Was this the most important court decision of the 20th Century?

Today, May 26 2012, is the 80th anniversary of what (to me) is the most important judgment to the insurance industry delivered in the 20th Century.  While this case is introduced in the most basic of law studies, many fail to appreciate the momentous change that the decision heralded.

While five Law Lords of the English House of Lords decided the case, the ruling by one, an Australian by birth, is what, in effect, changed the law on negligence so dramatically.

The case itself was over such as a humble matter involving a claim for only £500. It was brought by an impoverished single mother, and part-time shop assistant, who did not have £5 to her name outside her clothes and the action itself. In other words, a pauper in the eyes of the law.


On the 26th August 1928, Mrs May Donoghue (nee McAllister), who resided at the time with her brother in Kent Street Glasgow, was invited by a female friend to a night out at the Wellmeadow Cafe, Paisley.

Mrs Donoghue’s host ordered the popular ginger beer floater. This was a large tumbler with 2 or 3 scoops of ice cream. The owner, Mr Francis Minchella, then filled the glass of ice cream with ginger beer from a black glass bottle supplied by the nearby drink maker, D. Stevenson. Stevenson’s factory was only 600 metres from the café in Glen Lane, Paisley.

The ever-attendant owner of the café, Mr Minchella, returned and topped up the glass and as he tipped up the bottle (what is described as) a decomposed snail fell into the glass.

The best known photograph of the Wellmeadow Café.

Mrs Donoghue was extremely upset and later complained of stomach pain and 3 days later she visited her doctor who diagnosed her as having gastroenteritis and being in a state of severe shock. She later attended the Glasgow hospital as she did not fully recover from the initial visit to her doctor.

How the snail got into the bottle is not explained in the court documents but in his submission, the lawyer acting for Mrs Donoghue, states that snails and the tracks of snails can be seen at the factory operated by Stevenson. I would expect that the snail has got into the empty bottle while it was sitting the yard waiting to be filled.

The Law at this Time

Up until this point in time, the law was such that only where there was a contract between the manufacturer and consumer. In fact, only 3 weeks before, the same lawyer, Walter Leechman of W G Leechman & Co, situated less than 1 mile from Mrs Donoghue’s brother’s home, who ultimately agreed to take on Mrs Donoghue’s case had failed in two similar cases where it was alleged that a mouse was found in a bottle of a fizzy drink. These were Mullen v. Barr & Co. Ltd.  & M’Gowan v. Barr & Co. Ltd. ([1929] S.C. 461).

The man who believed in social justice, lawyer Walter Leechman

Lord Norman acted as trial counsel for Mr David Stevenson and asked that the matter be thrown out of the courts on the grounds that it showed no course of action. In the Court of Session (the first court to hear the matter) the Lord Ordinary, Lord Moncrieff, disagreed and found in favour of May Donoghue. But, on appeal,  Stevenson  won 3 – 1 in the Second Division with the majority of judges following their own decision in Barr judgments. In effect, they reaffirmed their earlier position that that the manufacturer of the soft drink owed no duty of care to the end consumer; only to the person such as the café owner or shop keeper. Interestingly, in both cases the single judge in the first instance found in favour of the claimants.

With consumer protection laws the way they are today, it staggers me that this was the position in the United Kingdom, Australia, New Zealand, Canada and the United States at the time that my own father was born.

For the law to have been challenged toward the consumer during the great depression is equally of interest and demonstrates the depth of feeling of Leechman for social justice.

The Legal Obstacle to Overcome

In summary:

  • Although there was a contractual  relationship between the café owner and  Ms Donoghue’s friend, the friend had not been harmed by the ginger beer.
  • No contract existed between café owner and Ms Donoghue.
  • Ms Donoghue had to prove negligence
  • Café owner Minchella was not negligent, he did not manufacture the drink nor did he fill the bottle
  • Ms Donoghue would have to prove negligence against the manufacturer David Stevenson to obtain any compensation.

What Unfolded

Believing the existing law to be an unjust state of affairs, lawyer Leechman, who must have had a heightened regard for social justice, decided to test the position in the House of Lords.

Despite the importance of the House of Lords, the petition shows McAllister spelt incorrectly!

The document signed by Ms Donoghue stating she is a pauper.

