusions related to mechanical failures and driver negligence. It also emphasizes the necessity for drivers to adhere strictly to vehicle warning systems to prevent avoidable damage and ensure that insurance claims are honoured.