Whether s54 operated so as to remedy an omission on the part of the insured and, if so, whether a dual insurer was entitled to rely on that provision in seeking contribution.
Mr Phillips owned a pleasure craft yacht (vessel) which was used for both recreational and sporting activities. The vessel was insured under two polices of insurance, one a Watkins Syndicate 0457 (Watkins) policy and the other a Pantaenius Australia Pty Ltd (Pantaenius) policy.
While each policy provided cover whilst the vessel was within the geographical limits of Australian Waters, the Watkins policy excluded cover for sailboat racing conducted 100 nautical miles or more offshore. The Watkins policy also contained a geographical limits provision which operated so as to suspend cover from the point that the vessel cleared customs until it cleared customs upon its return to land.
On 22 June 2013, the vessel ran aground off Cape Talbot in Western Australia, having returned to Australia from participation in a race from Freemantle to Bali.
The Pantaenius policy responded to the loss and was paid out in full. Pantaenius sought equitable contribution from Watkins and, in doing so, sought to rely on s54(1) of the Insurance Contracts Act (1984) (Cth) (ICA) to remedy an omission on the part of the insured.
s54 prevents an insurer from refusing to pay a claim if an insured’s non-compliance with contractual requirements does not amount to an act which could reasonably be regarded as causing or contributing to the loss. If the non-compliance is held to have contributed, then the insurer is entitled to reduce its exposure to the extent that its interests have been prejudiced.
Whilst the Marine Insurance Act (1909) (Cth) precludes application of the ICA to marine insurance policies, s9A of the ICA provides for application of the ICA to marine “pleasure craft” policies.
Watkins denied liability on the basis that the Watkins policy was suspended when the vessel cleared the Australian Customs until it cleared the Australian Customs upon its return to Australia. While Watkins did not dispute that the vessel was within the Australian waters at the time of the loss, it contended that the vessel did not clear the Australian Customs upon its return. As such, the cover was suspended at the time of the incident.
The Decision at Trial
In reaching his decision, the Trial Judge followed the High Court decision in Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590 (Maxwell), His Honour rejected Watkins’ submission that re-entry of the vessel into Australian waters but failing to clear customs was an act or omission which could reasonably be regarded as causing or contributing to the loss for purposes of s54(1).
Instead, the Trial Judge held that the act of clearing customs (on the outward voyage) was the relevant act which had suspended cover, and this was an act to which s54 could apply in the insured’s favour.
With respect to Pantaenius’ contribution claim, his Honour also rejected Watkins’ argument that s54 could only be relied upon by an insured and was not for the benefit of an insurer.
Watkins was ordered to pay 48% of the loss indemnified by Pantaenius.
The Issues on Appeal
The Federal Court of Appeal considered whether the Trial Judge was correct in his application of s54 and finding that the principle of equitable contribution applied in the circumstances.
The Decision on Appeal
On appeal, the Trial Judge’s decision was upheld by majority, Allsop CJ, Rares and Besanko JJ.
Their Honours followed the NSW Court of Appeal approach taken in Prepaid Services Pty Ltd v Atradius Credit Insurance NV  NSWCA 252 adopted in Maxwell, concluding that the insured’s act of clearing Customs in the first instances was the act which had suspended cover under the Watkins policy. They further concluded that this act was one capable of remedy under s54(1), such that the insured was entitled to cover.
Their Honours finally concluded that, in this case, there existed co-ordinate liabilities of the same nature, extent and function between Watkins and Pantaenius so as to give raise to a right of contribution.
Implications for you
The decision provides a useful discussion of the jurisprudence surrounding s54 and acts as a reminder to insurers that the Courts can (and will) apply s54 to remedy acts or omissions of an insured which might otherwise disentitle them from cover. The case is also useful to the extent that it clarifies that a dual insurer will be entitled to the benefit of the remedial effects of s54.