It is my belief that he did not run either the Mullen or M’Gowan matters even though they were similar events as it would have meant the plaintiff would have had to stump up a sizeable amount of funds as security to cover the legal fees of Barr and Co. Ltd. should the appeal fail. By selecting Ms Donoghue’s case and petitioning the court that she be permitted to prosecute her “Appeal in forma  pauperis” [Latin, In the character or manner of a pauper] the need to put up the security was avoided.

Leechman took Donoghue’s case to the House of Lords less than four weeks after he had failed in his attempt to, in his eye right the law, with the two cases against Barr & Co. Ltd. He himself did the case pro-bono and located barristers who also agreed to prosecute the appeal at no cost to Donoghue.

The petition to hear the case was granted by the House of Lords and it went to trial on 9th September 1931. Five Law Lords heard the case. They were Lords Buckmaster, Atkin, Tomlin, Thankerton, and Macmillan. It is Brisbane born Lord Atkin whose judgement changed so dramatically the law of tort.

The Law Lords that heard Donahue v Stevenson. I have circled Brisbane born Lord Atkin

Leechman ran a very narrow argument setting out his belief that a manufacturer that puts a product on the market (in a fashion that it is to be served in the container in which it is sold) has a duty to ensure that it is fit for human consumption (i.e. that it is fit for purpose).

I am not sure if Leechman was aware of it, but Lord Atkin had delivered a paper approximately 5 months before in which he set out his position on English Law.

In his talk, Lord Atkin stated that in his opinion: “It has always been the position in English Law that it has ingrained in it the moral sense, that it lays down standards of honesty and plain dealing between man and man.”

He went on to say that: “He is not to injure his neighbour by acts of negligence and that certainly covers a very wide field of the law. I doubt if the whole of the law of tort could not be comprised in the golden maxim to do unto your neighbour as you would have him do unto you’.

The paper that Lord Atkin delivered 5 months before his famous decision in Donoghue v Stevenson

Many believe that Lord Atkin drew his inspiration for this from the Christian parable of the Good Samaritan and this may be correct. The fact is, however, that statements that mirror the do unto others approach to society can be found in virtually every religion. As such, it does have extremely wide appeal.

The Important Ruling

In his written judgment in the Donoghue v Stevenson case, which as I said at the start of this post, he delivered on 26 May 1932 , Lord Atkin started with a summary of the existing law:

If one man is near to another or near to the property of another a duty lies on him not to do that which may cause a personal injury to that other or that may injure his property. “

Lord Atkin, using the concepts that he had outlined in his speech at King’s College London, then merged these with the current legal position and espoused that neighbourhood was a mental rather than a physical state and that those like David Stevenson must have those who use your product in your mind when manufacturing a product.

If one man is near to another or near to the property of another, a duty lies on him not to do that which may cause a personal injury to that other or that may injure his property.”

 He then went on and outlined his famous neighbour principle.

You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour.”

These words have a very broad meaning. For example, a large supermarket opening next to a general store or a large warehouse-style hardware store opening in the same town as a much smaller hardware store will cause the smaller store an “injury”. I return to this point shortly but I would make the point at this time that Lord Atkin’s words state that not only “acts” that can be brought to account but also “omissions” to act. (I started to go off here and explain the difference between nonfeasance and misfeasance but will safe that for next week.)

Nineteen pages later in the ruling written in beautiful English prose, Lord Atkin explained who your neighbour is when it came to exercising reasonable care to protect them.  In this regard, he stated:

Persons work are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so effected when I am directing my mind to the acts of omissions which are called into question.”

 The test was not on the extent of the damage, but whether there was a sufficient proximate relationship to the person suffering a financial loss. Another way of looking at this is that it moved the position of a neighbour from someone who is physically close to you to someone who is or ought to be in your mind.


The significance of the judgement is that in this one ruling Lord Atkin swept up all the existing torts (a tort being a civil wrong) such as the Tort of Nuisance, the Tort of Trespass, the Tort of Conversation and others and taking what most accept is the great noble idea not to injure your neighbour and created a new general law within English law of the Tort of Negligence. A principle that could be used in any case subject to limits.

Going back to the issue of the opening of a new larger store next to or in the vicinity of a smaller one. There is nothing in Lord Atkin’s judgment that limits a right for damages to only those involving physical damage or injury. Some argued that it applied to pure economic losses as well. The big struggle that continues to this day is to find ways within reason to limit claims for pure economic loss such as the store opening situation and yet provide protection where it is appropriate, for example a dredge digging up an under-sea cable as occurred in the Australian matter of Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ [1976] 136 CLR 529 or where a auditor has failed in their duty as was found in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.

