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Policy requirement to comply with statutory or regulatory standards requires reasonable care not absolute compliance

30 October 2017 Patrick Bracher, Norton Rose Fulbright
Patrick Bracher from Norton Rose Fulbeight.

Patrick Bracher from Norton Rose Fulbeight.

An Australian court has interpreted the obligation in a business liability policy to ‘comply with legislation and Australian Standards’ coupled with a general condition requiring the insured to ‘take reasonable care to avoid causing harm’ as requiring reasonableness and not absolute compliance.

Not every minor breach of regulations can be regarded as an infringement of the obligation. Unless there is a reasonableness test, the conditions could operate unfairly and without business efficacy.

On the facts, there was not recklessness, just negligence, and accordingly the insurer was not entitled to rely on the condition. The claim related to a sinking floor caused by poor workmanship by a shop fitting company. There were 19 defects in the plumbing, most of which contravened Australian Standards for installation of plumbing and drainage.

This is interesting reasoning which imports the reasonable precautions clause into the compliance provision.

The matter is Manitowoq Platinum (Pty) Ltd v WFI Insurance Ltd.

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