The Full Court of the Australian Capital Territory in
Allianz Australia Insurance Ltd v Smeaton  ACTCA 59
has provided further clarity of the applicability of section 54 of
the Insurance Contracts Act 1974 (Cth) ('ICA').
This decision follows other recent authorities regarding section 54
ICA, all of which have been in the insured's favour, starting
with the High Court in Maxwell v Highway Hauliers Pty Ltd
 HCA 33, followed by Pantaenius Australia Pty Ltd v
Watkins Syndicate 0457 at Lloyds  FCA.
On 27 November 2010, Whittington was injured in a jet ski
accident on the Ross River, Qld. The jet ski was being driven by
Scott Smeaton. It was owned by his brother, Todd Smeaton.
The Smeaton brothers had a good deal of experience with boats.
This included the use of jet skis and participation in waterskiing.
Todd Smeaton had a full boating licence in NSW and a personal
watercraft licence (PWC licence) to legally
operate a jet ski.
Scott Smeaton was also very familiar with the use of a jet ski
having operated such a vehicle on "hundreds of
occasions" in "varying water
conditions" prior to the accident. He obtained a boating
licence in NSW. As at the DOA he did not have a PWC licence. After
the DOA, he obtained this licence in NSW.
The jet ski was insured with Allianz. The liability provisions
set out in the Allianz Insurance policy (the
policy) covered the use of the jet ski when under the
control of Scott Smeaton, assuming he was operating it with the
permission of his brother, Todd Smeaton. There was no issue that
was the case when the accident occurred. The Smeatons joined
Allianz to the proceedings for indemnity under the insurance
The policy contained various exclusion clauses with the most
relevant one being:-
Any claim arising from an
incident involving Your Boat or any boat covered by this Policy,
when that boat is under the control of an unlicensed person
when a licence is necessary.... [Emphasis
The important part of the exclusion provisions concerns the use
of the boat under the control of "an unlicensed person
when a licence is necessary." It was common ground that a
licence was necessary to operate the jet ski and that Scott Smeaton
did not have the appropriate licence.
ACT Supreme Court
Mossop J described "the exercise required by s 54(3)"
The exercise required by s 54(3)
depends upon a comparison between the position that would have
existed if Scott had been licenced and the position that in fact
existed. If the defendants have proved that, on the balance
of probabilities, the accident would still have occurred and the
same damage suffered if Scott had been licenced, then they will
have proved that no part of the loss was caused by unlicensed
driving of the jet ski. [Emphasis
Mossop J held that whether licensed in Qld or NSW, or not
licensed at all, it would not have made any difference to the
actions of Scott Smeaton when driving the jet ski on the date of
At first instance, His Honour:-
found in favour of Whittington against the Smeatons;
found in favour of the Smeatons against Allianz; and
rejected a defence that Whittington had been involved in a
ACT Court of Appeal
Allianz appealed and submitted that s 54(2) enabled them to deny
the claim as:
Some of the acts of negligence of Scott Smeaton were the
subject of matters addressed in obtaining the relevant licence in
If Scott Smeaton had obtained the licence he would have been
aware of his deficiencies and there would not then have been an
The failure of Scott Smeaton to obtain a licence was an act
that gave rise to at least a part of the loss.
The Smeatons submitted that the key issue was:
"Whether Scott Smeaton, if
licensed, would have behaved as he did that day?"
Their Honours found that obtaining a NSW licence was a very
simple exercise which, had it been taken before the accident, would
have made no difference to the actions of Scott Smeaton on the
The Appeal was dismissed.
The courts, at the highest levels, have spoken loudly
about an intolerance to insurers adopting denials based on
technical exclusion clauses. When denying a claim, the prudent
insurer should always ask itself, did the act or omission which
activated the exclusion have any influence or impact on the loss?
If the answer to that question is no, then there is a good chance
that section 54 ICA will come to the insured's
1Civil Liability Act 2003 (Qld) s
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Whereas most insurance policies exclude liability arising under contract, insurers can
positively benefit where an insured has limited or excluded its liability under contract.
This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.
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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