On the other hand, in our capitalist society you cannot expect people to gratutously not develop new ideas, produce new products, open new factories or shops just because it may hurt a competitor. The bulk of society and the economy would suffer as a result of Lord Atkin’s decision was taken to the extreme.

Initially, in the Anns v Merton London Borough Council [1978] A.C. 728 the House of Lords established a broad test for determining the existence of a duty of care in the tort of negligence and this became known as the Anns test or sometimes the two-stage test. The High Court of Australia disagreed with this approach and would not adopt it. In Canada they did agree with it.

However, in the years that followed the Anns case, the House of Lords backed away from the Anns approach and instead decided on a more category-based reasoning. The test was finally put to rest in the United Kingdom with the case of Murphy v Brentwood District Council [1991] 1 AC 398.

The Canadians, rightly or wrongly, are still relying on the Anns approach.

Lord Macmillians agreed with Atkin and added, as part of his reasons for finding in favour of Donoghue as well, that:

The categories of negligence are never closed.”

With these words, he deserves his share of the credit for changing the law so dramatically and for the ongoing struggle to place reasonable limits – in particular, in cases of pure economic loss.

While Mrs Donoghue was awarded damages, the amount is a pittance compared to the billions of dollars that have since been awarded where the plaintiff has been successful in proving that their someone owed them a duty of care; that the person has breached that duty of care and as a result of that breach they have suffered injury or damage.

Tribute to the Importance of Donoghue v Stevenson

So much has developed from this one case such as the concept of consumerism that in 1990, a Memorial to the case was, unveiled by Lord Mackay of Clashfern in front of legal figures from around the Commonwealth who travelled to the site of Mr Minchella’s cafe.

What I like is that in the park bench beside the memorial, the designers have incorporated bottles.

In yet another twist of fate that threads itself right through this case is the fact that in the Thomas Coates Memorial Church directly across the road from the memorial is a marble monument to the parable to the Good Samaritan that inspired Lord Atkin in the first place.

The fact that I remembered that it is the 80th anniversary of Lord Aitkin’s decision is due to my reviewing this and many other cases in preparation for one of the introductory subjects in the Master of Insurance Law and Practice degree that I am the course director of that will commence in July this year. To learn more of the course, please go to: http://www.vu.edu.au/courses/graduate-certificate-in-insurance-law-and-practice-btip.

Lord Atkin

Baron Atkin in 1939 near the end of his life.

I finish with a quick biography of Lord Atkin. He was born James Richard Atkin on 28 November 1867 of Welsh-born parents in Brisbane.
His father, Robert, with his wife, Mary, came to Australia to operate a sheep station. Atkin’s father was injured in a horse riding accident about one year into the venture and they moved to Brisbane where James and two younger brothers were born.

In 1871, his mother left his father and returned to the Wales with the young Atkin and his two siblings. Atkins father died in Brisbane within a year.

Atkin is regarded as one of two great English judges of the 20th Century (Lord Denning being the other). When I first read Lord Atkin’s judgement in Donoghue v Stevenson (1932) All ER Rep 1 back in my twenties, I immediately understand why he was so rated.

While he only lived in Australia for the first few years of his life, I claim him as ours!

Was the change of law really necessary?

As I was reading all the material on the case, I went to Google Maps and looked at the location of the Bethany Café in Wellmeadow Place, Paisley and also at the location of D. Stevenson’s factory in Glen Lane, Paisley. As the crow flies, they are less than 600 metres apart. The question then raises itself, was not the Bethany Café, and all who visited the establishment, neighbours of Mr Stevenson. If so, the matter should have succeeded under the existing law. In view of the ramifications that Donoghue v Stevenson brought I am glad Lord Atkin did not have access to the internet in his day.

The humble snail that changed the law


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My heart goes out to the residents of Christchurch

I was upset to hear that Christchurch has been hit by yet another significant earthquake today, 25th May at 2.44pm. This time it was rated at 4.7 with a magnitude, although first reports had it at 5.2. The location was 43.494°S, 172.964°E at a depth of 8.8 kilometres. Thankfully, no injuries were reported and damage was minimal. People, however, were frightened and reports say many ran into the streets.

Earthquakes are cruel in that the aftershocks continue on for some time afterwards, and, in the case of Christchurch, new earthquakes also occurred. Unlike a tornado or cyclone or even a bush fire, which once passed usually leaves people to immediately start to recover mentally and start the repair/reinstatement process, earthquakes can often rear their ugly head time and time again.

