When living with someone isn’t an act or omission
Section 54 of the Insurance Contracts Act poses a recurring issue for insurers, insureds, and the judiciary. Whether something constitutes and act or omission for the purposes of section 54 can have a dramatic impact on whether indemnity is granted under a policy of insurance, or the extent of any indemnity. The Court of Appeal of Western Australia, has again being required to consider the operation of section 54 and its application in Allianz Australia Insurance Ltd v Inglis.1
What was the matter about?
Georgia Inglis, a 10 year old girl, was injured at a friend’s house (“Sweeney Residence”) when she was run over by a ride-on lawnmower driven by Stephen Sweeney. The lawn mower was owned by Stuart Inglis (Georgia’s father) and it was alleged that the lawn mower was driven by James Inglis (Georgia’s brother) to the Sweeney’s residence. Georgia commenced proceedings for personal injury against the Sweeneys claiming damages for negligence, who then cross claimed against Stuart and James Inglis seeking indemnity or contribution under s 7 of the Law Reform (Contributory Negligence and Tortfeasors Contribution) Act 1947 (WA). Stuart and James Inglis sought indemnity under a policy of insurance with Allianz.
The Allianz policy was a home and contents policy covering the Inglis residence. Clause 14 of the policy stated:
14. Legal liability - cover for injury to other people or their property {Applicable whether you have buildings and/or contents cover}
We will cover your legal liability for payment of compensation in respect of:
• death, bodily injury or illness, and/or
• physical loss of or damage to property,
occurring during the period of insurance which is caused by an accident or series of accidents attributable to one source or originating cause.
This cover applies in respect of an accident occurring:
• anywhere in Australia, or
• elsewhere in the world, when you are temporarily outside Australia provided you normally reside in Australia.
The policy then included the following exclusion clause:
1. We will not cover your legal liability for:
…
b. Injury to any person who normally lives with you, or damage to their property;
c. Injury to your employees, or damages to their property.
As Georgia resided with Stuart Inglis, the claim was denied.
District Court’s Consideration of Section 54
In dealing with a preliminary question, the District Court of Western Australia was required to consider the impact of section 54 of the Insurance Contracts Act on the policy and any indemnity. In brief, the District Court found that:
- Georgia normally lived with the insureds and this constituted an “act” for the purposes of section 54;
- This act did not cause or contribute to the loss; and
- There was no prejudice to the insurer as a result of the act; and
- Allianz was not entitled to refuse to pay the claim.
Appeal Proceedings
The District Court judgment was appealed.2 In allowing the appeal and dealing with the section 54 issue, the Court of Appeal disagreed that an “act” for the purposes of section 54 existed. The refusal was based, not on an act or omission, but as a result of the relationship between the insured and Georgia, that is a “state of affairs”. The basis of this finding was that in order to determine whether someone ordinarily lives with another person, one must look at the surrounding evidence and draw an inference (or conclusion) from the evidence. It does not arise as a result of a person’s act or omission (in this instance, specifically as a result of an act committed by Georgia). As there was no “act” for the purposes of section 54.3
Lessons from the Judgement
The judgment again reiterates the importance of identifying the act or omission that is being relied upon and applying that to the wording of the policy. Specifically, it requires careful consideration as to whether the refusal is due to an act or omission, or a state of affairs. For present purposes, it appears that insurers will be able to rely on similar exclusion clauses to limit their liability. Tellingly, McLure P in considering the ordinary meaning of an act draws the distinction from criminal law between an act as opposed to the results of an act or a state of affairs.4
2 The primary reasoning with respect to the operation of section 54 can be found at [33] to [44], [63], and [66] to [74]
3 It should be noted that McLure P then went on to address a number of other issues raised on appeal.