Beware the Hot Works Exclusion in Liability Policies
Before I go into the issues I start with what I mean by “Hot Works”. Hot work is any process that can be a source of ignition when flammable material is present or can be a fire hazard regardless of the presence of flammable material in the workplace or home. Common hot work processes are welding, soldering, cutting and brazing. When flammable or combustible materials are present processes such as grinding and drilling become hot work processes.
From the point of view of an small or medium sized business, doing business in Australia today is much more complicated than it was even a few years ago. The regulations continue to change as do Australian Standards.
Typically a breach of a regulation will lead to some sort of penalty.
When it comes to Australian Standards or International Standards they can be used to test whether or not an building or other product or service has been supplied or carried out to a satisfactory level and a breach, if it leads to personal injury, loss or damage may give rise to a recovery action from a third party. In the vast majority of cases, deliberate acts or understanding the risk and ignoring that risk, ie failing to take reasonable care being the obvious exceptions, most insurance policies are there to protect the Insured from a failure to comply.
Can you image for a moment all the standards that can and do apply to a business operation. I think we can all expect a prudent business owner say in metal fabrication to know the standards surrounding the use of welders, and cutting tools such as grinders. In that case, I have no issue for an insurer to include an endorsement including a warranty or exclusion that requires the work to be done to Australian Standard 1674. I then feel is it is prudent for an insurance broker to bring the exclusion to the Insured’s attention and advise them of the consequences of a breach.
But what about the shop keeper or other occupation that finds that they need to do some maintenance. Say they see a sharp edge on a table and decide to bring their grinder in to make it safe for customers and staff. Is he realistically expected to know. Add to this the cost. You cannot legally just download the standard for free. The cost is $128.47 at the time of writing.
Should the worst happen and despite what he may think is a safe work practice, the sparks cause a fire and destroy his business assets and that of the landlord. His fire / property policy as they currently stand are unlikely to have any exclusion in respect of the owner’s failure to follow hot works procedures but his liability policy may well have a liability exclusion buried deep in the policy which negates completely the benefit of their liability policy. It is the blanket exclusion written into the policy that I am wishing to bring to the readers attention. I am pleased to say that having this as a standard endorsement is not the norm in the Australian insurance industry based on my check using LMI PolicyComparison.com If you do not have access to the site and would like to see the entire list please write to hit the contact me button and I will email you the list.
I have learned of two business owners that find themselves in just that position. They have a valid fire and business interruption claim but their liability claim has been denied due to a “hot works” exclusion that they were not aware of in the body of the policy.
A typical exclusion reads something like this:
Excludes flame cutting flame heating arc or gas welding metal grinding or similar operation in which welding metal grinding or cutting equipment is used – except where such use is carried out in strict compliance with all relevant statutes and Australian Standards 1674.1 and 1674.2 or any subsequent amendments.”
The reality is, that the standard referred to is such that very few people comply with it 100% of the time. A lot of people who use grinders would not even know of the existence of the Standard let alone what it states.
There is no doubt that undertaking hot works is dangerous and there have been some very large losses that have arisen when safeguards have been inadequate. Should the risk of this be priced into every non metal working business owners liability policy so as to protect them from an honest mistake. Probably. It is just another example of you typically get what you pay for.
Four lessons I would ask you to take away from this.
- Please check to see if the policy you have or you have recommended to your customers has the exclusion.
- If it does immediately bring the issue to your client’s attention and stress the need for them to follow the Standard to the letter.
- Insurance is complex and potentially full of trips and traps that as in both the cases I am involved in, life changing consequences. Please get expert advice.
- Read and understand your policy. If you do not understand something, again seek expert advice.