Highway Hauliers Pty Ltd v Matthew Maxwell (The
authorised, nominated representative on behalf of various Lloyds
underwriters)  WASC 53
Section 54 of the Insurance Contracts Act 1984 was
designed to protect insureds whose acts or omissions would, in the
absence of section 54, have given an insurer the right to refuse to
pay a claim. Essentially, it requires the insured to show that the
breach of policy had no causal effect on the loss, or if it did,
that the insurer's liability can only be reduced to the extent
of its prejudice.
The Supreme Court of Western Australia was recently asked to
consider the operation of the section in a policy dispute. Justice
Corboy's decision in Highway Hauliers v Matthew
Maxwell confirms that the precise scope and application of
section 54 remains in doubt. It also serves as a reminder to
insurers of the potential for section 54 to override what might
seem to be clear provisions of the policy.
The insured, Highway Hauliers, operated a trucking business
whose main source of income was transporting freight back and forth
from Perth to the eastern states ("eastwest runs"). It
held cover in respect of its fleet of trucks with certain
underwriters at Lloyds. Two of the insured's trucks were
damaged following two separate accidents while carrying freight on
eastwest runs. The insured claimed under its policy in respect of
the damage sustained in both accidents.
Highway Haulier's policy contained an endorsement that
required drivers of trucks on eastwest runs to have achieved a
minimum score on a driver test known as the PAQS test. However,
neither of the drivers of the damaged trucks had undertaken the
PAQS test and Highway Hauliers had to concede that the PAQS
endorsement had not been satisfied. Underwriters declined indemnity
on this basis.
The insured pointed to section 54. It contended that the
relevant "act" for the purpose of section 54 was the act
of the drivers driving the trucks involved in each accident without
having achieved the minimum score on the PAQS test. The insured
argued that underwriters were, in accordance with section 54,
prevented from refusing the claim by reason only of that act.
Rather, underwriters were permitted only to reduce their liability
for the claim by the amount that fairly represented the extent to
which the act caused or contributed to the insured's loss. As
it was, the parties had all agreed that the drivers' failure to
achieve the minimum score on the PAQS test had not caused or
contributed to the losses suffered by the insured. The insured,
therefore, maintained that it was entitled to a complete
In response, underwriters contended that section 54 did not
apply because (i) the failure of the drivers to have obtained the
required minimum score on the PAQS test was a "state of
affairs" and not an act or omission, and (ii) the PAQS
endorsement went to the scope of cover (section 54 only attaches to
alleged breaches of policy conditions). In other words,
underwriters maintained that they had not agreed to insure vehicles
on the eastwest run being driven by any driver, but had agreed only
to insure particular drivers operating particular vehicles.
In this case, Justice Corboy sought to characterise the relevant
act or omission by reference to the substance of the insurance
contract. Given that the policy in question was a motor vehicle
policy, Justice Corboy analysed the relevant act by reference to
the use of the vehicles involved in the accidents, rather than by
reference to the attributes of the drivers concerned. So the
relevant act or omission was held to be the act of the insured
operating the vehicles on the eastwest run in which each accident
occurred, with drivers who did not satisfy the requirements of the
policy. He concluded that underwriters were obliged to indemnify
And there was an extra sting in the decision for underwriters.
Justice Corboy concluded that as a result of underwriters'
refusal to indemnify, the insured lost a weekly return freight run
between Melbourne and Perth as it could not replace the prime mover
and trailers involved in the accidents. He found that the insured
had lost the opportunity to earn profits as a consequence of
underwriters' breach of the policy and assessed the value of
that lost opportunity at $145,000.
The decision stands as a warning to insurers of the potential
scope of section 54's application and a reminder to parties to
think carefully about the characterisation of the section 54
"act" and its impact on the loss.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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