The determination of an insured’s entitlement to indemnity as a preliminary point
Certain Underwriters at Lloyd’s of London v Dhillon Scaffolding Pty Ltd  VSCA 92
The Insured erected scaffolding at a worksite. An apprentice plumber was injured when guttering that he was carrying on the scaffold hit overhead powerlines. The plumber brought a claim for damages for personal injury against, amongst others, the Insured. The Insured sought indemnity under a policy that it held with the Insurer under which it was insured in respect of, relevantly, public liability. The Insurer denied the claim. The Insured joined the Insurer to the proceedings as a third party.
The policy contained the following term:
16.1 REASONABLE PRECAUTIONS
The insured at its own expense shall:
16.1.4 comply with all statutory requirements and other safety regulations imposed by any authority.
The Insurer relied on, amongst other things, a regulation in the Electricity Safety (Installations) Regulations 2009 (Vic), which prohibited the erection of scaffolding within specified distances of particular powerlines without 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 the Australian/New Zealand Guidelines AS/NZ 4576; 1995[.]
The Insurer relied on cl 5.4.2 of the Guidelines, which provided that the clearance between scaffolds and any transmission line, main apparatus or transmission apparatus should not be less than, relevantly, 4.0m, and relevantly stated: “[d]o not erect scaffolding until the necessary measures have been taken to minimise risk and a written authorization has been received from the electricity supply authority”.
On a trial of the preliminary issue of whether the Insured would be entitled to indemnity under the policy, the Supreme Court of Victoria held that the Insured’s obligations under cl 16.1.4 and the Schedule Condition were not absolute, but rather were to take reasonable precautions to comply: Noori v Majestic Plumbing Services Pty Ltd (Third Party Proceeding)  VSC 63. The trial judge stated that she was not satisfied that the Insured had not taken such reasonable precautions, and held that the Insured was entitled to indemnity. The Insurer sought leave to appeal.
On appeal, the Insurer contended that the obligations imposed by cl 16.1.4 and the Schedule Condition were absolute (rather than to take reasonable precautions to comply with those requirements, as the trial judge had held). In the alternative, the Insurer contended that the trial judge erred insofar as she held that the Insured had taken reasonable precautions.
In relation to the question of construction, the Insurer emphasised the terms of the provisions in issue. It argued that cl 16.1.4 was expressed in absolute terms, and the use of the word “must” in the Schedule Condition pointed to that term being a mandatory requirement. As to cl 16.1.4, the Insurer submitted that although this clause appeared under a heading of “Reasonable Precautions”, no element of reasonableness was imported into the sub-clause, with each sub-clause distinct and marked off with its own punctuation.
After reciting general principles of contractual construction, the Court (Ferguson CJ, Beach and Macaulay JJA) observed that it was well established that an insurance policy would not be construed in a way that deprived the insured of meaningful cover, which would be repugnant to the commercial purpose of the contract, referring to the oft-cited case Fraser v BN Furman (Productions) Ltd  3 All ER 57, 60 (Diplock LJ, Winn and Wilmer LJJ agreeing) (Fraser).
As to cl 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 precautions. The Court concluded that the Insurer’s construction would defeat the commercial purpose of providing the Insured with meaningful cover for liability for personal injury arising out of the conduct of its scaffolding business. In that regard, the Court observed that the vast majority, if not all, of the circumstances which might give rise to such a liability would most likely constitute breaches of regulations that were in force at the relevant time and within the scope of cl 16.1.4. The Court therefore rejected the Insurer’s construction of cl 16.1.4.
As to the Schedule Condition, the Court also rejected the Insurer’s construction. The Court observed that the Schedule Condition purported to require compliance with a document styled only as “Guidelines”, the content of which was, for the most part, informational rather than directive. As to cl 5.4.2 of the guidelines, it dealt with the same subject matter as one of the regulations upon which the Insurer relied (with which, the Court had held, the Insured only had to take reasonable precautions to comply). The Court observed that a construction of the Schedule Condition that imposed an absolute obligation on the Insured to comply with cl 5.4.2 would lead to incongruity. The Court concluded that reading the policy as a whole and in considering its purpose, properly construed, the obligation on the Insured was to take reasonable precautions to comply with the guidelines.
