Inglis v Sweeney - [2015] WADC 34

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: INGLIS -v- SWEENEY [2015] WADC 34

CORAM: WAGER DCJ

HEARD: 19 JANUARY 2015

DELIVERED : 1 APRIL 2015

FILE NO/S: CIV 1418 of 2012

BETWEEN: GEORGIA ANNE INGLIS
Plaintiff
AND
STEPHEN SWEENEY
First Defendant
DANIEL SWEENEY
Second Defendant
ELAINE SWEENEY
Third Defendant
STUART INGLIS
First Third Party
JAMES INGLIS
Second Third Party
ALLIANZ AUSTRALIA INSURANCE LIMITED
Fourth Party

Catchwords:

Preliminary question of law - Whether exclusion clause applies to third parties claim against fourth party for indemnity and/or contribution

Legislation:

Insurance Contracts Act 1984 s 54
Law Reform (Contributory Negligence and Tort Feasors Contribution) Act 1947
Law Reform (Miscellaneous Provisions) Act 1946

Result:

Section 54(1) Insurance Contracts Act 1984 applies

Representation:

Counsel:

Plaintiff:     In person
First Defendant            :     In person
Second Defendant        :     In person
Third Defendant           :     In person
First Third Party          :     Mr G Pynt
Second Third Party      :     Mr G Pynt
Fourth Party                :     Mr T Lampropoulos SC

Solicitors:

Plaintiff:     Not applicable
First Defendant            :     Not applicable
Second Defendant        :     Not applicable
Third Defendant           :     Not applicable
First Third Party          :     D G Price & Co
Second Third Party      :     D G Price & Co
Fourth Party                :     SRB Legal

Case(s) referred to in judgment(s):

Allianz Australia Ltd v Wentworthville Real Estate Pty Ltd (2004) 14 ANZ Ins Case 61-598; (2004) NSWCA 100
Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641
Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Limited (1993) 176 CLR 332
GY v Commissioner of Police [2014] WASCA 9
ISS Property Services Pty Ltd v The Underwriter Insurance Company Ltd [2013] SASC 53
Johnson v Triple C Furniture and Electrical Pty Ltd [2012] 2 Qd R 337
Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367
Maxwell v Highway Hauliers Pty Ltd (2014) 88 ALJR 841; [2014] HCA 33
Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115; (2013) 45 WAR 297
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626
Unsworth v Commissioner for Railways (1958) 101 CLR 73
Zurich Australia Insurance Ltd v Regal Pearl Pty Ltd (2007) 14 ANS Ins Case 61-715; [2006] NSWCA 328

