The recent case of Matthew Maxwell -v- Highway Hauliers Pty Ltd
 WASCA 115 raised the interesting, and as yet unresolved,
issue as to the extent to which an insurer can define the scope of
an insurance policy to remove certain matters from scrutiny under
section 54 of the Insurance Contracts Act (Cth) 1984, thus allowing
it to deny a claim without being required to prove prejudice or a
causal connection to the loss.
A court must ask itself:
Does the insurer's reason for refusing to pay a claim
trigger section 54?
Is the matter raised within the "substance, effect, core
or essence" of the policy, therefore avoiding the application
of section 54? (See FAI General Insurance Co Ltd v Australian
Hospital Care Pty Ltd (2001))
To what extent can an insurer draft the policy so as to include
matters within the 'scope' of the policy rather than have
them classified as conditions/exclusions?
Highway Hauliers (the insured) carried on a trucking business
transporting freight to and from the Eastern States. Their fleet
insurance contract covered accidental damage to their trucks and
trailers, two of which were damaged in separate accidents in 2004
The insurers rejected claims for the cost of repairing or
replacing the damaged vehicles on the basis that the drivers had
not complied with the policy requirement to have achieved a minimum
score on a driver test known as the 'PAQS test' and were
not 'declared' drivers.
Neither of these failings was in fact relevant to the losses
suffered as a result of the accidents and the insurer was not
prejudiced by them.
The clauses were framed in the following manner: "we
will not pay if" and "no indemnity is provided under the
policy when ..."
The insurer argued that it was entitled to deny the claim. They
argued that section 54(1) did not apply because the insurance cover
did not extend to damage suffered by the insured while its trucks
were driven on the east-west run by drivers who had not attained
the necessary PAQS score.
The insurer, having lost its argument before Judge Corboy,
appealed to the Supreme Court.
The Appeal Decision
The Court of Appeal upheld the trial judge's decision
The insurers were obliged to indemnify the insured for the cost
of repairs under s 54(1) of the Act; and
The denial of indemnity was a breach of the insurance contract
and the insurers were liable for consequential loss of profits
assessed at $145,000.
The Court found that the 'omission' of the insured
indeed fell within s 54(1) and the claims were payable, as the
insurer could not establish prejudice.
The trial judge rejected the insurer's arguments on the
basis that the scope of the policy was defined by reference to the
insured's vehicles (which were identified in the schedule to
the policy documents), the benefits conferred in sections 1 to 3 of
the policy, and the period of insurance. Its scope was not defined
by reference to the attributes of the driver at the time of an
The insurer's appeal was dismissed and McLure P (at )
made the following reference to the issue of those parts of the
policy not capable of attracting the operation of s54:
"It is important to recognise that s 54(1) has no
application to provisions of an insurance contract that are fixed
from commencement, in the sense that they are unaffected by a
subsequent act or omission of the insured or another person. That
will often be the case in relation to the property the subject of
an event based policy."
This case contrasts with the decision of Johnson v Triple C
Furniture & Electrical Pty Ltd (2010) in which it was held that
the breach of an exclusion clause (framed as: "this policy
does not apply whilst ... ") as a result of an apparent
omission of the insured, did not attract the application of section
The extent to which an insurer can draft the policy so as to
limit the potential application of section 54 therefore remains
uncertain and will no doubt be the subject of further case law.
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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