For Christchurch and the greater Canterbury area, it has been going on for far too long since the initial was a 7.1 magnitude earthquake struck the South Island of New Zealand at 4:35 am on 4 September 2010, more than 18 months ago.  At the time of my posting this blog there has been a staggering 10,423 aftershocks/new earthquakes in the region. (Source: University of Canterbury’s Digital Media Group, Christchurch, New Zealand). This is much more than anyone should have to put up with.

The other issue about earthquakes that I was going to mention in my post earlier this week about the Italian earthquake (but got called to my plane before I could finish it) is that the damage can often be so severe that the foundations of the building are damaged along with much of the rest of the building. It may be so badly affected coupled with the threat of further shakes that even undamaged contents and or stock have to be abandoned.

In such cases, it is rare, for me or one of the LMI team, to find an insured with enough sum insured to reinstate the lost assets while the indemnity period on the business interruption policy is simply not long enough. The indemnity period in particular is a real problem in New Zealand as there is insufficient capacity for the insurance industry to underwrite the risk.

I put the issue of under-insurance down to two main factors. The “It will never happen to me!” syndrome which I know some people follow. The other more insidious cause is the high level of taxation. In New Zealand, like Victoria, New South Wales and Tasmania, they have a Fire Service Levy on insurance premiums. This pushes up the price and people buy less insurance. This is the basic principle of economics. I really wish governments would wake up to the damage this does to people’s lives and the economy as a whole. Regretably, it has not been addressed by the New Zealand Government.

Those of us that live in Australia think that we are immune to this peril with the earthquakes only hitting our near neighbours of Indonesia, Papua New Guinea, Solomon Islands, Vanuatu and New Zealand. The truth of the matter is that Australia can and does have earthquakes over magnitude 5. Since the terrible Newcastle earthquake on 28 December 1989, there have been 20.

None of us know when we may need to call on our insurance policy or to what peril it may be responding. My personal mantra on this is hope for the best but plan and insure for the worst. It lets me sleep at night.

I just hope that the aftershocks soon stop for those in and around Christchurch and life returns to normal as quickly as possible.

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Condition Reports and Valuations on Stamps and Coins

Having an arsenal of experts that you can trust is one of the most important assets to have as an underwriter, broker or claims expert. Recently, I was asked to provide a reference to a stamp and coin dealer that I have relied on for around 40 years.

Les Sheward of Eljay Stamps and Coins has been of great help to me in pre and post-loss situations from assisting in recovering stolen stock, providing a report on how stamps have been damaged, and verifying values. He has also helped with bank notes, coin collections and phone cards.

More than once Les has explained that the alleged water damage was in fact just natural deterioration “rust” or “foxing” due to incorrect storage. As an aside, ironically Mr Sheward first started in Insurance with Commercial Union in Brisbane before starting his own stamp dealership. He is now semi-retired but luckily for me that knowledge is not lost and he still consults. What I like about him is that he is one of the few experts that I have used for so long that has never let me down or tried to rip me off.

When it came to developing a underwriting and risk profile for stamp dealers and the other areas he is an expert in for LMI RiskCoach, it was Mr Sheward I turned to and he delivered wonderfully.

The old adage of “it is not what you know, but who you know” comes to mind with many of the experts I have come to rely on. It is certainly the case for me when it comes to stamps, bank notes etc.

You may not need such an expert every day, but, if you do, I recommend Eljay Stamps.

This all came to mind this week as Mr Sheward rang upset that a Personal Lines insurer questoned his ability to provide an independent valuation. I certainly had  no hesitation in providing the following reference to assist him, which I sincerely hope it does. Reference for Eljay Stamps.

Les Sheward can be contacted on Tel.: +61 (0)7 5562 2273 or eljaystamps@hotmail.com

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YouTube video on the benefit of business interruption insurance

Zurich Insurance has produced a very good quality YouTube video on the effects of a major fire on a business. It is so well done that I thought it worth sharing as brokers/advisers may find it useful in explaining the need for this vital cover.


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Blog Question: Linking to the site?

I received the following question overnight:

Allan thank you for your time and knowledge at the recent  Insight NAS conference in Glenelg.

I have had a look at your site and  I am interested in whether I can link your site to my web site. Can I have your permission to do so?


Merrianne” (Surname and email provided]

I answered as follows.