WAGER DCJ: These proceedings are to determine a preliminary question of law pursuant to O 31 r 2 of the Rules of the Supreme Court 1971 before the trial commences.
The question to be determined is: on the proper construction of Allianz Sure Cover Plus home insurance policy (No 11853 at 630DHP) referred to in pars 8 and 9 of the statement of claim in the fourth party proceedings dated 19 March 2014, is the fourth party liable to indemnify the third party under the policy for any liability the first and second third parties may have to the defendants or either of them in the third party proceedings?
The preliminary questions raises two main issues:
1.Does the exclusion clause exclude any future claim for indemnity being made on the policy by the third parties?
2.Is suffering injury when the plaintiff was a person who normally lives with the third parties an 'act' pursuant to s 54(1) of the Insurance Contracts Act 1984, and, if so, does s 54(1) apply?
The facts, consistent with the statement of agreed facts, are that the plaintiff Ms Georgia Inglis is the daughter of Mr Stuart Inglis and Mrs Linda Inglis and the sister of Mr James Inglis. Mr Stuart Inglis is the first third party and Mr James Inglis is the second third party in these proceedings.
On 17 October 2004, the date of her accident, Georgia Inglis was aged 10 having been born on 28 March 1994. She lived with her parents and her brother James who was then aged 12 (born on 20 December 1991) at 57 Ravenswood Road, Maida Vale (Ravenswood Road).
On that date the first defendant Mr Stephen Sweeney who was then aged 11 (born on 14 October 1992) lived with his parents, Mr Daniel Sweeney and Ms Elaine Sweeney who are the second defendant and third defendants, at 23 Rhodes Place, Maida Vale (Rhodes Place). Mr Stuart Inglis owned a ride-on lawnmower. It is alleged but not admitted that on the day of the accident James Inglis rode the lawnmower from Ravenswood Road to Rhodes Place. Stephen Sweeney then rode the lawnmower at Rhodes Place where he ran over Georgia Inglis during a game that involved him towing her behind the ride-on lawnmower. As a result Georgia Inglis suffered serious injuries.
Mr and Mrs Inglis were the named insured under an Allianz Sure Cover Plus home insurance policy that insured their Ravenswood Road home and its contents by a standard form Allianz policy entered into by them for a 12‑month period commencing on 22 August 2004. At the time of the accident both Georgia Inglis and James Inglis were members of the Inglis family and lived permanently with their parents at Ravenswood Road.
Georgia Inglis has issued these proceedings against the defendants claiming damages for injuries arising from their alleged negligence. The defendants issued third party proceedings against Mr Stuart Inglis and Mr James Inglis claiming an indemnity, alternatively a contribution under s 7 of the Law Reform (Contributory Negligence and Tort Feasors Contribution) Act 1947 for the injuries allegedly suffered by Georgia on the basis that her injuries were caused by their alleged negligence and by the breach of a duty owed by Mr Stuart Inglis and Mr James Inglis to Georgia.
Mr Stuart Inglis and Mr James Inglis have issued fourth party proceedings against Allianz claiming indemnity under the policy in respect of the defendants' claim against them. Mr Stuart Inglis' and Mr James Inglis' claim is for each to be indemnified to the extent of any amount that the defendants may recover from either or both of them. The claim for indemnity and/or contribution by the defendants requires there to be a determination of legal liability of the third parties for injury to Georgia Inglis following trial or by settlement of these proceedings. The onus is on the third parties to prove their claim falls within the scope of the policy if they are found to be liable to the defendants.

The policy

The policy is comprised of first party insurance that covers the insured for loss of any property in which they have an interest or for any personal injury suffered, together with liability insurance that covers their legal liability to a third party for loss suffered by that third party. The liability insurance is an occurrence based policy that requires an event that triggers the policy to occur in the period covered by the policy for liability to be incurred. It is agreed that the current claim is for liability insurance and the relevant event occurred on a date on which the policy provided cover.
The policy consists of the printed Allianz Sure Cover Plus home insurance policy document and a schedule approved by Allianz which sets out details of:
Cover and its limitations, and a schedule, approved by 'us', which sets out who is insured, the cover(s) selected, the period of insurance, the limits of liability, excesses and other important information. This is referred to as the current schedule in (this) policy document. Introduction to policy page 4.
The terms of the agreement and words with special meanings are set out on pages 4 to 7. Relevantly:
What the policy consists of
Your policy consists of:
•this printed Allianz SureCover Plus Home Insurance Policy Document which sets out details of your cover and its limitations, and
•a schedule, approved by us, which sets out who is insured, the cover(s) selected, the period of insurance, the limits of liability, excesses and other important information. This is referred to as the current schedule in this policy document.
Our agreement with you
We will insure you for:
•loss or damage caused by one or more of the insured events, and
•the other benefits,
as set out in this policy occurring during the period of insurance.
Words with special meanings
Some of the words in this policy have special meanings wherever they appear. These words and their meanings are defined below.
'we', 'our' or 'us' means Allianz Australia Insurance Limited AFS Licence No. 234708, ABN 15 000 122 850 or 2 Market Street, Sydney, NSW, 2000.
'you' or 'your' means the person(s) named in the current schedule as the insured and those persons who live with you permanently who are any of the following:
•your legal spouse or de facto (meaning a de facto relationship where you and your partner are living together in a genuine domestic relationship), or
•any member of your own family and your spouse's or de facto's family.
The policy deals with insured events for which Allianz will pay, pages 17 to 21, and other benefits Allianz will provide, pages 22 to 27. Paragraph 14 on page 27 sets out legal liability – cover for injury to other people or their property: par 14 states:
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 provide you normally reside in Australia.
The maximum amount we will pay under this policy is $20,000,000 (Australian) arising out of any one accident or series of accidents attributable to one source or originating cause. This limit will be reduced by any amount paid under any other buildings or contents policy you have with us providing this type of cover for the same liability, loss, occurrence or incident.
In addition we will also pay all legal costs and expenses you incur with our consent for which you are legally liable plus the cost of any lawyers we appoint.
Exclusions to the policy are set on pages 28 and 29. Relevantly, the exclusions include:
What you are not covered for:
1.We will not cover your legal liability for:
b.injury to any person who normally lives with you, or damage to their property;

Does the exclusion clause exclude any future claims for indemnity being made on the policy by the third parties?

