AAMI Limited v Hain

AAMI Limited (AAMI) appealed to the High Court of Australia against a decision of the Full Federal Court concerning the interpretation of a motor vehicle insurance policy. The dispute arose from AAMI's refusal to indemnify Mr. Hain for damage to his vehicle, which he alleged was caused by a faulty fuel injector. AAMI contended that the damage was not covered by the policy, as it fell within an exclusion for mechanical or electrical breakdown.

The High Court was required to determine whether the damage to Mr. Hain's vehicle constituted a "breakdown" within the meaning of the policy's exclusion clause. Specifically, the court had to consider whether the failure of a component part, such as a fuel injector, constituted a breakdown of the vehicle itself, or if a breakdown required a more general cessation of the vehicle's ability to function.

Gummow and Heydon JJ held that the term "breakdown" in the context of a motor vehicle insurance policy referred to a failure of the vehicle to operate as a whole, rather than the failure of an individual component. Their Honours reasoned that the policy's exclusion was intended to cover events where the vehicle ceased to function due to mechanical or electrical defects, not the failure of a specific part that could be repaired or replaced without rendering the entire vehicle inoperable. The court therefore found that the damage caused by the faulty fuel injector did not constitute a breakdown as contemplated by the exclusion clause.

The appeal was dismissed, and the Full Federal Court's decision in favour of Mr. Hain was affirmed.