The determination of an insured’s right to compensation as a preliminary point

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Certain Lloyd’s of London insurers v Dhillon Scaffolding Pty Ltd [2022] VSCA 92

Background

The Insured erected scaffolding on a building site. An apprentice plumber was injured when the gutter he was carrying on the scaffolding struck overhead power lines. The plumber brought an action for damages for bodily injury against, among others, the Insured. The Insured sought compensation under a policy that he held with the Insurer under which he was insured against, in a relevant manner, civil liability. The insurer denied the claim. The Insured joined the Insurer in the proceedings as a third party.

The policy contained the following term:

16.1 REASONABLE PRECAUTIONS

The insured must, at his own expense:

[…]

16.1.4 comply with all legal requirements and other safety regulations imposed by any authority.

The Insurer relied, among other things, on a settlement of the Electricity Safety (Installations) Regulations 2009 (Vic), which prohibited the erection of scaffolding at specified distances from particular power lines without the permission of the power operator and compliance with conditions.

In addition, the schedule forming part of the policy included a condition under a heading “Conditions of Cover” (the “Schedule Condition”) in the following terms:

The insured must comply with Australian/New Zealand guidelines AS/NZ 4576; 1995[.]

The insurer relied on clause 5.4.2 of the guidelines, which provided that the clearance between scaffolding and any transmission line, main apparatus or transmission apparatus should not be less than, relevantly, 4.0 m, and indicated aptly: “[d]o not erect scaffolding until necessary steps have been taken to minimize risk and written permission has been received from the electricity supply authority”.

In a trial on the preliminary question whether the insured would be entitled to compensation under the policy, the Supreme Court of Victoria held that the obligations of the insured under clause 16.1.4 and the condition of the appendix were not absolute, but rather had to take reasonable care to comply with: Noori v Majestic Plumbing Services Pty Ltd (Third Party Proceedings) [2021] VSC 63. The trial judge stated that she was not satisfied that the insured had failed to take such reasonable precautions and found that the insured was entitled to compensation. The insurer requested leave to appeal.

On appeal, the insurer argued that the obligations imposed by clause 16.1.4 and the appended condition were absolute (rather than taking reasonable care to comply with those requirements, as the trial judge found) . Alternatively, the Insurer maintains that the trial judge erred insofar as she concluded that the Insured had taken reasonable precautions.

Construction

With regard to the question of construction, the Insurer has pointed out the terms of the provisions in question. She argued that clause 16.1.4 was expressed in absolute terms and that the use of the word “shall” in the schedule condition indicated that this term was a mandatory requirement. As to clause 16.1.4, the insurer argued that although this clause was under the heading “Reasonable Precautions”, no element of reasonableness was imported into the sub-clause, each sub-clause being distinct and marked of its own punctuation.

After recalling the general principles of contractual interpretation, the Court (Ferguson CJ, Beach and Macaulay JJ.) observed that it was well established that an insurance policy would not be interpreted in such a way as to deprive the assured of significant coverage, which would be repugnant to the commercial purpose of the contract, referring to the oft-cited case Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57, 60 (Diplock LJ, Winn and Wilmer LJJ agree) (fraser).

With regard to clause 16.1.4, the Court observed that the heading formed part of the text of the policy and expressed the view that it was a general guide to the whole clause and a pointer to a requirement that the insured was required to take reasonable care. The Court found that the Insurer’s construction would defeat the business purpose of providing the Insured with meaningful coverage for liability for bodily injury resulting from the conduct of its scaffolding business. In this regard, the Court observed that the vast majority, if not all, of the circumstances which could give rise to such liability would most likely constitute breaches of the regulations in force at the relevant time and within the scope of clause 16.1. 4. The Court therefore rejected the Insurer’s interpretation of clause 16.1.4.

As for the Additional Condition, the Court also rejected the Insurer’s interpretation. The Court observed that the condition relating to the annex was intended to require compliance with a document referred to only as “guidelines”, the content of which was, for the most part, informative rather than directive. As for clause 5.4.2 of the guidelines, it dealt with the same subject as one of the regulations invoked by the Insurer (which, according to the Court, the Insured had only to take reasonable precautions to comply with). comply). The Court observed that an interpretation of the Attached Condition which would impose an absolute obligation on the Insured to comply with clause 5.4.2 would lead to an incongruity. The Court concluded that reading the policy as a whole and considering its purpose, properly construed, the insured’s obligation was to take reasonable care to comply with the guidelines.

