Since its inception, section 54 of the Insurance Contracts Act 1984 (Cth) (the ICA) has attracted substantial judicial scrutiny. While the scope and operation of section 54(1) of the ICA has been well canvassed by the existing case law, section 54(3) of the ICA has not received similar judicial consideration.
In the recent decision of Allianz Australia Insurance Ltd v Smeaton  ACTCA 59, the ACT Court of Appeal considered the operation of section 54(3) of the ICA in the context of an unlicensed jetski operator.
In 2010, Scott Smeaton was involved in a jetski accident in Queensland that caused Nathan Whittington to suffer serious physical injuries when his leg became entangled in the towrope. Relevantly at the time of the accident, Scott Smeaton was based primarily in NSW and was unlicensed. The jetski was owned by Todd Smeaton and insured by Allianz.
Allianz denied indemnity on the basis that Scott Smeaton was unlicensed at the time. Specifically Allianz relied on the following policy exclusion:
“Any claim arising from an incident involving Your Boat… when that boat is under the control of an unlicensed person…”
Whittington commenced proceedings in the ACT Supreme Court against Scott and Todd Smeaton. Todd Smeaton joined Allianz to the proceedings.
Whittington succeeded at trial against Scott and Todd Smeaton. The trial judge also found for Todd Smeaton on the basis that Scott Smeaton, being unlicensed at the time, did not cause the accident.
Allianz appealed the decision of the trial judge on the basis that Todd Smeaton failed to discharge his onus under section 54(3) of the ICA.
In broad terms, section 54 of the ICA will intervene in favour of an insured in circumstances where the relevant act or omission did not cause or contribute to the loss. Section 54(3) of the ICA provides that:
“Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act”.
Specifically, Allianz says that the trial judge erred by using the NSW licensing regime (rather than the stricter Queensland licensing regime) for the purposes of section 54(3) of the ICA. Allianz submitted that:
- the Queensland licensing regime applied because the accident occurred in Queensland and was governed by Queensland; and
- had Scott Smeaton been licensed in Queensland the accident would not have occurred (due to associated training).
In unanimously dismissing the appeal, the Court of Appeal accepted that the NSW licensing regime applied, because:
- the Queensland licensing regime recognised licenses from other states including NSW; and
- Scott Smeaton gave “unequivocal” evidence at trial that he would have obtained his license in NSW (since that was the place of his primary residence).
As such the Court of Appeal accepted that the NSW licensing regime applied for the purposes of section 54(3) of the ICA and that being licensed in NSW “would have made no difference to his actions on the day” given the training required to obtain the license and the circumstances that gave rise to the accident. The Court of Appeal also noted that it was “not convinced that the result would have been any different had the Queensland licence requirements been applied”.
While section 54(3) of the ICA imposes an obligation on the insured to demonstrate that the relevant act or omission did not cause the loss, it is clear that the relevant burden on the insured is not an onerous one. As such, it seems clear that Australian courts will continue give effect to the intent of section 54 so that insurers will be prevented from refusing or limiting cover in circumstances where the relevant act or omission did not cause or contribute to the loss itself.