SHEEHAN V LLOYDS NAMES MUNICH RE SYNDICATE LTD

[2017] FCA 1340, Federal Court of Australia, Chief Justice Allsop, 17 November 2017

Insurance (marine) - Engine becoming damaged following drop in oil pressure - Whether loss accidental - Causation - Whether proximate cause of loss was faulty design or continuing use of engine after alarm

The claimant insured the pleasure craft Tiger under a marine policy that covered "Accidental Loss or Damage", accident/accidental meaning "an event that you did not expect or intend to happen". There was an exclusion for faulty design. Tiger was fitted with a diagnostic system with liquid crystal displays of the tachometer, lube oil pressure, coolant temperature, voltage and fuel tank level. The vessel was also equipped with engine alarms to deal with possible mechanical failure resulting from changes to oil and coolant pressure. Where there was a "critical alarm", including low oil pressure or high coolant temperature, the engines automatically went into "limp mode" and dropped in speed from 2,250 rpm to 1,500 rpm. When the claimant purchased Tiger, he received an engine-operating manual which warned that the engine should be switched off if an alarm sounded, although he did not read the manual. While the vessel was being used on 17 September 2015 the alarm activated. The engines automatically slowed to 1,500 rpm, but the claimant did not shut the engines down and instead returned to the marina. The starboard vessel was found to have been damaged beyond repair by reason of a reduction in oil pressure, and it was also found that there was a design defect in a gasket. Had the engine been shut down immediately, the damage would not have occurred.