If the insured has taken reasonable precautions to comply

It was recognized that cl 16.1.4 and the appended condition were conditions precedent, with the consequence that if any of these conditions were breached, the policy would not bind the insurer and the insurer would incur no obligation to payment. The Insured also accepted that it was his responsibility to prove that there was no breach.

The Insured’s representative testified that he erected scaffolding at the site for three days, according to a plan that a representative of another scaffolding company who was involved in erecting scaffolding at the site told him to follow. On the second day, he saw that the power lines were close to where he was building the scaffolding, which worried him. He testified that he spoke to a supervisor on site and told him that the scaffolding was near power lines and that the supervisor needed to speak to the other scaffolding company. The supervisor said, “let me do it”. The insured’s representative did not contact the electrical authority to obtain a permit because, he said, this had to be done by the other scaffolding company or the builder. He said he continued to erect the scaffolding even though he knew he was in a ‘no go zone’ because he was working according to the plan the other scaffolding company told him to follow .

The insurer argued that in circumstances where the insured was not aware of the existence of a permit to erect the scaffolding within 4m of power lines or the conditions of a such a permit, and had not erected the scaffolding more than 4 m from the power lines, the Insured was indifferent to the danger which he acknowledged existed.

Among other things, the insured submits that the trial judge essentially concluded that the insured was reckless. The Insured also maintained that his representative had informed the person in charge of the proximity of the power line to the scaffolding and that whoever was leading the site was going to mitigate the risk by putting in place the necessary safety measures when the scaffolding was in use and was not going to be licensed at this point.

The Court recalled the principles set out in fraserthat reasonable precautions are those which are reasonable between the insured and the insurer,[1] which involves a subjective criterion such that the insured must not deliberately seek out a danger of which he has recognized the existence, while refraining from taking any measure to remove it; and that the insured’s omission must be at least reckless, that is, done with the actual acknowledgment by the insured himself that a danger exists, regardless of whether it is avoided or not.

The Court found that the trial judge’s statement of her conclusion reflected an erroneous approach to the question of the burden of proof. Their Honors therefore undertook the investigation for themselves.

After examining the evidence of the representative of the Insured, the Tribunal concluded that it was probable that he knew how dangerous the scaffolding could be not only for the people building the scaffolding on the day of its erection but also for those who would use it later if the minimum clearance was not respected or unless other safety precautions were taken. Starting from the premise that it was not the Insured who was required to obtain the permit required by the regulations and directives, the Court concluded that taking reasonable precautions required the representative not only to raise the danger with of the site supervisor but also that he ensure that someone has obtained a permit and that all the related safety conditions have been respected before continuing to erect the scaffolding. However, he recognized the danger, sounded the alarm but, according to the Court, was indifferent to the question of whether measures had been taken to prevent the risk. The Court therefore concluded that the insured had not discharged his burden of establishing that he had taken reasonable precautions to comply with the regulations and directives and allowed the appeal.

Comment

A few questions arise from Dhillon Scaffolding which are worth noting.

First, it should not be assumed that all conditions imposing on an insured the obligation to take any reasonable precaution are conditions precedent to the obligation to indemnify for the insurer, in which case it is generally the insured who bear the burden. Who bears the burden depends primarily on the nature of the condition in question, the interpretation of the policy and the insurer’s promise contained therein. These issues may militate in favor of the burden on the insurer.

Secondly, it is evident that the Assured was somewhat limited in what he could argue, since the matter was decided as a preliminary question. The Court of Appeal declined to consider the insured’s assertions that he had in fact not breached any regulations or guidelines and, if so, whether any failure on his part to take reasonable precautions to complying with it could be considered to have caused the injury. At trial, no issue of causation was raised; it was presumed for the purposes of the preliminary point. Similarly, it was assumed in the first instance that there was no permit and that there had been a violation of regulations and guidelines. In these circumstances, the Court considered that it should proceed on the same basis. The Court observed that it might have been preferable to rely on an agreed statement of facts regarding causation and breach for the purposes of the preliminary point. In light of the Court’s comments, parties contemplating a preliminary determination of an insured’s entitlement to compensation should consider the factual basis upon which the Court is called upon to rule.

A more detailed version of this note appears in the Bulletin du droit des assurances: (2022) 37(9) ILB 150.

Liability limited by an approved scheme under professional standards legislation.

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