An insurer was wrong to apply a mechanical failure exclusion after a truck driver ignored a temperature warning light and the vehicle’s engine overheated, the dispute authority has ruled.

The Mack prime mover, insured under a rural plan policy, was being driven by a casual employee in NSW.

An accidental damage claim was declined by IAG based on the exclusion.

The insured business said its driver stated he was aware of the engine overheating, had observed the warning light and saw the temperature gauge at 120 degrees.

“I can’t seem to get a good reason out of him when I asked him as to why he didn’t stop. He has cooked the engine,” the claimant said.

The claimant and IAG engaged separate experts to report on the damage, with both pointing to the impact of “excessive coolant temperature”.

The insured’s expert said the engine failure was caused by the employee negligently continuing to drive the vehicle with knowledge of the engine overheating. 

The truck may have been driven for up to 44km with the temperature gauge and warning light indicating excessive temperatures, they said, adding that generally, when an engine begins to overheat, stopping the vehicle greatly reduces the risk of damage.

In its dispute ruling, the Australian Financial Complaints Authority says the driver’s negligence was the proximate cause of the damage, which occurred on December 4 2022.

It says the finding and its interpretation of the insurance policy is in line with the established position on the mechanical breakdown exclusion clause.

“The insurer is not entitled to deny the claim based on an exclusion where the accidental damage was caused by the employee’s negligence, rather than an occurrence caused by something inherent in the truck itself,” AFCA said.

The authority says the insurer did not provide a report challenging the conclusion that the engine failure was caused by the employee continuing to drive.

IAG has been ordered to pay the complainant $39,500, based on the sum insured minus a $500 excess.

Click here for the ruling.