Conduct required to decline indemnity under a reasonable precautions clause clarified by the Victorian Supreme Court
- The insured, Dhillon Scaffolding, was a named defendant in a common law personal injury proceeding and the associated VWA recovery proceeding in relation to the electrocution of a worker on a worksite. The insured added the insurer as a Third Party to both proceedings due to the insurer’s declinature of indemnity under its public liability policy. A condition of the policy was “the insured must comply with the Australian/New Zealand AS/NZ 4576:1995”. The insurer alleged breach of the AS/NZ 4576 and relied on those breaches to refuse indemnity. Further, the insurer alleged that the reasonable precautions exclusion clause was enlivened because the insured’s failure to take care or comply with statutory requirements was deliberate, conscious or intentional. The insurer also claimed they were prejudiced by the 4 year delay in being notified of the claim.
The court considered:
- What conduct enlivens a reasonable precautions exclusion clause?
- Does a significant delay in notification by the insured give cause for indemnity refusal in the absence of prejudice?
The injured worker sustained significant injuries following electrocution after coming into contact with overhead power lines whilst working on scaffolding constructed by the insured and another co-defendant scaffolding company who had subcontracted the insured. The scaffolding in question was within a ‘No Go Zone’, a designated area of high risk due to its proximity to live power lines, which required a permit be obtained prior to constructing scaffolding. The insured failed to obtain the necessary permit and the injured worker was working within the ‘No Go Zone’ on the scaffolding when he suffered the electrocution.
The insured’s director, Mr Dhillon, held a basic scaffolding licence and erected the scaffold with the assistance of two employees who did not hold a scaffolding licence. Mr Dhillon gave evidence that he believed it was the responsibility of either the builder or the head scaffolding company to obtain the relevant permit. He agreed he did not prepare a SWMS nor undertake a risk assessment nor have regard to the Electricity Safety (Installations) Regulations 2009. He acknowledged he was not aware of AS/NZ 4576, however he was aware of what a ‘No Go Zone’ was and that he was working within one. Despite this, he continued to erect the scaffold because he was working under the direction and plans given by the contracting scaffolding company.
The insured was prosecuted by WorkSafe for failing to ensure that a permit was obtained, and pleaded guilty in 2018, resulting in a conviction and fine. However, the insured failed to notify the insurer of the incident, the Worksafe investigation or the prosecution. The insurer was first notified upon receiving documents from the injured worker’s solicitors some 4 years after the incident.
The decision at trial
Reasonable precautions clause
The court held that the AS/NZ 4576 guidelines do not impose obligations on a scaffolder greater than are imposed by Act or Regulation. The court found that reasonable precautions clauses are not breached simply by actions that amount to negligence; rather, they require that an insured have actual recognition that a danger exists and to be at least reckless as to averting the danger. That test is a subjective one. The test to be applied in regards to the reasonable precautions clause is “whether the conduct of the insured demonstrates recklessness or a deliberate courting of risk”.
The court did not accept the insurer’s submission that when accepting the risk of the insured, it was intended the policy only cover injuries that occurred when the insured had acted in accordance with all statutory and regulatory obligations imposed by AS/NZ 4576. The court noted that such construction of a policy would in effect create ‘no fault’ injury coverage which is contrary to the express wording of the policy. The possibility that the insured might have exercised a want of care underpinned the commercial purpose of the policy.
The court held that the insured was entitled to be indemnified by the insurer in respect of its claim on the policy because it was not satisfied that the required degree of recklessness, or a deliberate courting of risk was established.
Delay in notifying the insurer
The court noted that the insurer led no evidence and therefore was unable to sufficiently prove any prejudice had been caused as a result of the delay in notification of the incident by the insured. Specifically, the court noted that because a Worksafe investigation had been undertaken in the matter, it was unable to infer any prejudice as “the absence of an ability to conduct its own independent investigation does not necessarily lead to an inference of prejudice where there has been an independent investigation undertaken.”
Implications for you
This decision indicates that the courts will take a common sense approach in interpreting a policy in its entirety and with its commercial purpose in mind. Specifically, clauses that require an insured to take reasonable precautions will not be breached by actions that simply amount to negligence, and require that an insured have actual recognition that a danger exists and be at least reckless as to averting the danger. In determining if a breach has occurred, a subjective test is to be applied as to whether the conduct of the insured demonstrates recklessness or a deliberate courting of risk.