An insurer is entitled to deny indemnity if an insured does not
take all reasonable precautions to avoid risk.
Mitchell Canny (the Plaintif), an apprentice electrician
employed by Primepower, suffered severe burns as he was decanting
petrol from one container to another whilst one of his colleagues
sprayed a flammable liquid and attempted to start an unused engine
at Primepower's place of business (the premises). At the time
of the incident, Primepower employees were attending a social
function, the Managing Director's birthday party, at the
premises after finishing work at 11.00am. Alcohol was supplied by
the Managing Director.
Over the course of the afternoon, the plaintiff and other
apprentices were engaged in attempting to seize an engine to get it
to run faster and fail. Some supervisors of Primepower gave advice
to the apprentices on how to make the engine start and seize. The
Managing Director was aware the activity was taking place but
stated he did not think they apprentices would be successful.
The plaintiff commenced an action for damages for personal
injuries sustained as a result of the incident and Primepower
sought indemnity under its employers' indemnity policy with
Allianz. Allianz denied indemnity on the basis that Primepower had
breached the reasonable precautionprovision in their policy. The
policy stated that all insurance cover provided in the policy
wasconditional on a number of terms, including the requirement for
the insured to take:
...all reasonable precautions to prevent injury to Workers and
must comply with all relevant laws, including the Occupational
Safety and Health Act 1984 as amended and replaced and
Primepower then joined Allianz as a third party to the
Her Honour Judge Stewart relied upon the three principles set
out in Brescia Furniture Pty Ltd v QBE Insurance Australia) Ltd
 NSWCA 598, in assessing whether Primepower had breached the
reasonable precaution provision in the policy, being:
Where the onus lies depends on the proper construction of the
provisions of the policy i.e.whether it is a condition precedent or
Because the purpose of this type of policy is to protect
against negligence, the test for risk is determined by the
perception of the insured i.e. whether the perceived and
deliberately courted the risk;
In order to attribute a state of mind to a company, the
collective states of mind of officers of the company relevantly
connected with it are treated as being the state of mind of the
Her Honour considered a number of authorities and held that
Primepower courted the risk because its Managing Director was aware
of the risks of ignition with the starter motor of an engine, was
aware that flammable substances were being used, allowed the
unsupervised apprentices to do what they wanted, encouraged
unsupervised apprentices who consumed alcohol to work on the engine
for a period of at least 4 to 5 hours, allowed intoxicated
supervisors to give advice to the apprentices and was responsible
for providing the alcohol. Her Honour found that the Managing
Director's actions were not inadvertent and his conduct was
more serious than negligence and amounted to "deliberate
flouting of the policy". As such, Allianz was found to have
been entitled to deny indemnity under their policy.
In relation to contributory negligence, Her Honour found that
the plaintiff's conduct of consuming alcohol and decanting
petrol near the engine was not that of a reasonably prudent man and
he failed to exercise reasonable care of his own safety, thus
contributing to his own injury. However, Her Honour considered that
the duty owed by Primepower was more significant than the plaintiff
as it was Primepower's responsibility to provide a safe place
of work, the plaintiff did not institute the system of work that
was adoptedd by the other apprentices on the day of the incident,
the plaintiff had followed what the other apprentices were doing
for a number of hours and flammablesubstances were available at the
Primepower's premises. Her Honour considered the plaintiff was
not disobedient or defiantly careless in carrying out the activity
as he followed directions from hisemployer when given. Her Honour
considered the plaintiff did not fully appreciate the danger
associated with petrol as he was an electrical apprentice not a
mechanical apprentice and would have followed a command to stop the
activity if Primepower had given one. Contributory negligence was
assessed at 15%.
This decision highlights the importance of reasonable precaution
provisions in policies as insurers can rely on these to deny
indemnity to unreasonably negligent insureds.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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