The third parties submit the definition of 'you' and 'your' in the policy is clear because it is set out in the definition section. 'You' and 'your' mean the person(s) named in the current schedule. 'You' and 'your' also include those persons who lived with you permanently who are any of the following:
…
•any member of your own family or your spouse's or de facto's family.
Georgia Inglis was a member of Mr and Mrs Inglis' family. Mr and Mrs Inglis are the persons named in the current schedule. Accordingly, Georgia Inglis falls within the definition of 'you'.
The third parties submit that the exclusion clause should be narrowly construed and, if there is any ambiguity, then the contra proferentem principle as a last resort should be applied in favour of the insured because the clause is an exclusion clause in a contract of insurance.
The third parties submit that consistent with the definition of 'you' and 'your' a person who normally lives with 'you' would apply to a person such as a boarder or a member of the extended family. It does not apply to Georgia Inglis because as a member of 'your' family Georgia Inglis is defined as 'you'.
The fourth party however submits that it is necessary to consider the particular claim being made in this case in order to determine whether the policy responds. The defendants are alleging that two insured (who fall within the category of 'you'), Mr Stuart Inglis and Mr James Inglis, are liable. Georgia Inglis is not an insured for the purposes of these proceedings because Georgia Inglis is the third party the subject of the claim for liability insurance. The legal liability cover is 'cover for injury to other people'. 'You' in this context applies to those seeking cover for injury to other people not for injury to an insured.

The meaning of 'you' and 'your'

The household exclusion clause creates two categories of person:
1.'You', namely Mr and Mrs Inglis and their children Georgia and James who permanently live with them.
2.'Persons' who normally live with 'you'.
The third parties argue that 'you' in both categories refers to the Inglis family. The policy excludes cover for injury to the second category of 'persons'.
The term 'you' has been used throughout the policy in different contexts. 'You' is used as a personal pronoun, in the second person plural and in the second person singular. The definition of 'you' also contains the word that it is seeking to define which, the third parties argue, adds to its ambiguity.
The third parties submit that if Allianz wanted to exclude cover it could have used the wording:
We will not cover your legal liability for injury to you or to any person who normally lives with you; or
We will not cover your legal liability for injury to any person (including you) who normally lives with you.
However, given the actual wording in the policy Georgia Inglis, as an insured, is not excluded.
The third parties also submit that if there is any ambiguity or lack of clarity then the exclusion clause should be construed narrowly and, as a last resort, the contra proferentem rule should apply to the exclusion clause because of the unique nature of an insurance contract.
The current policy is a standard form drafted by the insurer. The third parties refer to the decision of Santamaria JA in the Victorian Court of Appeal decision of Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367 [107] as persuasive:
It is to be borne in mind that '(t)he High Court of Australia has said that "We live in a society that has been almost revolutionised by a growth of all forms of insurance". Therefore it is argued, there should be a liberal approach to the construction of a contract of insurance and to any enabling statutes behind it'. Thus, '(t)he process of construction beings with the insuring clause, and within this paradigm it will be read broadly and exclusions and limiting provisions will be read narrowly'.
The third parties acknowledge however that the requirement to interpret the exclusion clause will only arise if the meaning of the exclusion clause is not clear.
Although an insurance contract differs from other commercial contracts, that does not mean that the policy, if capable of clear interpretation, should not be given a businesslike interpretation. In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Gleeson CJ said [22]:
A policy of insurance even one required by statute is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure.
The third parites also refer to Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500. At 510 the court (Mason, Wilson, Brennan, Deane and Dawson JJ) said the following with regard to exclusion or limitation clauses and the contra proferentem principle:
These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its nature and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig (footnote omitted), the same principle applies to the construction of limitations clauses.
The issue to be determined for this preliminary question is whether, in the context of this case, the meaning of the exclusion clause is clear.
Putting aside the form of words suggested by counsel for the third parties I need to consider the words as they presently stand before determining whether the words need to be construed narrowly or whether any other considerations relevant to an insurance contract exclusion provision apply.
The definition of 'you' identifies the persons who have the benefit of the policy. The legal liability cover is not for losses suffered by the insured rather it is for losses suffered by third parties to whom the insured has a legal liability. The third parties argue that Georgia Inglis is both an insured and a third party who has suffered loss in the context of these proceedings. The two insured, the first third party and the second third party, are 'you' in respect of the policy. Had Georgia Inglis been an insured against whom a third party claimed for losses he or she had suffered then she too would have been in the category of 'you'.
That however is not the case here. Georgia Inglis is a person who normally lives with 'you' in these proceedings. The words of the exclusion clause, when given their ordinary natural meaning in the context of the claim made, are clear. There is no need to resort to a narrowing of the exclusion clause nor is there a requirement to determine any ambiguity. Without additional words being added the exclusion clause applies.

