NZ Freight Company Lost Insurance Claim Due to the Employee’s Fault

6-minute read

You may have good insurance, pay the premiums on time but then have the insurance claim denied because your employees were not trained to meet the requirements.

Let’s discuss how your business needs to operate to ensure that you are covered when disaster strikes.

The Insurance and Finance Ombudsman website Case Study 00206687 provides a great example of how a well-meaning faithful employee’s actions can cost a business tens of thousands of dollars through a denied insurance claim.

In that case, the Company held insurance on an expensive 2012 Scania Truck. One day in 2017, at about 7.05am, Dan was driving the truck when he was involved in an accident, damaging the truck and the trailer.

The Company made a claim to the insurer for the damage.

In accordance with the Land Transport Act “Drive Time” rules, Dan was required to take a 30min break every 5.5hrs of driving and only work 13 hours total in any workday.

In this instance, Dan had started driving at 4.30pm the day before. As a result, his allowed 13 hours (excluding breaks) expired at 6.30am. However, his accident occured some 35 minutes after this at about 7.05am.

Claim denied because of an “exclusion”
The insurer declined the claim, on the basis that, at the time of the accident, Dan was in breach of drive time rules, AND was doing so with the knowledge and consent of Tim (an employee and therefore representative of the company).

It relied on an exclusion to decline the claim – in plain English the clause said something like: “We will ordinarily pay for damage to the vehicle but we will not provide cover in situations where the driver is in breach of the drive time rules requirements.”

But could the Company rely on an “invalidation” clause
The Company disputed the decision, on the basis that an “invalidation” clause applied.

An invalidation clause provides – in plain English something like: “if the driver is in breach of his drive time rules requirements, but the company did not know about it, then the exclusion will not apply and the insurance cover will still be available.

” The company argued that it did not believe its employee Tim had knowledge of Dan’s breach of the drive time rules nor had he consented to that breach.

The employee evidence that sunk the claim
As a part of investigating the merits of the claim evidence of text messages were produced. At 5.52am, on the day of the accident, Dan had sent Tim the following text: “Hi won’t be back in my hours but happy to take it back to yard if needed”.

Tim responded at 5.58am, as follows: “Hi. That would be great if you can bring it in mate. Cheers.” (What seems to be a harmless and collegial exchange.)

During the inquiry process, Tim stated that the context of this text exchange was important and needed to be taken into account:

  • The text woke him up;
  • He did not know how far away from the depot Dan was at the time he sent the text;
  • The round trip is usually possible within 14 hours with breaks; and
  • Dan was aware of the drive time limits and had previously used the correct process when unable to complete a route within the specified hours.

As a result, Tim said he clearly meant that Dan should only return the truck if he could do so within the drive time hours.

The decision
However, on a simple reading of the exchange of text messages, it was found that Tim must have known that Dan was not going to make it back to the depot within the specified hours. This was clearly stated by Dan when he said: “…won’t be back in my hours…”

Then, with that knowledge, Tim (representing the insured company) asked Dan to keep driving and to return the truck to the depot – knowing that Dan would be at least slightly over his hours. Because of this, the invalidation clause could not apply.

As a result of one quick sleepy text exchange, when the faithful employee did not insist that the driver fully comply with the law, the policy was not complied with and the insurer was entitled to rely on the exclusion and to decline the claim.

Any commercial vehicle policy claim can be caught if your driver does not comply with the law!
The above example is just one example of a situation where the insured company “allowed” the law/policy/regulations to be broken.

There are dozens of ways that your employees could unwittingly do this whether you have one vehicle or 20, whether your business only drives small cars around town or travels the country in big trucks.

For example, in case 00133261 the company vehicle had an accident whilst it was being driven by a driver on a learner licence (and with his child in the back seat). Under NZ law Learner drivers can only drive if they have a Supervisor beside them at all times.

The driver was, therefore, breaking the law and the insurer was able to rely on this policy exclusion to deny the claim.

Again, an “invalidation” clause applied and so the company tried to argue that they were still covered because they did not know he was on a learners licence.

Unfortunately, the driver’s manager, when interviewed, confirmed that he knew the driver was driving on a Learners licence and as a result, the Company had breached the terms of the policy and the claim was denied.

Question to ponder: Do your business managers know the driving rules around drivers on Learners and/or Restricted licences? If not, they might be making decisions that invalidate your insurance without you even knowing it!

There are dozens of other things that a driver could do to breach the law
For example: Do you know that you can only drive in New Zealand on a foreign licence for 12 months? Visit NZTA website here: So what might happen if your foreign driver has a claim after being in the country for 14 months?

Speeding, alcohol, drugs, unsafe vehicles, excessive loads, vehicles not locked…How many other ways could your employee driver open your business up to the possibility of the insurer relying on an exclusion? And your claim could be denied because management knew about the breach and failed to act?

So as the business owner what should you do?

  • Make it clear to all of your team members that insurance is important for your business. Any type of insurance claim can be invalidated by actions which are a breach of the law.
  • Make it especially clear to your managers and senior team members that they must NOT consent to any breach of the law by employees and if they become aware of any such breaches they must take action. For example, allowing someone to drive a car against the law (such as when drunk or when on a Learners licence) is completely unacceptable.
  • Remember also that every insurance policy requires you to (generally) let the insurer know of any material information before commencement and then again before each renewal AND that you must immediately notify the insurer if anything has changed that might increase the risk to the insurer. Failure to do this might result in the claim being denied. Don’t just roll over your renewal each year. Think carefully about your business and talk to your broker about any changes or concerns.
  • Read the wording of your policy well. Nowadays insurance policies are generally written in plain English and are actually quite easy to understand. And, there’s usually only a couple of key provisions that you genuinely need to read and understand. For example, read pages 17-18 of the this policy here.
  • If you have any doubts about what your policy means, or know that you want it to cover something else that is not currently included, contact us as your broker, that’s what we are here for!

Conclusion and action required
Failing to be clear about what you are insured for and failing to ensure your employee’s actions do not allow a breach of policy to occur could prove incredibly costly!

NZ Freight Company Lost Insurance Claim Due to the Employee's Fault_2

Please take the time to think about what YOU need to do to understand your insurance policies and to educate your team about their obligations – drivers or managers.


Source: Julian Clarke (Director – Christchurch Branch of Apex Insurance Ltd)

P.S. Easy Freight Ltd helps New Zealand importers & exporters to save money on international freight and reduce mistakes by guiding how to comply with Customs and biosecurity rules.
Contact us now to learn how we can assist you.