Can unreasonable behaviour be insured? 

Aug. 2015 

A common condition in insurance policies requires the insured to take all reasonable precautions to prevent risks from coming to fruition. The recent Western Australian District Court decision of Canny v Primepower Engineering Pty Ltd [2015] WADC 81 demonstrates an example of an insurer successfully relying upon a reasonable precautions condition in a policy to deny a claim for indemnity. 

The birthday of Primepower's managing director, Mr Peter Allan was on Friday 11 November 2011. It was also Remembrance Day and a normal workday.

The M.D. decided to throw a birthday at the workplace with a theme of the number eleven. He arranged for 11 kegs of beer ($3,000 worth) for staff to consume. The party started, unsurprisingly, at 11:00 am.

At about mid-day, some apprentices decided to try to "seize" a disused diesel engine (or to run it to the point of failure). Later that afternoon, Mr Canny, a Primepower employee, decided to get involved. He, along with others at the party had been drinking. At about 7:00 pm, after the party had been on the gou for about 8 hours, a 20 litre jerry can of petrol was produced. The idea was, it seems, to see what effect the petrol may have had on the engine, which had been running all afternoon without seizing.

Mr Canny decanted some petrol into an open container which he was holding when a fireball unexpectedly flew from the engine. He was engulfed in flames suffering burns to 60% of his body.

Mr Canny sued his employer, Primpower alleging negligence. The employer sought cover under its employers' indemnity policy, held their insurer, Allianz. Allianz argued Primepower was not entitled to cover as it was in breach of the terms of the policy which required Primepower to take "reasonable precautions" to prevent workplace injury. Primepower then sued Allianz seeking policy cover.

Her Honour Judge Stewart held that Primepower had breached its duty of care to Mr Canny in failing to provide a safe place and a safe system of work, because the attempts to "seize" the engine should not have been allowed and in the event such activity was ever contemplated.  The consumption of alcohol should not have been permitted. Her Honour also noted this was not one beer drunk after work, but a celebration involving 11 kegs which had been in full swing for 8 hours at the time the accident occurred.

She also found Mr Canny guilty of contributory negligence as his actions in decanting petrol near the engine were not prudent. He had also been drinking and "his judgement was not 100%." He was considered to be "a young man with very limited experience." These factors perhaps led Her Honour to find him only 15% to blame for his injuries.

She also held that Primepower did not comply with the "reasonable precautions" clause of its policy and so it was not entitled to indemnity. This meant Primepower was effectively uninsured and required to pay Mr Canny's damages out of its own pocket.