Section 54 of the Insurance Contracts Act – what’s not an ‘act’?
Section 54 Insurance Contracts Act – Section 54 Insurance Contracts Act Summary – Section 54 ICA – Maxwell v Highway Hauliers Pty Ltd
This was an appeal by Allianz Insurance Ltd (Allianz) to the Court of Appeal (WA) (Court). The case concerned a preliminary question about the application of section 54 of the Insurance Contracts Act 1984 (Cth), based on an agreed set of facts.
The question to be decided was whether, on the proper construction of an Allianz Sure Cover Plus home insurance policy (Allianz Policy), Allianz was required to indemnify its Insureds for their liability to the Defendants.
The Insureds succeeded at District Court level. Our summary of that decision is here. Allianz sought leave to appeal that decision to the Court of Appeal (WA) (Court).
‘(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.
(2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.’
The Plaintiff, Ms Georgia Inglis (Georgia) (aged 10) alleges that she was run over by a ride-on lawnmower operated by the First Defendant, Mr Stephen Sweeney (Stephen) (aged 11).
Georgia is the daughter of Mr Stuart Inglis and Mrs Linda Inglis (Georgia’s parents). Mr Stuart Inglis owned the ride-on lawnmower. Georgia lived with her parents. Georgia’s parents were named insureds under the Allianz Policy.
It is alleged that on 17 October 2004, Mr James Inglis (James) (aged 12), Georgia’s brother, rode the lawnmower from Georgia’s parents’ house, to the Second and Third Defendants’ house. The Second and Third Defendants are the parents of Stephen.
Stephen ran over Georgia in a game that involved Georgia being towed behind Stephen on the ride-on lawnmower. Georgia brought claims against the Defendants. The Defendants brought claims against Mr Stuart Inglis and Georgia’s brother, James (the Insureds). The Insureds brought claims against Allianz, for indemnity under the Allianz Policy.
The Allianz Policy
The Allianz Policy contained the following clause relating to cover for injury to other people:
‘… We will cover your legal liability for payment of compensation in respect of:
- death, bodily injury or illness…’
The Allianz Policy contained an exclusion clause which read:
‘What you are not covered for:
- We will not cover your legal liability for: …
- injury to any person who normally lives with you, or damage to their property;’
Allianz denied indemnity under the Allianz Policy.
Allianz submitted that the expression ‘a person who normally lives with you’ did not contain or constitute an ‘act’ under section 54(1) but instead, was a state of affairs or, the status or description of a person.
It was the submission of the Insureds that the act must have occurred or (if continuous) be occurring at the time of the accident. The Insureds argued that this was mandated by the word ‘lives’ in the expression, ‘a person who normally lives with you’. The Insureds did not suggest any other ‘act’ engaged section 54(1).
In the judgment dated 3 February 2016, the Court allowed the appeal by Allianz, finding:
- ‘Act’ means something done or being done by a person. It is different from a state of affairs or the result of an act. Assistance in understanding the distinction between these things may be drawn from criminal law.
- The fact that a ‘person normally lives with’ an insured does not constitute an ‘act’ within the meaning of section 54(1).
The Court rejected the argument by Allianz that the Insureds’ claims were in respect of liability of a kind not dealt with by the Allianz Policy.
It remains difficult for insurers to establish that a relevant liability falls outside of the scope of cover under a policy.
- a state of affairs;
- the status of a person;
- the description of a person,
could be used in support of an insurer’s decision to exclude cover in a variety of circumstances.
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