An important decision delivered by the Supreme Court of Victoria this month has highlighted that a business may be prevented from relying on their public liability insurance for a workplace incident if it has failed to demonstrate that it had taken reasonable safety precautions.
The decision, which centred on the interpretation of the public liability insurance policy, is an example of where an organisation may be sued for damages and their insurance policy will not respond.
Dhillon Scaffolding Pty Ltd (Dhillon Scaffolding) was engaged to build scaffolding around a townhouse site in Coburg. Mr Dhillon, the director of Dhillon Scaffolding, noticed that the scaffolding to be built was too close to the overhead powerlines. He told a supervisor of the builder on site of the problem, but took no further steps to ensure the safety of the site and continued the next day to erect the scaffolding. He did not contact the power authority to obtain a permit to erect scaffolding within 4 metres of the powerlines, nor check whether anyone else had taken that step.
An apprentice plumber later received a serious electric shock after the guttering he was carrying struck the overhead powerlines. As a result, he suffered substantial burns to his shoulder, arm, leg and foot.
The apprentice instituted damages proceedings against Dhillon Scaffolding, as well as his employer and the builder, and another scaffolding company. The Victorian WorkCover Authority also commenced a claim against Dhillon Scaffolding, seeking to recover the compensation and expenses paid to the apprentice for his WorkCover claim (the claims).
Dhillon Scaffolding lodged a claim under its public liability insurance policy held with Lloyd’s of London (the insurer), seeking for the insurer to provide cover and indemnify Dhillon Scaffolding against the claims. The claim was denied and Dhillon Scaffolding sued the insurer.
Judgment at trial
The trial Judge heard that the insurer refused to indemnify Dhillon Scaffolding under their public liability insurance policy as Dhillon Scaffolding had failed to obtain the relevant permit to work. The insurer claimed that Dhillon Scaffolding’s conduct when erecting the scaffolding breached the general condition clauses, which required Dhillon Scaffolding to:
- comply with the Australian/New Zealand Standard Guidelines for Scaffolding, in particular, clause 5.4.2, which prescribes the safe clearance between scaffolding and powerlines;
- take all reasonable precautions to prevent personal injury or property damage, and cease any activity that may give rise to liability under the policy (clause 16.1.1); and
- comply with all statutory requirements and other safety regulations imposed by any authority (clause 16.1.4).
The insurer submitted that Dhillon Scaffolding had to act in strict compliance with the statutory requirements, safety regulations and Australian Standards, otherwise it did not have to indemnify the company. The trial Judge rejected this argument, saying that it was at complete odds with a contract to insure a liability to pay damages. In other words, the point of insurance is to indemnify you if you have been negligent.
On the question of whether Mr Dhillon had acted reasonably or not, the trial Judge was satisfied that Mr Dhillon’s conduct was not “a course of action deliberately adopted by him subjectively realising the danger posed”. The trial Judge found that, while Mr Dhillon was aware that the scaffolding was in close proximity to the powerlines, he was not the contractor responsible for obtaining permits or deciding the manner in which the scaffolding was to be constructed. As such, the trial Judge was not satisfied that Dhillon Scaffolding had failed to take reasonable precautions. The insurer was therefore not entitled to refuse to indemnify Dhillon Scaffolding.
Appeal court decision
On appeal, the Supreme Court of Appeal considered that the key question was whether the policy required Dhillon Scaffolding to take ‘reasonable precautions’ to comply with all statutory requirements, safety regulations and guidelines, or whether strict compliance was required. This Court considered that this issue was to be determined by reference to the words used, the surrounding circumstances known and the commercial purpose of the contract.
The Court of Appeal agreed with the trial Judge that the policy did not require absolute compliance with the regulations, as this would defeat the purpose of insurance. However, the Court of Appeal considered that on the question of ‘reasonable precautions’ the trial Judge looked at the question the wrong way around. The Court stated that Dhillon Scaffolding in fact had a positive onus to show that it had taken reasonable precautions.
Looking at the facts, the Court accepted that while Dhillon Scaffolding was not obliged to obtain the permit, reasonable precautions required Mr Dhillon to not only raise the danger with the site supervisor, but also to make sure that someone had obtained a permit and that any safety conditions attached to it were adhered to before he continued with work. As such, Dhillon Scaffolding failed to discharge its burden of showing that reasonable precautions were taken to comply with the regulations and guidelines.
The Court of Appeal’s finding meant that the insurer was not required to pay under Dhillon Construction’s public liability insurance policy.