In the recent decision of Certain Underwriters at Lloyd’s of London Subscribing to Policy Number B1294HSGBGH152448 v Dhillon Scaffolding Pty Ltd,1 the Victorian Court of Appeal denied policy coverage to the defendant scaffolder based on a reasonable precautions clause requiring compliance with the Australian Standards and safety regulations.
The facts
A claim for policy coverage arose in response to a personal injury claim against Dhillon Scaffolding by an apprentice plumber who was electrocuted when a piece of guttering he was carrying hit the overhead powerlines whilst he was utilising the defendant’s scaffolding.
Dhillon Scaffolding held a public liability policy with underwriters at Lloyd’s of London (insurer) who denied indemnity on the basis the conditions of cover and the ‘reasonable precaution’ condition of the policy had not been complied with. Those conditions required Dhillon Scaffolding to comply with all statutory requirements including (but not limited to) specific Australian Standards.
The primary and Court of Appeal decisions
At trial, Her Honour Justice Forbes found the conditions under the policy were ‘reasonable precaution’ conditions. Her Honour was not satisfied that the insured had not taken reasonable precautions, and therefore determined there was an entitlement to coverage.
The Court of Appeal upheld the primary finding that Dhillon Scaffolding was only required to take reasonable precautions to comply with all statutory requirements, safety regulations and the Australian Standards, however considered that condition was not a strict or absolute obligation.
Each case is dependent upon its own facts to determine if reasonable precautions were taken. The majority considered the ‘reasonable person’ test did not apply and if Dhillon Scaffolding was not aware of the danger, precautions could not be taken and that was the end of the matter. Conversely, if Dhillon Scaffolding was aware of the risk, it was required to prove reasonable precautions were taken in response.2 Insurance is designed to protect a policy holder from loss caused by events outside of their control or through inadvertence – not from a risk they were clearly aware of and did not take to reasonable precautions to address that risk or mitigate their loss.
As the policy conditions are a condition precedent to coverage, the Court of Appeal confirmed the policy holder bears the onus of proving it took reasonable precautions. The primary judge had therefore erred in taking the alternative approach.
The majority considered Dhillon Scaffolding was on notice of the risk of injury as its owner/director, Mr Dhillon, had noticed the proximity of the powerlines to the scaffolding and raised the issue with the site supervisor who told Mr Dhillon to ‘leave it to me’. After which, Mr Dhillon did not raise the issue again.
The Court of Appeal found that once Mr Dhillon was on notice of the risk, reasonable precaution required him to either (1) obtain a permit for the erection of a scaffold within a ‘No Go Zone’3 or (2) if not obliged to obtain a permit, ensure a permit had been obtained by another party, and (3) not continue to work until (1) or (2) had occurred. The Court of Appeal unanimously considered Mr Dhillon did not prove he had taken those precautions and consequently the insurer was entitled to deny policy coverage.
Previous decisions
Kim v Cole4
The Queensland Court of Appeal (QCA) demonstrated some time ago in Kim v Cole its willingness to decline cover to policy holders who did not comply with statutory provisions concerned with safety. The insurer was entitled to decline cover to its insured due to a breach of one of the general conditions of the policy, namely to ‘comply…with all statutory obligations, by-laws and regulations imposed by any public authority’.
The QCA accepted the actions of an insured (in fitting a temporary gas valve which did not have a fail-safe) was a breach of the relevant Australian Standards and gas legislation and regulations, which meant the insured had breached a general condition of the policy. As such, the insurer was entitled to decline cover.
Manitowoq5
Conversely, despite similarly worded general policy conditions, the Western Australian District Court distinguished Manitowoq from Cole due the fact the breach of standards in Cole was more serious because it related to safety.
Monitowoq involved a claim for property damage to the plaintiff’s restaurant as a result of ‘very poor’ plumbing work performed by the insured which fell well short of the Australian plumbing standards. Judge David considered this issue was quite separate to the seriousness of the circumstances in Cole, which involved a potential gas leak and consequent explosion.
As a result, His Honour found the general condition should be read down so as to imply the insured was required to take ‘reasonable care’ to comply with the relevant legislation and Australian standards. His Honour was satisfied that had occurred, and coverage was consequently available to the insured.6
Key takeaway
The Dhillon Scaffolding decision serves as a reminder to insurers to ensure conditions precedent, particularly those involving compliance with statutory or safety requirements, are fulfilled prior to granting policy coverage to an insured. The various courts across a number of jurisdictions have been consistent in their interpretation of such clauses and insurers can take comfort the principles in Cole are still good law and there remains an entitlement to decline policy coverage in circumstances where an insured cannot prove they have taken reasonable precautions with respect to safety risks.
1 [2022] VSCA 92.
2 Pursuant to the principle established in Albion Insurance Company Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339 that an insured will ‘not deliberately court a perceived danger by refraining from taking any adequate measures to avert it’.
3 No Go Zones relate to minimum safety requirements dependent upon the distance between overhead powerlines and the work being performed. The No Go Zone for overhead powerlines is between 0.0m – 6.4m.
4 Kim v Cole & Ors [2002] QCA 176.
5 Manitowoq Platinum Pty Ltd & Ors v WFI Insurance Ltd [2017] WADC 32.
6 For more information about Manitowoq, please see Carter Newell’s article ‘Due diligence condition not strong enough’ by Glenn Biggs (April 2017).
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
