Are there any limitations on the operation of s54 of the Insurance Contracts Act?
September 18, 2013
In Matthew Maxwell v Highway Hauliers Pty Ltd  WASCA 115 the Court of Appeal of the Supreme Court of Western Australia unanimously dismissed an insurer’s appeal concerning the proper construction of s54 of the Insurance Contracts Act 1984 (Cth). The insurer had argued that the insured’s claim fell beyond the scope of the policy, and hence s54ICA was not enlivened.
The insured, Highway Hauliers Pty Ltd, carried on a trucking business. It operated a fleet of trucks and trailers to transport freight between WA and the eastern states. The company was insured under a Lloyd’s policy, relevantly covering the risk of damage to the vehicles and trailers making up its fleet. The schedule to the policy contained an endorsement that there was ‘no cover under the Policy for drivers doing East-West / West-East cartage who do not have a PAQS [People and Quality Solutions] driver profile score of at least 36’. There was also an exclusion in the policy in respect of ‘non-declared drivers’.
Two prime movers and their trailers were damaged in separate accidents during the period of insurance. Highway Hauliers accepted that neither driver had undertaken a PAQS test or was a declared driver at the time of their respective accidents, and relied upon s54ICAto overcome the insurer’s entitlement to deny indemnity.
The insurer conceded that the failures to obtain the required PAQS test score and the driver declarations were not capable of causing or contributing to either accident. In addition, it conceded that neither act or omission had caused it any prejudice. The insurer’s defence rested solely upon the non-application of s54ICA.
The insurer’s arguments
Essentially, the insurer argued that s54ICAhad no operation in relation to the insured’s claim under the policy. It raised the following two arguments:
- On the proper construction of the policy, the scope of the relevant cover was the operation of road trains on east-west runs by drivers who had satisfactorily completed a PAQS test. Non-satisfaction of the PAQS test had the result that the claims were outside the scope of the cover
- There was no ‘act’ as defined in s54(6) ICA. The non-satisfaction of the PAQS test was not an omission as defined but a ‘state of affairs’. This submission adopted the reasoning behind the decision of the Queensland Court of Appeal in Johnson v Triple C Furniture and Electrical Pty Ltd.
The Court of Appeal’s approach
The Court of Appeal found that the correct approach was not to determine whether the loss claimed was within the ‘scope of cover’ but to identify any inherent restriction or limitation which would necessarily qualify any claim for indemnity under the policy, having regard to the essential character of the risk, or type or kind of insurance in issue. The Court of Appeal found that the PAQS endorsement did not constitute an inherent limitation or restriction qualifying claims under the policy, but rather constituted an exclusion that attracted the operation of s54.
McClure P observed that the only restriction or limitation inherent in a claim under an occurrence or event-based insurance policy identified by the plurality in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd was that the event must have occurred within the period of insurance, which was consistent with the limitations or restrictions being related to the type or kind of policy and not the detail of the cover or terms and conditions thereof.
Murphy JA characterised the policy as providing Australia-wide material damage / third party liability indemnity insurance in respect of events occurring within the period of insurance relating to certain nominated vehicles.
Further, the Court of Appeal endorsed the Trial Judge’s conclusion that the reason the insurer was entitled to refuse Highway Hauliers’ claims was not the existence of a ‘state of affairs’ to which the policy did not respond, but rather the actions of Highway Hauliers that had triggered the exclusions, thereby removing the claims from coverage. The Trial Judge had reasoned that the ‘state of affairs’ whereby the drivers concerned were non-declared drivers who had not obtained the required PAQS score was not, by itself, the reason why the insurer was entitled to reject the claims made by Highway Hauliers. Rather, the insurer was entitled to refuse the claims because the vehicles were being used by drivers who had not satisfied those requirements. The policy was not concerned with the drivers as such as they were not covered; rather it was concerned with the vehicles and their use. The Trial Judge concluded that the substance of the policy was insurance against loss of or damage to vehicles and third party liabilities arising out of the use of them, and that it was not confined to the risk of accidental damage caused by a driver.
Accordingly, s54ICAapplied and Highway Hauliers was entitled to be indemnified under the policy.
The Court of Appeal confirmed previous decisions that emphasised the importance of identifying the restrictions or limitations relevant to the type or kind of policy, rather than focussing on its particular terms and conditions.
The Court of Appeal addressed the type or kind of insurance under consideration (and the inherent limitations or restrictions in such insurance) at an extremely broad level of generality. In practical terms, the decision reinforces the view that there is little scope to argue against the operation of s54 where there is a non-causative breach of a policy.
Highway Hauliers has lodged an application for special leave to appeal to the High Court.
Authored by Deborah Bradley, Special Counsel, Perth.
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