s.54 of the Insurance Contracts Act - Choppy waters!

Section 54 cases continue to have broad application – even on the ocean!

Marine “pleasure-craft” are subject to the Insurance Contracts Act (by reason of s.9A of the Act c.f. the Marine Insurance Act 1909 (Cth) in relation to marine insurance for ships and vessels). 

Recently, a claim arose from a pleasure craft running aground in Australian waters off Port Talbot WA after completing the Fremantle to Bali race. One insurer denied liability due to geographical limits on cover.  At the time of the grounding, the vessel was back in Australian waters but, strictly, the insurer could deny the claim under the policy as the vessel had not cleared Customs upon its return to Australia.

Both the trial judge and the Full Federal Court held (Pantaenius Australia Pty Ltd v Watkins Syndicate 0457 at Lloyds [2016] FCA 1: on appeal [2016] FCAFC 150) against the insurer. Applying Maxwell v Highway Hauliers (See Section 54 of the Insurance Contracts Act 1984 – a clearer course (5 March 2017), the courts held that Section 54 applied as no prejudice to the insurer or causal connection to the grounding was established.  The grounding had occurred after the yacht had returned to Australian waters.  The vessel’s geographical location was held not to have caused the loss or increased the risk of loss.  The conclusion was also held to be able to benefit another party (another insurer) seeking contribution, not just the insured, and contribution of 48% was ordered.  The case, again, emphasises the breadth of s.54 in diverse situations and the need for prejudice or causation to be established by the insurer in order to reduce its liability.