"Clearly" provision of policy wording alone may not be sufficient

In brief - A recent decision in the NSW District Court shines a light on an insurer's obligation to "clearly inform" their insureds of exclusions under a policy so as to benefit from the protections provided under section 35(2) of the Insurance Contract Act 1984 (Cth) (ICA).

Walsh v Yang [2023] NSWDC 307 considers the liability of a home owner who is aware of a risk of injury but takes no steps to address it, and most interestingly, the decision emphasises that an insurer must remain vigilant when issuing policies of insurance online so as to ensure their insureds disclose all relevant information that may have implications on the exclusion clauses within the policy. An insurer can only rely on an exclusion where they have clearly informed their insured of it. 

Principles

• Where an occupier is made aware of a risk, a failure to take reasonable steps to protect entrants from the risk of injury will result in an occupier being negligent for any subsequent injuries occasioned by that risk.
• Whilst there is no general rule that is incumbent on an insurer to annotate a policy, there is no absolute rule as a matter of construction of section 35 (2) of the Insurance Contract Act 1984 (Cth) that provision of a policy will always be sufficient [216]. An insurer must take steps to inform make their insureds "clearly informed" of the exclusions to a policy, which goes beyond merely providing them with a copy of the policy. 

Background

On 24 March 2019, Mr Walsh, the plaintiff, slipped and fell on wet and slippery tiles stairs located near a granny flat at the rear of a residential property in Baulkham Hills, where he resided and leased from his friend, Ms Yang, the first defendant. The property was owned by the first and second defendant (jointly, the defendants). 

The plaintiff claimed that the defendants were negligent for failing to take measures to render the tiles slip resistant when they knew, or ought to have known, that the tiles were slippery when wet.

The defendants entered a home and contents policy of insurance on 19 February 2019 (Policy) with Insurance Australia Limited, the third defendant (Insurer). The Insurer denied indemnity under the Policy. The defendants made a cross-claim against the Insurer. 

Issues

This case explores:

• Whether the risk that eventuated was foreseeable and subsequently, whether the defendants' breached their duty owed to the plaintiff as occupiers of the property; and
• Whether the Insurer was entitled to decline indemnity pursuant to any exclusions in the Policy.

Occupier's liability for prior known risks 

The evidence revealed that the plaintiff had been involved in a similar incident on 7 November 2018 where he slipped and fell on wet tiles of the same make in a nearby location. The defendants were found to have been aware of this incident and of the risk of a fall on the tiles when wet by actual notice received from the plaintiff at that time. 

There was no dispute that the defendants owed a duty to exercise reasonable care to prevent foreseeable injury to the plaintiff as an entrant exercising reasonable care for his own safety. The duty extends to taking precautions a reasonable person in the circumstances would take by way of response to the risk that a person may slip on tiles (Schultz v MCormack [2015] NSWCA 330 at [73]). Once alerted to a risk, the occupier's duty is to exercise reasonable care to take such steps as a reasonable person would take in response to the risk so identified (Bunnings Group Ltd v Giudice [2018] NSWCA 144 at [34]). 

His Honour held that in circumstances where the defendants were alerted to the risk of injury in November 2018, section 5D of the Civil Liability Act 2002 (NSW) was satisfied and the defendants were found negligent for breaching their duty of care to protect the plaintiff from the risk of injury caused by the tiled surface at the rear of the property when wet. The plaintiff was awarded damages in the sum of $101,500.

Reliance on section 35 of the Insurance Contract Act 1984 (Cth) (ICA)

As to the second issue, the Court considered the six enumerated exclusions forming the Policy. The most applicable exclusions were the unlawful activity, building regulation and local authority regulation exclusions. The Insurer submitted these exclusions applied in circumstances where the defendants had received correspondence from the local council in 2015 directing them to remove certain services, such as gas and water, from the flat (which was at the time converted from a garage and made habitable). The defendants removed some, but not all, of the services at that time. The services were reconnected by the plaintiff in October 2018 with the defendants' consent. 

To the extent that exclusions apply, the defendants relied on section 35 of the ICA to preclude the Insurer from relying on the exclusion terms. The operation of the building regulation exclusion and local authority regulation exclusion enliven section 35(1). The issue was whether subsection s 35(2) applied in the circumstances.

The operation of subsection 35(2) of the ICA

The Court concluded that operation of subsection 35(2) requires the Insurer to establish that it "clearly informed' the defendants in writing, or, that a reasonable person in the position of the defendants would have known that the Policy would not cover the defendants' liability to the plaintiff.

Whilst the building regulation and local authority regulation exclusions were both found to apply in the circumstances, the steps taken by the Insurer to inform the defendants of the exclusions, by providing them with a copy of the Policy, were deemed not sufficient to satisfy subsection 35(2) of the ICA. The Insurer failed to make out its claim that the exclusions applied and that it is entitled to decline cover.

The decision acknowledges the oft cited decision of Einstein J in Hams v CGU Insurance [2002] NSWSC 273 wherein he was required to determine whether the provision of the policy wording in and of itself was sufficient to satisfy the test in subsection 35(2). Einstein J accepted at [243] that "in each case the content of the document and all of the circumstances of its provision would need to be considered in order to determine if the insurer had effectively informed the insured of the limitation".

Judgment was awarded for the plaintiff against the defendants, and judgment for the cross-claimants (Ms Yang and Mr Xu) against the Insurer in the cross-claim. The Insurer was ordered to pay the defendants' costs of defending the proceedings and of the cross claim on an ordinary basis.