Yes, that is fine, Merrianne. The more people that read it, the better if it helps anyone understand the importance of insurance and the issues our industry faces.

Thanks for thinking it worthy of a link.

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New earthquake in Italy

Italian earthquake damages historic buildings Source International Business Times

I may have missed it on the news but I understand, via the great service provided by United Stated Geological Survey (“USGS”), that a sizeable 6.0Mw earthquake hit northern Italy (4km ENE of Camposanto) on 20th May. The earthquake occurred at 02:03 GMT (04:03am local time), causing severe shaking in the Emilia Romagna region and surrounding areas.

According to the USGS, around 1.25 million people live in areas impacted by a Modified Mercalli Intensity (“MMI”) of V (as in five: see below for an explanation) or higher.

Damage has been reported across Emilia Romagna, particularly to historic buildings, commercial properties and agriculture in towns and cities close to the earthquake’s epicentre. Seven people have so far been confirmed dead with a further 50 people injured.

The report I read said that around 11,000 people have been displaced, some having seen their homes destroyed and others too afraid to return to their properties. Several historic (and unreinforced) buildings in the region also collapsed and significant industrial and agricultural damage has also been reported.

Earthquake Scales

As explained by the USGS, the effect of an earthquake on the Earth’s surface is called the intensity. The  intensity scale consists of a series of certain key responses such as people awakening, movement of furniture, damage to chimneys, and finally—total destruction. Although numerous intensity scales have been developed over the last several hundred years to evaluate the effects of earthquakes, the one often used is the Modified Mercalli (MM) Intensity Scale.

It was developed in 1931 by the American seismologists Harry Wood and Frank Neumann. This scale, composed of 12 increasing levels of intensity that range from imperceptible shaking to catastrophic destruction, is designated by Roman numerals. It does not have a mathematical basis; instead it is an arbitrary ranking based on observed effects.

The Modified Mercalli Intensity value assigned to a specific site after an earthquake has, according to the USGS a more meaningful measure of severity to the non-scientist than the magnitude because intensity refers to the effects actually experienced at that place. After the occurrence of widely-felt earthquakes, the Geological  Survey mails questionnaires to postmasters in the disturbed area requesting the information so that intensity values can be assigned. The results of this postal canvas and information furnished by other sources are used to assign an intensity value, and to compile isoseismal maps that show the extent of various levels of intensity within the felt area. The maximum observed intensity generally occurs near the epicentre.

The following is an abbreviated description of the 12 levels of Modified
Mercalli intensity.

I. Not felt, except by a very few under especially favourable conditions

II. Felt, only by a few persons at rest, especially on upper floors of buildings.  Delicately suspended objects may swing.

III. Felt quite noticeably by persons indoors, especially on upper floors of buildings. Many people do not recognize it as an earthquake. Standing motor cars may rock slightly. Vibration similar to the passing of a truck. Duration

IV. Felt indoors by many, outdoors by few during the day. At night, some awakened. Dishes, windows, doors disturbed; walls make cracking sound. Sensation like heavy truck striking building. Standing motor cars rocked noticeably.

V. Felt by nearly everyone; many awakened, some dishes, windows broken. Unstable objects overturned. Pendulum clocks may stop.

VI. Felt by all, many frightened. Some heavy furniture moved; a few instances of fallen plaster. Damage slight.

VII. Damage negligible in buildings of good design and construction; slight to moderate in well-built ordinary structures; considerable damage in poorly built or badly designed structures; some chimneys broken.

VIII. Damage slight in specially designed structures; considerable damage in ordinary substantial buildings with partial collapse. Damage great in poorly built structures. Fall of chimneys, factory stacks, columns, monuments, walls. Heavy furniture overturned.

IX. Damage considerable in specially designed structures; well-designed frame structures thrown out of plumb. Damage great in substantial buildings, with partial collapse. Buildings shifted off foundations.

X. Some well-built wooden structures destroyed; most masonry and frame structures destroyed with foundations. Rail bent.

XI. Few, if any (masonry) structures remain standing. Bridges destroyed. Railway lines bent greatly.

XII. Damage total. Lines of sight and level are distorted. Objects thrown into the air.

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Preview of this weeks postings

It has been a big week for both LMI and I this week. I was part of a training program that has been travelling around Australia and this week we delivered sessions in Newcastle, Canberra and Sydney. The concept is a mock trial involving matters based on real cases. I do not want to say more as it has next week to run in Hobart, Melbourne, Adelaide and Perth and I do not want to give away any of the surprises. What I can say it has been very well received.

