Insurance – Employers' Indemnity Insurance – Conditions – Requirement to take all reasonable precautions to prevent injury to workers – Whether the insured perceived and deliberately courted the risk

In this case, the employer's indemnity insurer successfully relied on a 'reasonable precautions' provision to deny the employer's claim for indemnity in respect of the employer's liability to an injured employee.


On November 11, 2011, work finished at Primepower at 11.00 am in celebration of the managing director's birthday. The theme of the work function was "eleven" and the managing director, Peter Allen, organised a barbecue and 11 kegs of beer for staff, apprentices and friends of the business.

Throughout the afternoon, apprentices attempted to start and then 'seize' a disused 4-stroke diesel engine. The apprentices took the engine to the workshop and got it to run. They then moved the engine to a wash bay area, about 20m away from the bar area of the social function. The apprentices sought advice from Primepower staff about how to get the engine to run faster and seize, and they sprayed a number of different substances into the intake of the engine, including brake fluid and paint thinner. Guests in the bar area could hear but not see the engine stop and start on a number of occasions.

The plaintiff, an employee, took part in the activities to seize the engine. He had been drinking. At about 7 pm an unidentified person brought around a jerry can of petrol. The plaintiff and another apprentice were near the engine at the time and attempted to start the engine with the petrol. A fireball came from the engine and the plaintiff was engulfed in flames, suffering serious burns to 60% of his body.

The plaintiff issued proceedings against Primepower alleging negligence and breach of a statutory duty. Primepower denied liability and in the alternative pleaded contributory negligence against the plaintiff. It also issued third party proceedings against Allianz, who had denied liability to indemnify Primepower, relying on a 'reasonable precautions' clause in its Employers' Indemnity Policy.


The court held that Primepower breached its duty to the plaintiff in failing to provide a safe place of work and a safe system of work. The court assessed the plaintiff's degree of contributory negligence at 15%. These findings were not controversial.

The court also held that the managing director, Mr Allen, had recognised a danger and deliberately courted it, such that Primepower did not comply with the reasonable precautions clause of the policy and was not entitled to indemnity from Allianz. In particular, the court held that Mr Allen:

  • was indifferent to what substances were being used by the apprentices to seize the engine;
  • had a relaxed attitude towards alcohol in the workplace;
  • encouraged unsupervised apprentices who consumed alcohol to work on the engine;
  • allowed intoxicated supervisors to give advice to the apprentices;
  • knew the apprentices were drinking and deliberately allowed the consumption of alcohol (this was not one beer consumed after work but free flowing alcohol over a long period of time); and
  • took no steps to protect the apprentices who were working on the engine.

As a result, Primepower was left uninsured for liability for the losses suffered by the plaintiff. Although the court was not required to decide quantum, the sum would likely have been significant given the extent of the employee's injuries.