Statutory conditions and “reasonable precautions” in insurance policies – what’s the difference?
The Victorian Court of Appeal recently found that compliance with statutory conditions are not an absolute requirement under a public liability policy, as long as an insured has taken ‘reasonable precautions’.
In the recent case of Certain Underwriters at Lloyd's of London v Dhillon Scaffolding Pty Ltd  VSCA 92, the Court of Appeal had to determine how an insured can satisfy the burden that “reasonable precautions’ were taken pursuant to a policy condition, in circumstances where a claim was made on public liability insurance policies for matters involving breaches of OH&S legislation, and whether insureds also have to comply with statutory requirements such as safety regulations and Australian standards.
Dhillon Scaffolding Pty Ltd (insured) is a scaffolding company. In October 2015, an apprentice plumber was carrying a piece of guttering on a scaffold erected by the insured, when he hit the overhead powerlines and was electrocuted (incident). As a result of the incident, the apprentice plumber brought a claim for damages for personal injury against the insured (common law proceeding). The Victoria Workcover Authority (VWA) also issued recovery proceedings against the insured (VWA proceeding). Worksafe also prosecuted the insured in connection with the incident, and the insured pleaded guilty to a charge that it failed to ensure that a permit for the scaffold works (permit) had been obtained and that any scaffolding works in that zone were carried out in accordance with the permit.
As a result of the common law and VWA proceedings, the insured made a claim on its public liability insurance policy that was held with underwriters at Lloyd’s of London (insurer). The insurer denied indemnity on the basis that the insured failed to comply with two conditions of cover in the policy, one relating to compliance with statutory requirements and safety regulations, and the other relating to compliance with the Australian Standards (collectively, regulations).
However, the insured argued that it ought to be indemnified as it had complied with a general condition in the policy, which stipulated that “the insured at its own expense shall take all reasonable precautions to prevent Personal Injury or Property Damage and cease any activity which may give rise to liability under this Policy”. As a result, the insured joined the insurer as a third party to both the common law proceeding and the VWA proceeding.
The decision at trial
The trial judge found that the requirements under the policy to comply with the regulations fell within the realm of ‘reasonable precaution requirements’, and on this basis, the question turned on whether the insured did take reasonable precautions. In this regard, Her Honour Justice Forbes was not satisfied that the insured had not taken reasonable precautions, as it had notified the site supervisor of the need to obtain the permit.
The insurer sought leave to appeal on two grounds. The first was on the basis that the clauses in the policy relating to the regulations were not ‘reasonable precaution’ clauses and the second that the insured had not taken reasonable precautions.
The issues on appeal
The questions before the Court of Appeal were whether the requirement to comply with the regulations were considered in connection with the reasonable precaution clause and, whether the insured had exercised reasonable precautions.
The Decision on appeal
The Court of Appeal followed the NSW Court of Appeal’s decision in Booksan Pty Ltd v Wehbe  NSWCA 3. In Booksan, it was held that the NSW equivalent of s34 of the Victorian OHS Act prevented an insurer from relying on a breach of the OHS Act to avoid coverage under an insurance policy. On this basis, the Court of Appeal determined that it would undermine the commercial purpose of the policy if the requirement to comply with the regulations required absolute compliance. Rather, the policy required the insured to take reasonable precautions to comply with those conditions.
However, the Court of Appeal allowed the appeal on the second ground, on the basis that reasonable precautions would have meant that the insured ensured that the relevant permit was obtained, and that any safety conditions were adhered to before erecting the scaffold (which had not been done).
Implications for you
The recent Court of Appeal decision provides guidance for insurers and claims managers on the practical implications of the ‘reasonable precaution’ condition and other statutory conditions in a public liability policy when considering whether to grant indemnity. However, the Court of Appeal’s decision also illustrates that the requirement to comply with statutory regulations is not an absolute standard and will be considered in accordance with the precautions that were undertaken by an insured.