I also spoke at back to back conferences in South Australia, namely the NAS and Insight. Besides delivering a paper at both I also took part in a industry panel session which covered many interesting topics. I cover off on one in this week’s postings.

The Course Advisory Board for the new Master of Insurance Law and Practice degree is now fully subscribed and it was pleasing to me as the course director that every person that was approached agreed to participate. I thank them all in their support which I am sure will ensure the course is beneficial to the insurance industry.

Home page www.policycomparison.co.uk

The big news this week, however, was the launch of LMI’s flagship product, PolicyComparison.com into the United Kingdom market at the British Insurance Brokers Association. Steve Manning, Product Manager for BIcalcualtor which he launched so successfully this time last year at the same conference  handled the launch on my behalf due to my pre-existing speaking commitments. Early reports suggest the product was very well received.

Topics in this week’s postings include questions on removing co-insurance and accommodation bonds, as well as an article on the recent High Court decision involving the responsibility of retailers and finally, sanity preserve us, Tasmania joined the Federal and Victorian Governments in adding yet another financial burden on those that insure.

I end by recording my sincere condolances to the wife, family and friend of Vin Gallagher who passed away on Saturday. I had the privilege of working with Vin at GAB Robins and with him on claims where he was the loss adjuster and I the claims preparer. He was top in his field and a thorough gentlemen and  his passing is a great loss to the Australian insurance industry.

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Should Co-Insurance be deleted on Business Insurance (Property and BI)?

Insurance is about Transferring Risk not Price

I was honoured to take part on a panel session at the Insight Insurance Brokers Association Inc over the weekend which was held in Glenelg, South Australia.

A question came up that is one of the most common asked of me. That is: Is it not time that co-insurance (the penalty for a person being under insured) be removed from business insurance.

I expressed my long standing position on this and that is that it should not be removed. It may assist Insured’s (and their brokers from a professional indemnity claim) in minor claims but in my experience it leads to major problems in the event of a larger claim.

We saw this in New Zealand after the Christchurch Earthquakes. In New Zealand with a combination of high fire service levies and the opportunity to buy what is known as “First Loss” cover many insureds selected a sum insured on their building, stock and or other contents based on what they considered to be the maximum probable loss that they would ever sustain. Most insureds make the false assumption that bricks and concrete do not burn. They therefore exclude the foundations and slab floors from their sum insured. Having gone to buildings after major fire for over 40 years I know this is false logic.

When the earthquake occurred many buildings were totally destroyed and sums insured proved completely inadequate to rebuild. This has a very bad effect on the Insured business and its owners; it potentially opens the broker up to a large professional indemnity claim, and is bad for financiers as well as the local and national economies.

It is not just earthquake. I saw the same after the Victorian bush fires and in most major natural disasters going back to Cyclone Tracey in 1974.

Insurers do their bit to assist by a) giving the insured anywhere between 15% and 20% tolerance for being under insured, b) not applying co-insurance to claims under 5% or 10% depending on the policy wording,  c) in the case of some insurers offering seasonal increase on stock and or a 20% uplift on the sum insured on the building following a named disaster and d) are prepared to waive co-insurance if the assets are valued by an approved valuer and on business interruption if the insured has a financial valuation by a firm such as LMI Group.

LMI iPhone App

LMI Group have done what we can by providing a free iPhone /iPad app that allows you to work out and understand the penalty for under insurance. It also provides a building cost estimater to assist in knowing if you should obtain a proper valuation.

At the end of the day, insurance should be there to pick up all the pieces after a loss. Unless an insured is fully insured there is a massive risk.

I could go on about the difficulties of rating first loss covers and the fact that reinsurers would not support it but at the end of the day, these are secondary. It is the Insured that needs to be protected. If he wants to accept part of the risk him or herself then they need to understand they do this on each and every claim and not just the total losses. It is only fair and reasonable to do so.

To me, much more important than removing co-insurance is to the removal of all insurance taxes that encourage/force home and business owners to be under insured.

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Budget Changes to Accommodation Bonds

Back on November 21 last year, following the tragic nursing home fire, I posted an article on some of the specific insurance issues that arise around nursing homes. See http://www.allanmanning.com/?p=102.

I received the following Blog Question shortly after the Federal Budget was released.

Hello Allan.

