Interpretation Of “An Act” Pursuant To Insurance Contracts Act 1984 (CTH)

In 2004, brother and sister, James and Georgia Inglis were at the house of Daniel and Elaine Sweeney playing with the Sweeney’s son, Stephen. During the visit, Georgia suffered serious injuries as a result of being run over by a ride-on lawnmower operated by Stephen.

The lawnmower was owned by Mr Stuart Inglis (Georgia and James’ father), and it was alleged that James had driven the lawnmower over from the Inglis’ home to the Sweeney’s home.

Georgia commenced District Court proceedings against the Sweeney family claiming damages for negligently causing her personal injuries. The Sweeney family issued third party proceedings against Stuart and James Inglis claiming an indemnity or alternatively, a contribution under section 7 of the Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA).

Stuart and James Inglis made a claim for indemnity under a Home & Contents Policy held with Allianz (“the Policy”).

The Policy relevantly stated that:

’14. – Legal liability- cover for injury to other people or their property
We will cover your legal liability for payment of compensation in respect of:
• death, bodily injury or illness…..
What are you not covered for:
1. We will not cover your legal liability for:
(b) injury to any person who normally lives with you, or damage to their property;’

Allianz declined to indemnify Stuart and James Inglis for the Sweeney’s claim against them on the basis that Georgia normally lived with Stuart and James during the relevant period.

Stuart and James then commenced fourth party proceedings against Allianz in the District Court claiming indemnity under the Policy in respect of any liability they may have arising out of the Sweeney family’s third party proceedings against them.

The applicable legislative provision that was at the centre of these proceedings was Section 54 of the Insurance Contracts Act 1984 (Cth) (‘the Act’):

‘(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 District Court found that Allianz was liable to indemnify Stuart and James Inglis on the basis that the act of Georgia living with her insured parents, constituted an “act” for the purposes of section 54 of the Act and as such Allianz was precluded from relying on exclusion 1(b) of the Policy. Allianz sought leave to appeal that decision to the Supreme Court of Appeal (WA).

The appeal was concerned with the issue of whether Allianz was liable to indemnify Stuart and James Inglis under the Policy and in particular with regard to what constitutes an ‘act’ for the purposes of s54 of the Act.

Allianz’s argument was based on the proposition that Georgia normally living with Stuart and James was not an ‘act’ for the purposes of section 54 of the Act, but rather “a state of affairs that pertained to and/or was a characteristic of her life as a 10 year old” and “the status or description of a person”.

The Court agreed with Allianz’s construction of the word ‘act’ and allowed the appeal on the basis that:

1. to identify Georgia as a person who normally lived with her insured parents is to describe the character of her relationship with her insured parents, rather than her conduct; and
2. the fact that a persons’ relationship/status may be described as a ‘person who normally lives with’ an insured does not constitute an ‘act’ within the meaning of section 54(1) of the Act.

This decision highlights the importance of interpretation and application of terminology within insurance contracts. When insurers are considering whether to decline to indemnify their insureds, they must consider, based on the specific factual nature of the claim, whether the relevant act or omission is ‘a state of affairs’ or a true ‘act’ within section 54(1) of the Act.

This CASE LAW UPDATE is intended for general information only and you should not act upon it or omit to act on the basis of anything contained herein without first obtaining legal advice in relation to any particular matter or issue.

© Copyright 2016, SRB LEGAL – All Rights Reserved

Date: 12 February 2016

Should you require any further information relating to the above decision, please contact one of the following partners on telephone (08) 9221 3110.