The phrase 'in respect of' and the word 'for' in the exclusion clause

The relevant insuring clause is 'for payment of compensation in respect of' (bodily injury). The household exclusion clause relevantly states:
We will not cover your legal liability for … injury to any person who normally lives with you.
(emphasis added)
The third parties submit that where the phrase 'in respect of' and the word 'for' are separately present in the same insurance policy, prima facie, they are intended to mean different things. Any liability the third parties might have to the defendant is within the scope of the phrase 'in respect of' in the insuring clause and outside the scope of the word 'for' in the household exclusion clause because the third parties liability is not a 'legal liability for injury to any person', rather it is a legal liability to contribute towards the defendant's liability to Georgia Inglis for personal injury.
The third parties submit that the construction of the household exclusion clause (being for legal liability for injury) is consistent with the reasoning behind the exclusion because the insurer hopes to avoid the prospect of paying a fraudulent or exaggerated property damage or personal injury claim as a result of collusion between members of the same household: Derrington and Ashton, The Law of Liability Insurance, 3^rd ed, vol 2, 10.187.
The fourth party however submits that stating that liability to contribute is not a legal liability for injury to any person ignores the basis of the claim in this matter because the defendant's claim is against the third parties for contribution under s 7(1)(c) of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947. Accordingly, the foundation of the defendants' claim is the establishment of the legal liability on the part of the third parties to the plaintiff for her injuries. Unless there is such a liability on the part of the third parties there cannot be a liability to contribute. The exclusion clause does not limit the 'legal liability' to a particular form of remedy such as damages. The legal liability to contribute encompasses a legal liability for injury to Georgia Inglis.

