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Surviving the after-party and professional insurance

01 April 2013 Donald Dinnie, Norton Rose South Africa

It always seems like a good idea: continuing a party at someone’s home, a bar or a nightclub...

Not so for Poole, an associate in a Canadian law firm, who was sued by a student employee who struck her head on the floor after being knocked over by that associate while dancing at a local nightclub.
 
Both were part of a group of co-workers who had gone out for drinks after a dinner sponsored by their law firm employer.

At the damages trial, the court found that the student could not pursue her career as a lawyer because she had suffered a mild traumatic brain as a result of the dance-floor accident.

The court found the accident was caused solely by the negligence of the associate and awarded a large sum in damages.

Was the associate covered by the firm’s insurance policy?

The primary focus at the second trial was whether the responsible associate was entitled to coverage from the law firm’s ‘professional package’ insurance policy in respect of the award made against him.

The question for the Court of Appeal for British Columbia in Poole v Lombard General Insurance was whether the associate fell within the scope of one of two clauses in the insurance contract. The first was a clause which provided cover to employees for acts within the scope of the employment with an exclusion for personal injury to a co-employee while in the course of their employment, and the second provided cover for an employee, but only with respect to their employment with the insured.

The dinner, sponsored by the law firm and organised by associates, had been attended by about 20 associates and students and ended at 10.30pm. No arrangements had been made for them to go elsewhere afterwards, but a waiter at the restaurant offered the group some free passes to a nearby nightclub. Between 7pm and 12am, attendees went to the nightclub, including the claimant and Poole.

The decision to visit the nightclub was made by only some of the attendees. The law firm’s partners had not been involved in organising the dinner and did not know when and where it was taking place. There was no obligation to attend the dinner, let alone the nightclub.
 
Actions ‘with respect to’ employment

Both relevant clauses of the policy in question covered employees, including students, of the law firm.
 
The court said that overlapping provisions are not infrequent in insurance policies where special or customised provisions supplement standard terms. The language of the policy was not ambiguous and in those circumstances the court had to give effect to the clear language by reading the contract as a whole.

Poole conceded that his actions and cause of accident were not within the scope of or course of his employment. He argued that the second clause would apply and provided coverage because his actions were ‘with respect to’ his employment.

The court found that the phrase ‘with respect to’ his employment has a wider meaning than ‘in the course of … employment’ or ‘within the scope of … employment’, as used in the preceding portion of the relevant clause. It does not readily invoke the concept of vicarious liability, as ‘in the scope of’ does.

However, the clause did not cover any connection, however tenuous, between the employment of Poole and the student and the accident, and the phrase was not of infinite reach.

Contextual factors considered

The court applied a test of consistency with the reasonable expectations of the parties and sought to avoid unrealistic results. A line had to be drawn on a commercially reasonably basis between what are essentially firm functions and what are essentially social functions, notwithstanding some weak connection between the latter and an insured’s employment.

Contextual factors were considered: who was in attendance; where the incident took place; whether business was being discussed; time and place; and the likelihood of benefit to the firm. While the associates’ dinner that evening was a function that could be said to be ‘in respect of’ employment, the line was crossed when attendees decided to go to the nightclub.

The court found the visit almost indistinguishable from the more common situation of the few associates going for a drink together after work and one being injured in a bar. The social aspects of the occasion outweighed the tenuous connection between going to the nightclub and employment by the firm.

In the circumstances, the court found that there was no claim under the policy.

A warning to employers

The judgment contains a useful review of Canadian’s English law regarding ‘in the scope’ and ‘course of’ and ‘with respect to’ employment.

While the case may have caused a stir in the legal community across Canada, it does serve as a warning to employers to be aware of potential liability for the conduct of employees at non-traditional work functions and in that context to review the nature and extent of their insurance for such liability.

Insurers providing any form of professional insurance to businesses may wish to revisit their policy wordings and the scope of cover provided to employees, subject to their risk appetite. That would involve a revisiting of the definition of employees and the circumstances in which the policy provides cover.

Insurers should bear in mind that cover which extends to employees with respect to their employment provides a broader cover than that provided to employees for their acts within the scope of their employment, and that cover in those circumstances may probably extend to business-sponsored social functions.


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