Abstract

Conditions Precedent

Condition - Compliance with Standards - Implied Term - Policy Statement as to Breach of Condition -

Policy Statement as to Breach of Conditions

Technical Terms in 'Plain English'Policy -   Implied Terms - Ambiguity - Condition - Compliance with Standards

Implied Terms

Article

Conditions Precedent Generally

The words of clause exempting a party from liability must be clear on a fair construction of them. The courts generally treat conditions precedent as onerous or draconian terms, so the insurer must clearly spell them out any such terms or the insured will not be bound by them: Pratt v Aigaion Insurance [2009] 1 LL Rep at para 13; Royal & Sun Alliance v Dornoch [2005] EWCA Civ 238 at para 19; Wheeldon Bros Waste v Millenium Insce Co [2018] EWHC 834 (TCC).

Conditions precedent fall into two categories, those which cannot be remedied and therefore cannot suspend cover, such as a condition precedent which required notice to be given by a particular time, and those which can be remedied and suspend cover until they are remedied: Arnold v Britton [2015] AC 1619; Wheeldon Bros Waste v Millenium Insce Co [2018] EWHC 834 (TCC).

Condition Requiring Compliance with Standards – Whether Repugnant with Purpose of Cover

The principle that a condition in an insurance policy should not be construed in a manner which would render the condition repugnant to the commercial purpose of the contract by substantially defeating the provision of any meaningful cover is relevant: Fraser v B N Furman (Productions) Ltd [1967] 3 All ER 57 where a condition in an employer's liability insurance policy which required the insured to take reasonable precautions to prevent accidents and disease was read as excluding cover only in the event of reckless conduct by the employer, lest the commercial purpose of providing cover to the employer for liability for negligence be defeated. In this context, recklessness involves acts or omissions by the insured with actual recognition that a danger exists, and not caring whether or not it is averted. Usually the test is applied to an obligation of an insured to take 'reasonable care' to take precautions or measures as set out in the condition. This line of reasoning was followed in Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60-580.

In contrast, if a condition to comply with legislation and Australian Standards is not qualified by an obligation to 'take all reasonable precautions' or to 'take all reasonable measures', as expressly applied to other conditions within the relevant clause, such a qualification does not apply: Kim v Cole [2002] QCA 176; (2002) Aust Contract R 90-149; (2002) Aust Tort Reports 81-662. This is to be distinguished from Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162, 173 to the contrary but where the policy provision required reasonable care to be taken to comply with all regulations and by-laws. 

In Buckley v Metal Mart Pty Ltd [2008] ACTSC 79, a condition of observance of all laws, by-laws, regulations and recognised standards for the safety of persons or property did not have a ‘reasonable precautions’ qualification, though anothercondition in its group did so, but a general heading of the group had such a qualification, which was found to apply. The insurer accepted that the Fraser principle applied to it and contested liability on other grounds. It has no relevance to this discussion.

In Victorian WorkCover Authority v Concept Hire Ltd [2009] VSC 194; (2009) 24 VR 695, a condition of the policy required the insured to comply with the provisions of the Occupational Health and Safety Act 1985 (Vic), which relevantly imposes an obligation upon employers to provide and maintain so far as is practicable for employees a working environment that is safe and without risks to health. An unqualified construction was found to be repugnant to commercial practicality because a finding of liability against the insured would necessarily trigger a breach of the condition because of the breadth of operation of the legislation is almost, if not exactly, coincident with the common law duty of care A strict obligation to comply with the statutory duty would mean that the policy provided little or no cover. However, this provision is not analogous to the obligations imposed by other regulations and Australian Standards, viewed in light of the ambit of cover provided by a Business Liability policy which does not cover liability arising from personal injury to employees.

In Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67; (2016) 75 MVR 108,  the condition required the insured to exercise reasonable care and precautions to prevent loss or damage to the Motor Vehicle, and to comply with all statutory obligations and by-laws or regulations imposed by any public authority for its safety.That the condition was entitled 'reasonable care' led to a construction that the qualification applied to both limbs.

These authorities generally indicate that the qualification, if unexpressed, will not be implied unless there is language in other provisions to support it, or unless its absence would be repugnant to the policy’s commercial purpose by effectively defeating the cover which was clearly intended to be provided, for example, if non-compliance with the standard set by the condition was the only or the predominant source of potential covered liability. This would not be so if other substantial possibilities of indemnifiable liability were open. However, the proper construction of a policy must turn upon its particular terms in light of its evident commercial purpose. That purpose is to be inferred from the ambit of cover provided.

There are two distinct steps in the construction of such clauses. If the clause is not expressly qualified by an obligation to take reasonable care, the first question is whether, it should impliedly be so construed. If so, the second question is whether there is repugnancy which requires the obligation to be limited to an obligation to not act recklessly. WFI Insurance Ltd -v- Manitowoq Platinum Pty Ltd [2018] WASCA 89.

Implied terms

Five criteria must be met before a term can be implied ad hoc in order to give business efficacy to a contract: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20; 16 ALR 363 (PC). However, there are a number of different forms of implied term known to the law, including a term deduced by implication or interpretation from the contract’s express terms, which is an issue of construction: Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79; (2016) 50 WAR 226; WFI Insurance Ltd -v- Manitowoq Platinum Pty Ltd [2018] WASCA 89.

Policy Statement as to Consequence of Breach of Conditions

Because of s 54 of the Insurance Contracts Act 1984 (Cth), a provision of the policy that ‘If you don't meet these conditions, we may be able to refuse or reduce any claim or cancel your policy is adequate and accurate, and it would be unnecessary and indeed misleading to say that no claim will be payable unless all conditions have been complied with: WFI Insurance Ltd -v- Manitowoq Platinum Pty Ltd [2018] WASCA 89.