In determining the relevant meaning and context the following authorities provide guidance.
In Zurich Australia Insurance Ltd v Regal Pearl Pty Ltd (2007) 14 ANS Ins Case 61-715; [2006] NSWCA 328 the New South Wales Court of Appeal considered the meaning of the words 'for' and the phrase 'in respect of' and held that the expression 'for personal injury' is capable of meaning 'in respect of' personal injury. Whether or not it does so is to be determined by context: [45], [125], [126].
In ISS Property Services Pty Ltd v The Underwriter Insurance Company Ltd [2013] SASC 53 Vanstone J said that the meaning of the word 'for' and the phrase 'in respect of 'depends on the context. Her Honour determined in the context of that case that the word 'for' in the insuring clause should not be read more narrowly than the expression 'in respect of'.
The Court of Appeal of Western Australia has also considered the meaning of the phrase 'in respect of'. In GY v Commissioner of Police [2014] WASCA 9 McLure P and Murphy JA agreed with Newnes JA who said [32]:
The phrase 'in respect of' ordinarily has a very wide meaning, although it must be understood in its context and the context will determine the matters to which it extends …
Accordingly, the words in the present case must be considered in context in light of the nature of the proceedings.
The third parties submit that contextually the present case is consistent with the wording in Allianz Australia Ltd v Wentworthville Real Estate Pty Ltd (2004) 14 ANZ Ins Case 61-598; (2004) NSWCA 100. In that case a residential tenant, Mr Hudson was injured when he slipped in the shower of the property he rented and cut himself. He sued the home owners, the Khourys, in negligence. The home owners in turn sought contribution and/or indemnity pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 from the managing real estate agents, Starr Partners, by way of contractual claim for full indemnity based upon breach of an implied term of the real estate agent's agreement because the home owners claimed that the real estate agents had agreed to the implied term that the real estate agents would exercise reasonable care and skill in managing the premises.
The real estate agents had taken out a professional indemnity policy issued on behalf of Allianz Australia Limited. In assessing the claim Allianz accepted that the facts of the claim fell within the insuring clause but relied upon the following exclusion clause, Exclusion (k), to seek to deny liability:
Except as expressly provided for in the extensions, this Policy shall not Indemnify the insured in respect of any claim against the insured … for any alleged or actual bodily injury or property damage …
Allianz also sought to invoke a separate and wider exclusion clause found among the 'important notes' to various insurance documents. Mason P (Sheller JA & Pearlman AJA agreeing) dismissed the appeal. Their Honours concluded that the primary judge was correct to conclude that the claim fell outside Exclusion (k). The claim by the real estate agents was for contribution/indemnity against economic loss whereas the tenant's claim against the home owners was for bodily injury. The home owner's claim against the real estate agents was not a claim for bodily injury.
In reaching this conclusion Mason P noted that the appellant insurer was correct to observe that a purely literal meaning cannot be given to Exclusion (k) because, strictly speaking, no claim is ever for bodily injury. The exclusion must be taken to be referring to a claim for compensation for bodily injury for which the person against whom the claim is made has legal responsibility [25].
Mason P found however that the primary judge had appropriately drawn support from two decisions, Unsworth v Commissioner for Railways (1958) 101 CLR 73 and Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 in concluding that the claim notified by the real estate agents to its insurer fell outside the exclusion [33].
In Unsworth the High Court held that a claim for contribution against a joint or concurrent tortfeasor (pursuant to legislation similar to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946) was not a claim 'to recover damages or compensation in respect of personal injury' within s 121 of the Railways Act 1914 - 1955 (Queensland).
Mason P referred to the decision in Unsworth [34]:
… the proceeding was not, in my opinion, an action to recover damages or compensation. The proceedings to which these words refer are, I think, proceedings taken to enforce liability for acts or omissions which are wrongful as against the person taking those proceedings. Proceedings to obtain contribution in pursuance of the statutory right given by the Law Reform Act are not such proceedings.
After considering a number of other authorities Mason P said [44] that the claim made on the insured and notified by the injured tenant was a claim by the 'home owners' for contribution or indemnity against the burden of a separate claim made upon them by [the tenant]:
[45]The circumstances in which Starr Partners were joined as the defendant in Mr Hudson's action did not change this. Here, the line of cases relied upon by the appellant actually harms its position. Those cases emphasise the need to look at the substance of the claim in the context of deciding whether the policy responds. The Exclusion expressly focuses upon the claim 'against the Insured' and requires consideration of the character of that claim. If it is a claim 'for any alleged or actual bodily injury' there is no indemnity.
…
[47]The claim that Starr Partners notified in 1998 remained outside the exclusion because it remained one for contribution/indemnity against the economic loss of the Khourys meeting Mr Hudson's claim. Mr Hudson's claim against the Khourys was for bodily injury but the Khourys' claim against Starr Partners, however formulated, was not of the character.
The claim in the present case is not of that character. The defendants' claim against the third parties is for legal liability for injury to a person and the exclusion is for legal liability for injury to any person. The foundation of the claim is the establishment of a legal liability on the part of the third parties to the plaintiff for her injuries. The exclusion clause applies.

Is suffering injury when the plaintiff was a person who normally lives with the third parties an 'act' pursuant to s 54(1) Insurance Contracts Act 1984 and, if so, does s 54(1) apply?

