The Queensland Court of Appeal has taken a fresh look at section 54 of the Insurance Contracts Act in a very interesting decision.
A family company, of which Mr & Mrs Johnson were the directors, owned a Cessna. In 1999 the plane crashed on takeoff when being piloted by Mr Johnson, who was killed. Two passengers, including Mrs Johnson, were severely injured. Mrs Johnson sued her company (alleging negligence on the part of its employee pilot, Mr Johnson). The company claimed indemnity from its aviation insurer.
The insurer refused to indemnify the company against Mrs Johnson's claim. The policy stated that cover did not apply while the plane was, with the knowledge of the insured or its agent, operated in breach of CASA (Civil Aviation Safety Authority) regulations. One such regulation stipulates that a pilot must not fly a plane if the pilot has not satisfactorily completed an aeroplane flight review within the previous two years.
The Court concluded that Mr Johnson had not successfully completed a flight review within two years before the accident. Accordingly the Court agreed with the insurer that cover was excluded.
But the insured company argued that section 54 came to the rescue because Mr Johnson's failure to undergo a review was (1) an 'omission' which (2) did not cause or contribute to the loss.
In relation to the first point the Court concluded: Mr Johnson did not omit to comply with the regulations. The circumstance that he had not satisfactorily completed a flight review was not an omission as the word is ordinarily understood. He may have omitted to undergo the review but what was required was that he complete the review to someone else's satisfaction. Obtaining that satisfaction was something Mr Johnson might achieve, or fail to achieve, but it was not something he could omit.
In relation to the second point, the Court decided that the failure to satisfactorily complete a flight review was 'capable of causing or contributing to the loss', as section 54 contemplates, and no evidence was produced that it didn't. So the insurer had no obligation to indemnify.
The Court then went even further and concluded that section 54 had no application anyway. The claim by the company was for indemnity in respect of a loss which the policy did not cover (because of the exclusion clause): The Court said: The act or omission, assuming one is identified, cannot operate to reformulate the claim or, in this case, convert the claim from one in respect of the loss caused by a pilot who had not completed the flight review into a loss caused by a pilot who had completed a flight review.
Johnson v Triple C Furniture & Electrical Pty Ltd
The Queensland Court of Appeal has taken a restrictive approach to section 54 by narrowly defining what is an 'omission' and by concluding that section 54 does not apply where the insurer relies on an exclusion (rather than on a breach of a policy condition, for example). Query whether that is consistent with High Court authority that the application of section 54 should be viewed in light of the effect, and not the form, of the policy.