The decisions of the respective courts of appeal in Queensland and Western Australia in Johnson v Triple C Furniture & Electrical Pty Ltd [2012] 2 Qd R 337 and then the subsequent decision in Maxwell v Highway Hauliers Pty Ltd (2013) 45 WAR 297 led to some confusion in the application of section 54 of the Insurance Contracts Act 1984 (Cth). The High Court of Australia has now resolved the matter in Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33.

The main issue for the High Court was whether the remedial nature of section 54 could allow a claim to be reformulated from a claim that was not within the scope of cover to a claim that falls within the scope of cover. Specifically, the High Court was asked to consider what the oft cited passage from FAI Insurance v Australian Hospital Care (2001) 204 CLR 641: “The section does not operate to relieve the insured of restrictions or limitations that are inherent in that claim”.   

In its judgment, the High Court referred to the remedial nature of section 541 and expressly stated that the restriction or limitation inherent in a claim under:

  • a claims made and notified policy means that indemnity sought can only be in relation to a demand made on the insured by a third party during the period of cover;2 and
  • an occurrence based contract means that the indemnity sought can only be in relation to an event which occurred during the period of cover.3

The High Court reiterated Brennan’s CJ statement in Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 that the focus of the remedial nature of section 54 was on the actual conduct of the insured and what they do or omit to do, and when that act or omission would excuse an insurer from the obligation to pay a claim – it does not focus on whether the nature of the refusal is due to the claim falling outside a covered risk, within an exclusion, or non compliance with a condition.  

What Does This Mean for Insurers

In essence, the impact on insurers is that the short lived “defence” that arose from the judgment in Johnson v Triple C Furniture which allowed insurers to try and avoid the operation of section 54 by seeking to have a policy interpreted in a manner that falls outside the operation of section 54 has now been soundly put to rest by the High Court.