The Insurance Contracts Act 1984 is remedial. Its long title is
an Act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interest of insurers, insureds and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly, and for related purposes.
In div 3 ‑ Remedies
Section 54 states:
(1)Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
(2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3)Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.
(4)Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
(5)Where:
(a)the act was necessary to protect the safety of a person or to preserve property; or
(b)it was not reasonably possible for the insured or other person not to do the act;
the insurer may not refuse to pay the claim by reason only of the act.
…
Counsel for the third parties argues that Georgia Inglis suffering injury on 17 October 2004, being a date after the insurance contract was entered into by the insured, is 'some act' in the context of s 54 regardless of the fact that Georgia normally lived with the Inglis family.
The third parties submit the act of living with someone is not some act that could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract because there is no suggestion that living with either Mr Stuart Inglis or Mr James Inglis contributed in any way to what occurred. Further this is not a case where any other subsection of s 54 would apply.
However, the fourth party submits that s 54(1) of the Act does not apply because Georgia Inglis was already normally a member of the Inglis household at the time when the contract of insurance commenced on 22 August 2004 and she continued to be a person who normally lived with the Inglis family when she suffered the injury on 17 October 2004. The fourth party argues that to normally live with is not some act that occurred after the contract was entered into because it was a pre‑existing state of affairs that continued into the period covered by the policy. Georgia was a 10‑year‑old child who would normally live with her family prior to the commencement of the policy and she continued to do so after the policy commenced.
The rationale behind the insertion of the exclusion clause in respect of members of the insured's household is to prevent collusive claims by members of the insured's family and household who are under the same roof as the insured. It is a question of fact whether a child is a member of the household and a child has been held to be a member of the household even if overseas, at boarding school or the subject of shared parenting. Children living with one parent only or who are not supported by the insured have been held not be members of the insured's household: Derrington & Ashton, The Law of Liability Insurance 3rd ed, vol 2 [10.187] – [10.190].
At [10.191] the authors said:
Because this exclusion refers to a state of affairs that involves more than a mere act on the part of the person who performs the acts constituting the residing, it is probably that s 54 of the Insurance Contracts Act 1984 (Cth) will not apply to it; but the contrary position is arguable.
The authors expressed this view prior to the High Court's decision in Maxwell v Highway Hauliers Pty Ltd (2014) 88 ALJR 841; [2014] HCA 33.

Maxwell v Highway Hauliers Pty Ltd

In 2014 the High Court considered s 54 of the Act in Maxwell v Highway Hauliers Pty Ltd. In that case the insurers appealed against the judgment of the Court of Appeal of Western Australia that had upheld the decision of the primary judge who determined that s 54(1) of the Act was engaged. Highway Hauliers operated an interstate freight transport business. Its vehicles were insured for accidental damage under a contract of insurance. The insurance policy excluded indemnity in respect of damage to prime movers linked with trailers unless the driver of the prime mover had achieved a specified driver profile score in psychological testing relating to attitudes towards safety. Two of Highway Hauliers linked prime movers were damaged in two separate accidents at a time when they were being driven by drivers who had not undertaken the driver profile test. The insurer refused to pay the claims for indemnity by virtue of the exclusion clause. It was conceded by the insurer that the drivers' failure to complete the driver profile test could not reasonably be regarded as being capable of causing or contributing to the losses.
The High Court dismissed the insurer's appeal and determined that s 54(1) was engaged. The court noted that the purpose of the Act was, consistent with its long title and with the Australian Law Reform Commission Report that recommended its introduction, to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds and other members of the public. That balance was to be struck irrespective of the form of that contractual term [20].
The plurality (Hayne, Crennan, Kiefel, Bell & Gageler JJ) distinguished the 'act' from a limitation to a claim arising from a restriction or limitation on the scope of the cover provided under the contract. A claim in an occurrence based contract (such as the present case) can only be in relation to an event that occurs during the period of cover. This limitation in scope can be distinguished from the operation of the exclusion clause to a claim that falls within the limitation. The plurality said [26], [27]:
Here the fact that each vehicle was being operated at the time of the accident by an untested driver is properly characterised as having been by reason of an 'act' that occurred after the contract of insurance was entered into. There was an omission of the Insured to ensure that each vehicle was operated by a driver who had undertaken a PAQS test or an equivalent program approved by the Insurers. That omission occurred during the Period of Insurance.
The Insured having made claims seeking indemnity under the Policy in relation to accidents which occurred during the Period of Insurance, it is sufficient to engage s 54(1) that the effect of the Policy is that the Insurers may refuse to pay those claims by reason only of acts which occurred after the contract was entered into. Precisely how the Policy produced that effect is not to the point. The conclusion of the Court of Appeal in the present case was correct.
In reaching this conclusion the High Court rejected the decision in Johnson v Triple C Furniture and Electrical Pty Ltd [2012] 2 Qd R 337 and said [28]:
It remains finally to refer to Johnson. That case concerned an occurrence based contract of insurance under which the insured was indemnified for amounts for which it became liable in respect of accidental injuries to passengers while on board an aircraft subject to a temporal exclusion expressed in terms that 'this policy does NOT apply while the aircraft ... is operated in breach of [air safety regulations]'. The Court of Appeal of the Supreme Court of Queensland accepted an argument that s 54(1) was not engaged in circumstances where the insurer, relying on the temporal exclusion, refused to pay a claim in fact made by the insured by reason of the operation of the aircraft in breach of air safety regulations. To that extent it erred, and its decision on this point should not be followed. The operation of the aircraft in breach of air safety regulations was an 'act' which occurred after the contract was entered into. The temporal exclusion did not qualify the 'claim' that was made.

