Lloyd’s of London v Dhillon Scaffolding Pty Ltd [2022] VSCA 92: A decision by the Supreme Court of Victoria leaves businesses without cover after reasonable safety precautions were not taken, highlighting the importance of “General Conditions Clauses” in a policy. In this article, we discuss the Court’s decision and explain the importance of the proper drafting and interpretation of a policy when determining if coverage is available.
At Risksmart, our Liability team is often instructed by Lloyd’s of London Underwriters to advise on policy coverage. Historically, the Courts have interpreted the General Condition Clauses of a policy loosely, without providing much guidance on the factors a Court has to consider when determining whether it should observe such clauses. The recent case of Lloyd’s of London v Dhillon Scaffolding Pty Ltd delivered by the Supreme Court of Victoria ruled that an insurer may rely on the General Conditions Clauses of their public liability policy wording to deny indemnity to a business that has failed to demonstrate it took reasonable safety precautions. This case confirms that judges will not take a lenient approach with businesses that make claims resulting from their own failure to take reasonable safety precautions.
A little context
In 2015, an apprentice plumber sustained an injury on scaffolding erected by Dhillon Scaffolding Pty Ltd, the Insured, (Dhillon) when he struck an overhead powerline with a metal object that he was carrying. He started proceedings against Dhillon. WorkCover in Victoria also joined Dhillon as a defendant in a recovery action.
Dhillon held a public liability insurance policy (Policy) with the Lloyd’s of London Underwriters and lodged a claim under that policy following the incident. According to the General Conditions Clauses of the Policy, there was a condition that required Dhillon to comply with the Australian/New Zealand Standards 4576, 1995. The general condition in the policy stated 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”.
The Insurer denied cover on the basis that Dhillon failed to comply with this condition, because it failed to obtain a permit to erect scaffolding in a “No Go Zone” given its proximity to the overhead powerline. The Court was also asked to interpret the “reasonable precaution” clause to clarify whether Dhillon was only required to take “reasonable precautions” or had an absolute obligation to comply with the safety Condition.
Court Decisions
The trial judge interpreted the Policy to mean that Dhillon had to comply with the safety Conditions of the Policy by ensuring that all statutory requirements were met, and the Court found that Dhillon had taken reasonable precautions to do so.
The Insurer appealed the decision and while the Court agreed Dhillon did not require absolute compliance with the safety Conditions, Dhillon was responsible for showing it had taken reasonable precautions.
Based on factual evidence, the Court of Appeal found Dhillon did not take reasonable precautions as despite knowing that it was operating in a “No Go Zone”, Dhillon failed to (1) obtain a permit, (2) if not obliged to obtain a permit, failed to ensure that a permit was obtained by another party, and (3) failed to stop work until (1) and (2) had occurred.
What does this mean for Insurers?
- Insurers should consider the policy wording in its entirety, ensuring that conditions preceding a policy such as safety requirements are fulfilled before granting the coverage to an Insured
- Brokers and insurers, as a matter of good practice, should draw businesses’ attention to the General Condition Clauses at the time of entering or renewing policies
- Insurers should ensure that the drafting of their general conditions clauses in their policy wordings are adequate and contain “safety” and “reasonable precaution” clauses.
How will Courts view safety breaches?
Similar to this decision, in the case of Kim v Cole & Ors [2002] QCA 176, the Court allowed the insurer to deny coverage on the basis that the policyholder failed to take reasonable precautions to comply with the relevant Australian Standards and gas legislations. However, in the case of Manitowoq Platinum Pty Ltd & Ors v WFI Insurance Ltd [2017] WADC 32, the Court found that the general clauses were invalid although the general policy conditions were similar to those in the former case (but the facts differed).
From the precedents discussed above, we conclude that the factor that the Courts consider is whether the safety breach is serious or not. Ultimately, if a policyholder can prove that it took reasonable precautions to ensure it complied with all the safety requirements, the Court is unlikely to enforce the safety conditions.
Next steps
It is unlikely that the case of Lloyd’s of London v Dhillon Scaffolding Pty Ltd will go to the High Court. However, the Supreme Court of Appeal has clarified that coverage will depend upon the facts and circumstances of each case and the application of the condition should be determined subjectively by asking whether a reasonable person in the place of the business would have acted differently to ensure safety.
Senior Claims Executive
Kushla.Juggeewon@risksmartclaims.com.au
This article is intended to provide commentary and general information and should not be construed as legal advice. Although we aim to provide accurate and timely updates, the application of the law is subject to a range of factors. Formal advice should be sought on matters of interest arising out of this publication.