The importance of clearly informing policy holders of certain exclusion clauses, and the slippery consequences if you don’t!

11 September 2023

An individual who slipped and fell on tiled stairs at the rear of a residential property brought a claim against both the owners and the home and contents insurer of the property. Ultimately, the Court held the insurer was not entitled to decline insurance cover.

In issue

  • A significant issue in this matter was the dispute between the first and second defendants/cross claimants (also referred to as the 'Insured'), and the third defendant (the 'Insurer'), as to whether the Insurer was entitled to decline indemnity pursuant to a number of Policy exclusions including the 'business use', 'ordinary resident', 'building regulation' and 'local authority regulation' exclusions in the policy of insurance issued to the first and second defendants (the 'Policy').
  • This also involved a question as to whether section 35 of the Insurance Contracts Act 1984 (Cth) (the 'ICA'), when read with regulation 19 of the Insurance Contracts Regulations 2017 (Cth) (the 'ICR'), prevented the Insurer from relying on certain exclusions and whether the Insurer was nonetheless able to rely on them if it clearly informed the Insured of their effect.

The background

On 24 March 2019 the plaintiff slipped and fell on tiled stairs at the rear of a residential property located at Jamieson Avenue, Baulkham Hills, NSW (the 'Property'). It was raining at the time of the fall, and the tiles were wet and slippery. Ms Yang and Mr Xu, the first and second defendants/cross claimants, owned the Property.

At the time of the accident the plaintiff and his partner, who had become friends with the first defendant through a TAFE course, had been staying for about 5 months in a converted garage being used illegally as a flat at the rear of the first and second defendant’s premises whilst they sought more permanent accommodation. The plaintiff paid a reduced rent for use of the flat, and also performed chores around the Property.

The plaintiff alleged the first and second defendants were negligent, as owners of the Property, in failing to take any measure to render the tiles slip resistant when they knew, or ought to have known, that the tiles were slippery when wet. The plaintiff also made a claim against the home and contents insurer of the Property. The first and second defendants brought a cross claim against the Insurer, who denied indemnity under the Policy.

The decision at trial

The Court held that the first and second defendants were liable for negligently failing to take reasonable steps to protect the plaintiff from the risk of injury resulting from slipping and falling on the tiled stairs when wet. The Insurer asserted that liability was excluded under the Policy due to any or all of a number of exclusions, which defeated the Insured’s claim for indemnity and any direct claim made by the plaintiff under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).

The 'business occupation exclusion' and the 'business use exclusion'

The Insurer contended that the Insured’s conduct in letting the flat to the plaintiff and his partner (in consideration of rental payments) constituted a business, which therefore enlivened the business occupation exclusion and/or the business use exclusion. Counsel for the Insured submitted that the exclusions did not apply in these circumstances because, properly construed, they were both directed to the carrying on of a trade, business, occupation, or employment rather than the use of the Property as a residence itself comprising the relevant business.

Having regard to the competing submissions, the Court was ultimately not satisfied that this exclusion clause applied in circumstances where the period of occupation was too short, and the arrangement was a loose one between friends rather than a 'business' within the meaning of the Policy.

The ordinary resident exclusion

The Insurer contended that, by the time of the accident, a degree of continuity and repetition had been established with respect to the plaintiff’s residency of the flat which characterised him as ordinarily resident there. The Court found, however, that the ordinary resident exclusion was also not triggered because the plaintiff did not reside with the Insureds in any relevant sense, but rather they lived their lives independently of each other and more like neighbours than family members or flatmates.

Building regulation and local authority regulation exclusions

In 2015 the Hills Shire Council ('Council') directed the first and second defendants to remove certain services from the flat. They complied with this initially, but reconnected certain services and reinstalled certain kitchen appliances to make the flat habitable in October 2018. Counsel for the Insurer submitted that the installation of a kitchen in what was originally the garage, its use as a dwelling and the agreement to let the plaintiff live there was in contravention of relevant planning laws.

With that in mind, the Court formed the view that the 'building regulation' and 'local authority regulation' exclusions prima facie applied, since they were sufficiently broad to embrace the circumstances in which the garage was being used. The liability was 'in any way connected with' or 'in connection with directly or indirectly' with the reconversion without consent from Council.

Section 35 of the Insurance Contracts Act 1984 (Cth)

Having regard to the above, the Insured relied on section 35 of the ICA to argue that the Insurer was prevented from relying on the building regulation and local authority regulation exclusions to refuse insurance cover.

As a threshold issue, there was no dispute that the Policy was a prescribed contract pursuant to the ICR, and the plaintiff’s claim against the first and second defendants was a prescribed event within the meaning of section 35(1) of the ICA. Accordingly, in order for section 35(2) of the ICA to operate, the Insurer needed to establish that it 'clearly informed' the Insured in writing, or that a reasonable person in the position of the Insured would have known, that the Policy would not cover the Insured’s liability to the plaintiff.

The wording of the exclusions was disclosed to the first defendant through the online portal used to complete the proposal and take out the Policy. The Court held however that the Insurer was unable to rely on section 35(2) of the ICA, in circumstances where merely providing the first defendant with a copy of the Policy was not sufficient to satisfy that section. More particularly, the exclusions were not sufficiently clear that they excluded liability where the relevant connection between the relevant breaches of regulation and liability was triggered in circumstances where the plaintiff resided in a dwelling for which consent had not been obtained. It followed that the Insurer could not rely on the building regulation and/or local authority exclusions to decline cover.

Implications for you

This case demonstrates the importance to insurers of clearly informing insureds of exclusion clauses in prescribed policies, and the possible implications of not doing so.

Walsh v Yang & Ors [2023] NSWDC 307

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