Highway Hauliers Pty Ltd v Matthew Maxwell (the authorised, nominated representative on behalf of various Lloyds underwriters)  WASC 53 considers whether an insurer was entitled to refuse to indemnify the insured under an insurance policy covering commercial motor vehicles used in hauling freight.
The Supreme Court of Western Australia found that relief under section 54 of the Insurance Contracts Act 1984 (Cth) was available and that the Insurer ought to have indemnified the Insured. Further, Corboy J upheld the Insured’s claim for consequential loss following from the breach of contract (the failure to indemnify). Significantly, this included damages for the lost opportunity to earn profits, in circumstances where the Insured did not have enough money to replace the trucks after the Insurer’s failure to pay.
Corboy J’s decision indicates how the courts are prepared to apply a purposive application of section 54 to achieve the remedial objectives of the section. Further, Corboy J’s finding in favour of the Insured’s claim for damages, including for loss of profits, means that insurers should think twice before denying indemnity, as it may end up costing more to pay damages for breach of contract than to pay out under the policy.
The Insured operated a transport business hauling cargo. Two trucks were damaged in separate accidents and the Insured claimed the cost of repairs under the Policy. The Policy did not extend to drivers who did not achieve a People and Quality Solutions driver profile score of at least 36 (PAQS endorsement) and there was an exclusion from the Policy in circumstances where the driver of a lost or damaged vehicle was non-declared (that is, non-approved) to the Insurer. The Insurer declined the indemnity on the basis that the Insured had not complied with the above stipulations of the Policy – that is the drivers of the damaged vehicles were non-declared drivers and they had not undertaken the PAQS endorsement test.
Availability of relief under section 54
The Insured sought relief under section 54 on the basis that the act of allowing drivers who had not obtained the required PAQS score to drive the vehicles and the omission of failing to submit driver declarations for each of the drivers constituted "acts or omissions" capable of engaging section 54.
The Insurer had admitted that the fact that the drivers involved in the accidents were non-declared drivers and had not undertaken a PAQS test did not cause or contribute to any losses incurred by the Insured as a result of the accidents. Accordingly, the Insurer’s case was confined to the contention that section 54 did not apply to the non-declared driver exclusion and the PAQS endorsement in the Policy. The Insurer asserted that the driver's failure to obtain the required PAQS score was not an "act or omission" within the meaning of section 54, but rather it was a "state of affairs", relying on Johnson v Triple C Furniture & Electrical Pty Ltd  QCA 282 (Johnson). It was further contended that the scope of the cover provided by the Policy did not extend to drivers who had not obtained a minimum PAQs endorsement.
Corboy J explained that the act or omission to which section 54 refers is an act or omission of the insured or a third party by reason of which the insurer is entitled to refuse to pay a claim (in whole or part) according to the terms of the contract of insurance. The relevant act was to be characterised by reference to the use of the vehicles involved in the accidents, rather than the attributes of the drivers concerned so that focus was on the substance of the contract of insurance and the acts of the insured. Consequently, the relevant act or omission for the purpose of section 54 was the act of the Insured operating the vehicles with drivers who did not satisfy the requirements of the policy; and allowing the insured vehicles to be driven by non-declared drivers who had not attained the minimum PAQS score.
Corboy J distinguished Johnson on the basis that characterisation of the pilot’s failure to have satisfactorily completed a flight review, as something that was not an act or omission, was a finding about the application of section 54 to the facts of that matter. It was not a conclusion about the proper construction of section 54, and thus not binding in this case.
The Insurer’s second argument regarding the scope of the policy was also rejected, as the scope of the Policy was not defined by reference to the attributes of the driver at the time of an occurrence. Instead the substance of the policy was the provision of cover for vehicle damage or loss and third party liability arising out of the use of an insured vehicle. The PAQS endorsement conditioned the Insurer’s obligation to meet a particular claim that otherwise fell within the scope of cover; it did not form part of the way in which the scope of the policy was defined.
Damages for lost opportunity
Having found that the Insurer was obliged to indemnify the Insured under the Policy, Corboy J then considered the Insured’s claim for damages for the lost opportunity to claim profits through the Insurer’s breach of policy by failing to pay. The Insured alleged that, as a result of the Insurer’s refusal to indemnify, it lost a weekly return freight run as it could not afford to replace the trucks involved in the accidents. It claimed that the value of the lost opportunity was to be assessed as the profit that would have been derived from continuing to operate the run, discounted for contingencies.
The Insured’s damages claim was determined according to ordinary principles: the amount of compensation that would put the Insured in the position that it would have been had the insurance contract been performed, limited by what was reasonably contemplated by the parties at the time they made their contract. Further, the fact that the impecuniosity of the Insured prevented mitigation of its loss consequent from the Insurer’s failure to pay, did not preclude its claim for damages. Corboy J found that it was reasonably contemplated by the parties at the time that the contract of insurance was made, that if the Insurers wrongfully refused to indemnify the plaintiff, the Insured would suffer loss in the form of a lost profitable freight run which would otherwise have been able to be continued had the Insured been indemnified by the Insurer.