Whether Insured took reasonable precautions to comply
It was common ground that both cl 16.1.4 and the Schedule Condition were conditions precedent, with the consequence that if either of those conditions was breached, the policy would not be binding on the Insurer and the Insurer incurred no liability to pay. The Insured also accepted that the onus of proving that there was no breach rested with it.
The Insured’s representative had given evidence to the effect that he built scaffolding at the worksite over three days, to a plan that he was told to follow by a representative of another scaffolding company which was involved in the erection of scaffold at the site. On the second day, he saw that the powerlines were in the vicinity of where he was building the scaffold, which caused him concern. He gave evidence that he spoke to a supervisor on site and told him that the scaffold was close to the powerlines and that the supervisor needed to talk to the other scaffolding company. The supervisor said, “leave it to me”. The Insured’s representative did not contact the power authority to obtain a permit because, he said, it was meant to be done by the other scaffolding company or the builder. He said that he continued to erect the scaffold even though he knew it was in a ‘No Go Zone’ because he was working to the plan that he was told to follow by the other scaffolding company.
The Insurer submitted that, in circumstances in which the Insured did not make itself aware of whether a permit existed for the erection of the scaffolding within 4m of the powerlines or of the conditions of any such permit, and did not erect the scaffolding more than 4m from the powerlines, the Insured was indifferent to the danger that, it recognised, existed.
Amongst other things, the Insured submitted that the trial judge had in substance found a want of recklessness on the part of the Insured. The Insured also submitted that its representative had brought the proximity of the powerline to the scaffold to the attention of the person in charge and that whoever was conducting the site was going to address the risk by putting in place whatever safety provisions were needed when the scaffold was being used and was not going to be addressed by a permit at that stage.
The Court recited the principles stated in Fraser, that what constitutes reasonable precautions are those that are reasonable as between the insured and the insurer, which involves a subjective test such that the insured should not deliberately court a danger, the existence of which it recognised, by refraining to take any measures to avert it; and that the insured’s omission must be at least reckless, in other words, made with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted.
The Court concluded that the trial judge’s expression of her conclusion reflected an erroneous approach to the question of onus. Their Honours therefore embarked on the enquiry for themselves.
Having reviewed the Insured’s representative’s evidence, the Court concluded that it was probable that he did know how dangerous it might be not only to people building the scaffolding on the day it was erected but also to those using it afterwards if the minimum clearance was not observed or unless other safety precautions were taken. On the assumed premise that it was not the Insured who was obliged to obtain the permit required by the regulations and the guidelines, the Court found that the taking of reasonable precautions required the representative not only to 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 erecting the scaffold. However, he recognised the danger, raised the alarm but, the Court found, was indifferent to whether any action was taken to prevent the risk. The Court therefore concluded that the Insured had not discharged its burden of establishing that it took reasonable precautions to comply with the regulations and guidelines and allowed the appeal.
A couple of matters emerge from Dhillon Scaffolding that are worth noting.
First, it should not be thought that all terms imposing an obligation on an insured to take reasonable precautions of some kind are conditions precedent to the insurer incurring the obligation to indemnify, in which case the insured generally bears the onus. The question of who bears the onus depends primarily upon the nature of the condition in question, the construction of the policy and the insurer’s promise contained within it. Those matters can militate in favour of the onus falling on the insurer.
Secondly, it is apparent that the Insured was somewhat constrained in what could be argued by it, given that the issue was determined as a preliminary question. The Court of Appeal declined to entertain the Insured’s contentions that it had not in fact breached the regulations or guidelines, and if so, whether any failure on its part to take reasonable precautions to comply could be said to have caused the injury. At first instance, there was no issue raised about causation; it was assumed for the purposes of the preliminary point. Likewise, it was assumed at first instance that there was no permit and that there had been a breach of the regulations and the guidelines. In those circumstances, the Court held that it should proceed on the same basis. The Court observed that it may have been preferable for a statement of agreed facts about causation and breach to have been relied upon for the purposes of the preliminary point. In light of the Court’s comments, parties considering the preliminary determination of an insured’s entitlement to indemnity ought to give consideration to the factual basis upon which the court is asked to rule.
A more detailed version of this note appears in the Insurance Law Bulletin: (2022) 37(9) ILB 150.
Liability limited by a scheme approved under Professional Standards Legislation.
 See also CGU Insurance Ltd v Lawless (2008) 15 ANZ Ins Cas ¶ 61-755 (VSCA).