If the High Court's signal in Highway Hauliers was
not clear enough, the Full Court of the Federal Court has further
affirmed the pervasive remedial nature of section 54 of the
Australian Insurance Contracts Act 1984 (ICA).
Watkins Syndicate v Pantaenius concerned an appeal from
decision handed down in January this year. In dismissing the
appeal, the Full Court reaffirmed the general position that s 54
may apply provided that a restriction or limitation is not inherent
in the claim and observed that this requires an analysis of the
essential character of the policy.
A claim on the rocks
Watkins concerned a luxury yacht which sank off the coast of
Cape Talbot, WA, while returning to its home port following
completion of the Fremantle to Bali yacht rally.
The yacht was insured under two policies. The first was held
with, Pantaenius Australia Pty Ltd (Pantaenius Policy). The second
was underwritten by the Appellant, Nautilus Marine Agency Pty Ltd
The Pantaenius Policy responded to the loss, but the Nautilus
Policy excluded losses occurring outside a defined geographical
zone, being 250 nautical miles off the Australian mainland or
Tasmania. Under this exclusion, coverage was suspended from the
time the yacht cleared Australian Customs on its outward voyage
until it cleared Customs on its return.
At the time the yacht sank it was within 250 nautical miles of
the Australian mainland but had not cleared Australian Customs
following its return from Bali.
Pantaenius made a claim for contribution on Nautilus, arguing s
54(1) nullified Nautilus' exclusion clause. Justice Foster, at
first instance upheld the application and ordered contribution.
Was s 54 engaged?
On appeal, the first issue was determination of whether s 54 was
engaged. Following a close examination of the relevant High Court
authorities, the Full Court concluded this task involves
identifying the nature and limits of the risks that are intended to
be accepted, paid for, and covered under the policy. The Full Court
"The process of understanding what are the restrictions or
limitations that are inherent in the claim is one that involves the
construction of the policy, not merely as to what its constituent
words mean, but in a broad sense so as to characterise as a matter
of substance what is the essential character of the policy. Once
that essential character is decided upon, the restrictions or
limitations that necessarily inhere in any claim under such a
policy (to which s 54 does not apply) and the restrictions or
limitations that do not necessarily inhere in any claim under such
a policy (to which s 54 may apply) can be ascertained."
Perhaps unsurprisingly, their Honours held that the essential
character of the Nautilus Policy was to provide coverage for damage
occurring while the yacht was within 250 nautical miles of mainland
Australia or Tasmania. As the insured's yacht was within this
geographical limit at the time it sunk, the insured's claim
necessarily incorporated a physical dimension that was part of the
essential character of the policy. The suspensory limitation
created by the particular wording of the exclusion clause (i.e. the
requirement to clear and re-clear Australian Customs) was therefore
a qualification on, or collateral to, the policy's essential
character. As such, s 54 was engaged.
Did s 54 prevent refusal of the claim?
Having determined that s 54 was engaged, the Full Court found
that cover was suspended due to an "act" of the insured
(either the insured's act of clearing Australian Customs on the
outward journey or the omission of not having cleared customs upon
return from Bali). Therefore, as the relevant "act" did
not cause or contribute to the loss suffered, Nautilus could not
refuse Pantaenius' claim.
Can an insurer rely on the remedial benefit of s 54?
Finally, the Full Court confirmed that an insurer can rely on s
54 and the remedial benefit of s 54 is not reserved solely for
insureds. Nautilus' argument that s 54's use of the word
"claim" referred only to claims made by the insured was
As the Full Court noted, the approach taken in Watkins
represents the gradual distillation of jurisprudence on s 54 over
nearly 20 years of litigation. This high-water mark in judicial
interpretation, in what has previously been a difficult area to
navigate, sends a clear signal to insurers. Close and careful
attention must be paid to defining the limits of a policy to ensure
that the scope accurately reflects the risk intended to be covered.
Undue reliance should not be placed on technical exclusion or
limitation clauses to remedy what is otherwise a broad or vaguely
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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.
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.
This decision will be helpful to insurers in future matters where injured workers challenge work capacity decisions.
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