Section 54 of the Insurance Contracts Act and More!
Those of us who have been following the development of Section 54 over the last twenty odd years always get a buzz when a new judgment on the Section is delivered. Particularly one that suggests that there is still room to debate how this Section works.
The decision of Justice Corboy of the Supreme Court of Western Australia in Highway Hauliers Pty Ltd v Maxwell [2012] WASC 53 (21 February 2012) is the new judgment. It suggests that maybe not everyone is applying Section 54 correctly and it comes with a bonus interesting twist.
In very brief terms, this case concerned a trucking company. Two of its prime movers and their trailers were damaged in separate accidents. The trucking company held a policy to protect it in the event that, amongst other things, its prime movers and trailers were damaged in accidents.
The Insurers denied indemnity because the drivers of these vehicles at the time of the accidents had not achieved a mimimum score in a prescribed driver’s test and were “non declared drivers” for the purposes of an exclusion under the policy.
The Insured responded by relying upon the operation of Section 54 of the Insurance Contracts Act and, here is the twist, sought damages (i.e. more than what it was entitled to by way of an indemnity under the policy) from the Insurers for breach of contract.
The Court upheld the Insured’s reliance on Section 54 and its claim for damages.
The Section 54 debate focused upon the the fact that the drivers of the trucks had not obtained the minimum score in a prescribed driver’s test. The Insurers said that that was not an act or an omission. It was just a state of affairs. But that the Court held was not the relevant act to which the Section applied. The relevant act was the Insured permitting its vehicles to be driven at the time of the accidents by drivers who were not suitably qualified, and that was the act to which the Section applied.
There are a couple of things to note here.
Firstly it had been accepted that the act itself did not cause the loss in respect of which indemnity was sought nor had any prejudice been suffered.
Secondly, the Court recognised that this was a different conclusion from which the Queensland Court of Appeal reached in Johnson v Triple C Furniture & Electrical Pty Ltd (2010) 243 FLR 336. That case concerned the crash of an aeroplane flown at the time by an inadequately qualified pilot. In that case the reliance placed by the insured upon Section 54 failed. Much depends upon the identity of the relevant act or omission.
The damages debate concerned whether the consequential loss of business could be linked to the Insurers’ wrongful failure to indemnify the Insured for the damage to its trucks. The Court held that it could be linked.
Sometimes Section 54 is treated as limited to the late notification of claims and circumstances. This decision is good reminder that the Section’s effect is much broader than that. It is well written, reasoned and worth reading.
All Posts, Insurance Law | Mark Sheller | 
March 3, 2012
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