Company A is a construction firm. Mr and Mrs Ford contracted Company A to excavate and build a basement and single-story extension for their home. An engineer had come up with a design that included ten reinforced concrete piles to support the new extension.
As contemplated by the engineer’s design, drilling the pile holes damaged the home’s existing wastewater and stormwater pipes, leaving them with open ends. However, those pipes were to be removed during construction, so it was just a matter of ensuring nothing entered them before that happened. Company A packed the open pipe ends with wet clay to form plugs, and used cardboard form tubes as a barrier between the exposed pipe and the wet concrete. It then poured concrete into the reinforced pile holes.
Two days later, the public main sewer line backed up and started to overflow, impacting several houses serviced by the sewer main. It turned out that concrete had entered the wastewater pipe after all, despite the presence of the clay plugs and cardboard form tubes, and had travelled down the wastewater line. The wastewater main had to be removed and replaced, at a total cost of around $170,000.
Company A made a claim under its public liability insurance. There was cover under the policy in the ‘Underground Services’ provision, provided Company A had taken ‘all reasonable precautions to prevent property damage’.
The insurer’s view
The insurer said that Company A had not taken all reasonable precautions, and it declined Company A’s insurance claim.
Company A’s view
Company A said that the reason it holds public liability insurance is so that errors of judgement (such as whether clay packing and cardboard form tubes would prevent concrete entering a pipe) are covered by insurance. Company A acknowledged that it could have done more to prevent an accident, but it said that would not have been ‘reasonable’, because it would have caused unnecessary delay and cost to the clients.
Company A complained to FSCL.
We noted that only the ‘Underground Services’ provision in the insurance contract required Company A to take ‘all reasonable precautions’, as opposed to a general standard of ‘reasonable care’. We considered that this was because of the inherent risk associated with underground services.
We noted that Company A did not take any steps to monitor whether concrete had entered the stormwater and wastewater pipes once the concrete was poured. Had it further excavated the pipes downstream of the pile holes, it could have monitored whether there was any concrete ingress and taken appropriate steps such as disconnecting and capping the pipe. That would have been a reasonable precaution to prevent property damage. Although Company A had taken some reasonable precautions to prevent loss, the onus was to take all reasonable precautions, due to the inherent risk involved.
Company A had not met its obligations under the policy.
We considered that the insurer had reasonably declined Company A’s claim. We issued a recommendation that Company A discontinue its complaint. Company A did not make further submissions, and we closed our file.
Key insight for the complainant
As always when considering an insurance dispute, the wording of the policy is crucial. If the policy requires an insured to take ‘all reasonable precautions’, that places a higher onus on an insured than if the policy had a general requirement to take, say, ‘reasonable steps’.