Maxwell v Highway Hauliers Pty Ltd

In the Court of Appeal decision of Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115; (2013) 45 WAR 297 McLure P considered earlier decisions of the High Court relevant to s 54 including FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641. FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd concerned a professional indemnity insurance policy which provided that the insurer would indemnify the insured for claims made during a specified period of cover. It was a condition of the policy that if during that period the insured should become aware of any occurrence which might subsequently give rise to a claim in negligence, it should give written notice of the occurrence to the insurer; and any such claim which might subsequently be made against the insurer arising out of such negligence would be deemed to have been made during the period of cover. The insured breached the notification provision, it being aware during the period of insurance of a possible third party claim. The third party made a claim against the insured after the expiration of the period of the cover. The insured then made a claim for indemnity [50].
The High Court held in FAI that the insurer could not refuse to pay the claim for indemnity on the ground that it was made after the expiration of the period of cover. It was an omission within the meaning of s 54(1). McLure P said in respect of the decision in FAI [52] – [55]:
The plurality (McHugh, Gummow and Hayne JJ) confirmed that s 54 does not depend upon matters of form (at [32]). They also rejected the submission that s 54 is limited to some condition of, or exclusion in, the contract of insurance. They said (at [33]):
The first basis proffered for this construction was that the words 'refuse to pay a claim' inferred that there was prima facie a liability, but that the liability was to be avoided 'by reason of some act [or omission] of the insured or of some other person'. This was said to occur only if a loss was within the cover provided by the policy but a condition or exclusion operated to allow the insurer to refuse to pay the claim. We do not accept that the words 'refuse to pay a claim' lead to the suggested inference. Moreover, the distinction between 'cover' on the one hand, and 'condition or exclusion' on the other, is a distinction that depends on the form of the contract and not on its substantive effect. No distinction can be made, for the purposes of s 54, between provisions of a contract which define the scope of cover, and those provisions which are conditions affecting an entitlement to claim. The substantive effect of the contract can be determined only by examination of the contract as a whole.
The plurality said that s 54 directs attention to the effect of the contract of insurance on the claim which the insured has in fact made and requires the precise identification of the event or circumstance in respect of which the insured claims payment of indemnity from the insurer. They continued (at [41] – [42]):
Section 54 does not permit, let alone require, the reformulation of the claim which the insured has made. It operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim. In other words, the actual claim made by the insured is one of the premises from which consideration of the application of s 54 must proceed. The section does not operate to relieve the insured of restrictions or limitations that are inherent in that claim. The restrictions that are inherent within a claim vary according to the type of insurance in issue. Under an 'occurrence' based contract, no claim can be made under the contract unless the event insured against takes place during the period of cover.
(Emphasis added.)
They explained that the restriction inherent in a claims made and notified policy is that the third party demand be made within the period of insurance and said that a demand outside the period was 'not of a type covered by the policy'.
Still addressing the case in which there was no claim by a third party on the insured under a claims made and notified policy during the period of cover (as in Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706), the plurality said (at [44]):
It is apparent that, in the circumstances considered in Greentree, the effect of the contract of insurance was that the insurer might refuse to pay the claim that had been made. This was not, however, by reason of any act or omission of the insured or some other person. The claim made by the insured was for indemnity against liability for a demand that was not a demand of the kind dealt with by the policy because it was not a demand by a third party made within the period of cover. The reason for refusal was not some act or omission of the insured or some other person. It was that the policy did not extend to the demand referred to in the claim for indemnity.