Effective 1st July 2014, aged care facilities will lose the Federal Government’s guarantee on Accommodation Bonds.

Not only will this affect the credit policies of the banks lending to aged facilities, there will be an additional cost of insurance.

Would you be able to suggest what the additional cost of insurance would be.


Paul [surname and email address provided]

My response was as follows:

As I understand the Federal government guarantee on Accommodation Bonds relates to the payment of bonds back to residents due to insolvency and/misappropriation.

All the covers Insurers currently have are based on the results of “Damage”. They do not look at what use the bond moneys are put to and there is no cover for investment failure or shortfalls. This is regarded as a business risk.

Under and ISR policy I have written an endorsement to cover the risk to the business if they have to return the bonds and lose revenue or have to borrow money to cover the repayments.

Under a business pack policy, it does need to allow cover for loss of investment revenue as well as sales. The additional costs incurred in respect of re-financing to enable necessary refunds, as a result of insured Damage needs to be a Additional Increase in Cost of Working cover and not just Increase in Cost of Working.

I am not  up on bond insurance enough to offer any real comment other than to say that such cover is available through specialist underwriters.

In reply Paul wrote back saying:

I spoke to Chubb yesterday and they raised questions about how insurers would address the possibility of insurance cover. The current potential loss (total market) is $12.1b and expected to increase to about $20b within 5 years.

The larger organisations may rely on their overall balance sheet as a form of guarantee but the smaller operators may struggle to find cover, particularly as the cost may be similar to a bank guarantee of between 2% and 5%.

I don’t think the Government as really thought this one through, as it will be a big cost to the providers, and therefore passed onto the consumer in some way.”

In discussions with Zurich Insurance who I approached as I know they are very big in the aged care sector and they advised that they are undertaking some work in this area with their Global Emerging Markets Division.

I am sure that other major insurers are also looking at this problem and as I learn more I will post updates.  Thanks Paul for your interesting question.


Hope this helps.

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Slip and Fall Cases – Review of Strong v Woolworths

Slip and Falls – The Risk to Retailers

There has been a recent and significant case on liability for slipping injuries which with the help of LMI Group’s Corporate Counsel, Peter O’Brien, I thought I should share with you.  The case of intesest is Strong v Woolworths Limited [2012] HCA 5.

In this case, the High Court of Australia recently reconsidered the law on causation and slipping.

What should be of interest, to property owners and of special interest retailers and cleaning contractors, is that the High Court has endorsed the relatively modern trend of “burden shifting” and, effectively, placed an increased burden on certain retailers requiring of them to exercise a higher standard of care than in the past.

Some commentators have suggested that, following Strong case, which mirrors similar decisions in the United States, Australian law is moving closer to circumstances where retailers may be held “strictly liable” for injuries occurring on their premises.

This could have severe ramifications for retailers and the manner in which cases are currently assessed and resolved.

In view of this, we have set out the background and the court’s finding and some preliminary observations as to what steps may have to be taken in the future in order to avoid liability for slipping cases in the hope that it will be of benefit to readers and their clients.


On 24 September 2004, Mrs Strong was inspecting pot plants on level 1 of the Centro Taree Shopping Centre outside a Big W shop operated BY to, to, lackBY to, her, Woolworths, the, it, to, a, to, lackt the plaintiff discharged its initial burden of proof regarding causation based on a
“probability” argument taking into account the time available for the chip to have been deposited and the fact that Woolworths did not have a formal cleaning regime in place, rather than by evidence as to the actual time when the chip was deposited.

Whilst there is an element of casuistry in the distinction between the two scenarios, the case has the effect of constituting a significant shift of onus in slipping cases and will have important implications for persons suffering personal injuries on retail premises.

Implications for Retailers

Whilst in the past it may have been sufficient to rely on such factors as lack of knowledge of the presence of an offending material or liquid, and the general vigilance the of aisle packing staff, tellers and management, with standing instructions to keep a look out for materials on the floor, this will no longer constitute sufficient evidence to rebut any initial onus discharged by a person slipping at premises owned by a retailer.

A regular and formal cleaning protocol, together with some sort of record of inspections (preferably written) may become essential if liability for slipping cases is to be avoided.

For example, it will probably be necessary to have a standing procedure at all stores that the aisles and any common areas outside the shop front be inspected at, say, 20 minute intervals by one or more employees specifically charged with carrying out this task, rather than relying on the watchful eye of ever present staff members.


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