Failing to comply with security measures leaves a company exposed
A landmark decision by the Supreme Court of Victoria this month highlighted that a business can be prevented from relying on its liability insurance for a workplace incident if it has not demonstrated that it had taken reasonable security precautions.
The decision, centered on the interpretation of the liability insurance policy, is an example of where an organization can be sued for damages and its insurance policy will not respond.
Dhillon Scaffolding Pty Ltd (Dhillon Scaffolding) was contracted to build scaffolding around a townhouse site in Cobourg. Mr. Dhillon, the director of Dhillon Scaffolding, noticed that the scaffolding to be erected was too close to overhead power lines. He informed an on-site builder supervisor of the problem, but took no further action to secure the site and continued erecting the scaffolding the following day. He did not contact the electrical authority for a permit to erect scaffolding within four meters of power lines, or check to see if anyone else had done so.
An apprentice plumber then received a severe electric shock after the gutter he was carrying hit overhead power lines. As a result, he suffered extensive burns to his shoulder, arm, leg and foot.
The apprentice brings an action for damages against Dhillon Scaffolding, as well as his employer and the constructor, and another scaffolding company. The Victorian WorkCover Authority has also brought an action against Dhillon Scaffolding, seeking to recover compensation and expenses paid to the apprentice for his WorkCover claim (the complaints).
Dhillon Scaffolding has lodged a claim under its liability insurance policy with Lloyd’s of London (the insurer), asking the insurer to provide cover and indemnify Dhillon Scaffolding against the claims. The claim was dismissed and Dhillon Scaffolding sued the insurer.
Judgment at trial
The trial judge heard that the insurer had refused to indemnify Dhillon Scaffolding under its liability insurance policy because Dhillon Scaffolding had not obtained the relevant work permit. The insurer claimed that Dhillon Scaffolding’s conduct in erecting the scaffolding breached terms and conditions, which required Dhillon Scaffolding to:
- comply with Australian/New Zealand standard guidelines for scaffolding, in particular clause 5.4.2, which prescribes safety clearance between scaffolding and power lines
- take all reasonable precautions to avoid personal injury or property damage, and cease any activity which may give rise to liability under the policy (clause 16.1.1)
- comply with all legal requirements and other safety rules imposed by any authority (clause 16.1.4).
The insurer argued that Dhillon Scaffolding must act in strict compliance with legal requirements, safety regulations and Australian standards, failing which it was not liable to indemnify the company. The trial judge rejected this argument, saying that it was in complete contradiction with an insurance contract of obligation to pay damages. In other words, the purpose of insurance is to compensate you if you have been negligent.
On the question of whether or not Mr. Dhillon acted reasonably, the trial judge was satisfied that Mr. Dhillon’s conduct was not “a course of conduct deliberately adopted by him subjectively realizing the danger posed”. The trial judge found that while Mr. Dhillon knew the scaffolding was near power lines, he was not the contractor responsible for obtaining the permits or deciding how the scaffolding had to be built. Thus, the trial judge was not satisfied that Dhillon Scaffolding failed to take reasonable precautions. The insurer was therefore not entitled to refuse to indemnify Dhillon Scaffolding.
Court of Appeal Decision
On appeal, the Supreme Court of Appeal held that the key issue was whether the policy required Dhillon Scaffolding to take “reasonable care” to comply with all legal requirements, safety regulations and guidelines, or whether compliance strict was required. This Court held that this question had to be decided on the basis of the words used, the known surrounding circumstances and the commercial object of the contract.
The Court of Appeal agreed with the trial judge that the policy did not require absolute compliance with the regulations, as that would defeat the purpose of insurance. However, the Court of Appeal considered that on the issue of “reasonable precautions”, the trial judge had taken the question backwards. The court said the onus was actually on Dhillon Scaffolding to show that it took reasonable care.
Reviewing the facts, the Court agreed that while Dhillon Échafaudage was not required to obtain the permit, reasonable precautions required that Mr. Dhillon not only raise the danger with the site supervisor, but also ensure that someone one had obtained a permit and that all safety conditions attached thereto had been met before he continued his work. As such, Dhillon Scaffolding has failed to meet its burden of demonstrating that reasonable precautions were taken to comply with the regulations and guidelines.
The Court of Appeal’s finding meant that the insurer was not liable to pay under Dhillon Construction’s liability insurance policy.
Authors: Michael Selinger and Annelise Harper
- This article originally appeared in the Portner Press Health and Safety Bulletin.
The information in this article is general in nature and is not intended to address the circumstances of any particular person or entity. Although we strive to provide accurate and timely information, we do not warrant that the information in this article is accurate as of the date it is received or that it will continue to be accurate in the future.