No Entitlement to Deny Indemnity for Jet Ski Accident

The Court of Appeal of the Supreme Court of the Australia Capital Territory in Allianz Australia Insurance Limited v Smeaton [2016] ACTCA 59, dismissed an appeal by Allianz Australia Insurance Limited (Allianz) in relation to a claim arising from a jet skiing accident.


On 27 November 2010, Nathan Whittington was seriously injured in an accident involving a jet ski on the Ross River, near Townsville in Queensland. The jet ski was being driven by Scott Smeaton and was owned by his brother, Todd Smeaton.

Nathan Whittington was asked if he would act as an observer by sitting, facing backwards, on the jet ski and watching the water skier who was being towed by the jet ski. The intent was that Nathan Whittington should convey any signals given by the water-skier to the driver of the jet ski and also tell him of any mishap that befell the water-skier. Nathan Whittington accepted the role.

Initially, Scott Smeaton was the water skier and Todd Smeaton was the driver of the jet ski. The Smeaton brothers then changed roles, whilst Nathan Whittington remained as the observer. As Todd Smeaton was being pulled by the jet ski, he fell off his water skis. Nathan Whittington saw that Todd Smeaton had fallen and informed Scott Smeaton to turn the jet ski in order to return to his brother. In the course of the turn, Nathan Whittington was leaning forward to retrieve the tow rope. Whilst the jet ski was being turned around, it crossed the wake of another vessel, causing Nathan Whittington to fall into the water, as he was unseated. Nathan Whittington’s leg became tangled in the towrope and was significantly injured. Sadly, Nathan Whittington ultimately required a below the knee amputation of his left leg.

Nathan Whittington commenced legal proceedings against Scott Smeaton and Todd Smeaton in the Supreme Court of the Australia Capital Territory, for damages arising from his injuries. Scott Smeaton and Todd Smeaton commenced third party proceedings against Allianz claiming indemnity under the policy.

The Insurance Policy

Todd Smeaton held a Club Marine policy of insurance with Allianz. The insurance policy with Allianz covered the activities of Scott Smeaton when he was operating the jet ski with the permission of Todd Smeaton.   The policy of insurance contained an exclusion clause that excluded liability arising from an incident involving a jet ski “under the control of an unlicensed person when a licence is necessary”. At the time of the accident, Scott Smeaton was controlling the jet ski and was unlicensed, when a licence was necessary to operate the jet ski.   On the basis that Scott Smeaton was unlicensed to operate the jet ski, Allianz declined to indemnify both Scott Smeaton and Todd Smeaton.

Decision of the Supreme Court of the Australian Capital Territory

On 18 April 2016, Associate Justice Mossop found that both Scott Smeaton and Todd Smeaton were negligent.Expert evidence was adduced that Nathan Whittington should have been informed not to try and pull the towrope until the jet ski was nearly stationary.

Associate Justice Mossop held that a reasonable person in the position of Scott Smeaton and Todd Smeaton would have taken the precaution of ensuring that Nathan Whittington understood clearly that he was only required to keep the towrope away from the rear of the jet ski when it was almost stationary. Further, Scott Smeaton and Todd Smeaton ought to have given Nathan Whittington some warning about holding on, whilst rearward facing on the jet ski.

In addition to a finding of negligence, Associate Justice Mossop rejected the argument submitted on behalf of Scott Smeaton and Todd Smeaton, namely that they had a defence pursuant to sections 17 and 19 of the Civil Liability Act 2003 (Qld). Section 19 of the Civil Liability Act 2003 (Qld) provided the basis for a defence that Nathan Whittington had been involved in a “dangerous recreational activity” and that the fall suffered was a result “of the materialisation of an obvious risk”.

Associate Justice Mossop concluded that Nathan Whittington was not engaged in a dangerous recreational activity and therefore the application of sections 17 and 19 of the Civil Liability Act 2003 (Qld) were not triggered.

Allianz submitted that some of the acts of negligence by Scott Smeaton were matters addressed in obtaining the relevant licence. Furthermore, Allianz argued that pursuant to section 54(2) of the Insurance Contracts Act 1984 (Cth), it was entitled to deny the claim for indemnity. In addition, Allianz stated that Todd Smeaton could not meet the level of proof required by section 54(3) of the Insurance Contracts Act 1984 (Cth) to disentitle it from refusing the claim.

The claim by Scott Smeaton and Todd Smeaton against Allianz depended upon whether or not the Smeaton brothers could prove, for the purposes of section 54(3) of the Insurance Contracts Act 1984 (Cth), that no part of the loss that gave rise to the claim was caused by the act of Scott Smeaton in driving the jet ski while unlicensed.

Associate Justice Mossop confirmed that the onus under section 54(3) of the Insurance Contracts Act 1984 (Cth) was on the insured, Todd Smeaton. The Court stated:

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.

The Court examined the legislation relevant to obtaining a personal watercraft licence (which is the type of licence necessary to legally operate a jet ski) in both Queensland and New South Wales. Ultimately, Associate Justice Mossop decided that whether the test had been taken by Scott Smeaton in Queensland or New South Wales, it would not have made any difference to the actions in the events comprising the accident.

Associate Justice Mossop found in favour of Nathan Whittington as against Scott Smeaton and Todd Smeaton and awarded damages in the sum of $800,000. The Court also ordered that Allianz was obliged to indemnify Scott Smeaton and Todd Smeaton.

Basis of Appeal

Allianz appealed the decision by Associate Justice Mossop on the basis that Todd Smeaton had failed to prove that no part of the loss was caused by (or contributed to) by the fact that Scott Smeaton was unlicensed.

Allianz summarised the basis of its appeal with the question: Would it have made any difference to the actions of Scott Smeaton, in driving the jet ski, that he had undertaken the licence requirements?

Allianz submitted that the information Scott Smeaton would have gathered in complying with the licensing requirements would have influenced the manner in which he drove the jet ski on 27 November 2010. Furthermore, that the influence would have, in turn, lessened the likelihood of the acts of negligence so that Todd Smeaton could not rely on section 54(3) of the Insurance Contracts Act 1984 (Cth).

The Court of Appeal found that the approach taken by Associate Justice Mossop, in considering whether the incident would have still occurred and the same damage been suffered had Scott Smeaton obtained the relevant personal watercraft licence, was correct.

Allianz also submitted that it would have been the Queensland, as opposed to the New South Wales, licensing requirements that would have applied because the accident occurred in Queensland. The Court of Appeal held that the New South Wales licensing requirements were the relevant requirements to be examined and that complying with the NSW licence requirements before the accident would not have made a difference to Scott Smeaton’s actions on the day.

The appeal was dismissed and Allianz was not entitled to deny the claim.

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