In Allianz Australia Insurance Ltd v Smeaton [2016] ACTCA 59, the Court of Appeal of the Supreme Court of the ACT dismissed an appeal by Allianz in relation to a claim that arose from a jet ski accident on the Ross River in Queensland and ordered Allianz to pay costs of the appeal. The accident resulted in an 18 year old man having his left leg amputated below the knee.

Todd Smeaton had taken out a Club Marine insurance policy with Allianz over a jet ski. The third party liability provisions of the Policy covered the legal liability of Todd Smeaton when the jet ski was under his control and liability of other persons using the jet ski with his approval. There was an exclusion that operated where the jet ski was under the control of ‘an unlicensed person when a licence is necessary.’ At the time of the accident, Scott Smeaton was driving the jet ski with his brother’s approval and had a NSW boating licence, but not the appropriate Queensland licence.

In the underlying proceedings, the Court awarded damages of $800,000 to the victim of the jet ski accident in his negligence claim against the Smeatons. Allianz had been joined to those proceedings following its refusal to indemnify the Smeatons under the third party liability provisions of the Policy. Allianz had argued that section 54(2) of the Insurance Contracts Act 1984 (Cth) enabled it to deny the claim. This point was not contended. The issue at trial was whether the Smeatons could prove for the purposes of section 54(3) that no part of the loss that gave rise to the claim was caused by the act of Scott Smeaton in not having a Queensland licence at the time he was driving the jet ski. The Court found in favour of the Smeatons against Allianz, on the basis that whether the licensing test had been taken in Queensland or NSW would not have made any difference to the actions of Scott Smeaton on the day of the accident.

The sole issue on appeal was whether the Smeatons had discharged the onus of proof under section 54(3). Allianz argued that the trial judge should only have considered the Queensland licensing requirements, and that if those had been complied with, it would have made a difference to Scott Smeaton’s actions on the day (the Queensland test being more onerous). The Court disagreed and held that once it was (properly on the evidence) accepted that the NSW licensing requirements were the relevant ones to be considered, and that complying with them would have made no difference to the driver’s actions, the appeal failed. The Court also affirmed the position that the onus under section 54(3) is on the insured.

This case again shows that Australian courts will continue to give effect to section 54(3) to disallow insurers from refusing cover in situations where the relevant act did not cause or contribute to the relevant loss (and the insured can prove this).