McLure P also considered the decisions of Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652 and Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Limited (1993) 176 CLR 332 in determining the scope of cover. McLure P then said [71] – [74]:
My understanding of the effect of FAI is as follows. First, the term 'claim' in s 54(1) is the actual claim made by the insured which must be based on the facts as they occurred. That is, s 54 does not operate to alter the factual circumstances of the claim. It operates to alter the contractual consequences of a s 54 'act'. Secondly, the claim must be a claim under the contract of insurance. Thirdly, there are restrictions or limitations that are inherent in a particular claim and those restrictions or limitations are sourced in, and vary according to, the type or kind of insurance in issue. Fourthly, the correct focus is on the actual claim and its inherent restrictions or limitations by reference to the type or kind of policy, not the scope of the cover. Finally, if the actual claim is outside the inherent restrictions or limitations, it will not be a claim under the insurance contract and any refusal by the insurer to pay the claim will not satisfy the causal requirements in s 54(1).
It is important to recognise that s 54(1) has no application to provisions of an insurance contract that are fixed from commencement, in the sense that they are unaffected by a subsequent act or omission of the insured or another person. That will often be the case in relation to the property the subject of an event based policy.
The only restriction or limitation inherent in a claim under an occurrence/event based insurance policy identified by the plurality in FAI is that the event must have occurred within the period of insurance. That is consistent with the restrictions or limitations being related to the type or kind of policy, not the detail of the cover or the terms and conditions thereof. Potentially, the restrictions or limitations inherent in a claim made under the Insurance Contract arguably extend to, but no further than, the occurrence of the type of event itself (being property damage to an insured vehicle) within the period of insurance.
It follows from FAI that s 54(1) can apply even if, on the proper construction of the Insurance Contract, satisfactory completion of the PAQS test is a condition of cover. That conclusion is consistent with the text, purpose and legislative history of s 54 and with FAI.
In applying the test and purpose of s 54(1), consistent with FAI, McLure P set out the steps in the analysis [75]:
…
1.Identify the relevant s 54 act or omission;
2.Determine whether the act or omission is one to which s 54(2) applies. If yes, determine whether s 54(3) or s 54(4) applies. If s 54(2) does not apply determine whether s 54(1) applies;
3.In assessing whether s 54(1) applies:
(i)determine whether there are any restrictions or limitations inherent in the actual claim by reference to the type or kind of insurance in issue. If the facts of the claim are outside any inherent restrictions or limitations, it will not be a claim under the insurance contract, any relevant act or omission will not satisfy the causal requirements below and s 54(1) will not apply;
(ii)determine whether the effect of the insurance contract is that the insurer may refuse to pay the claim in question (in whole or in part) by reason of the act or omission; and
(iii)determine whether the insurer is refusing to pay the claim by reason only of that act or omission. If yes, the insurer may not refuse to pay the claim (but the insurer's liability may be reduced to the extent its interests were prejudiced as a result of the act or omission).
In the present case consistent with my finding that Georgia Inglis was not an insured as defined by the policy for the purpose of the proceedings, the claim made by her is a claim made by a third party. It is a compensable claim given the scope of the policy.
Applying the steps in the s54(1) analysis I find as follows:
1.The relevant s 54 act was that at the time the accident occurred which was a date during the policy of insurance Georgia Inglis was normally living with the insured.
2.The fact that Georgia Inglis was normally living with the insured could not reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract pursuant to s 54(2). Further neither s 54(3) nor s 54(4) apply.
3.The insured having Georgia Inglis live with them on the date of the accident was not a restriction or limitation inherent in the actual claim by reference to the type or kind of insurance:
(ii)the effect of the insurance contract is that the insurer may refuse to pay the claim in question by reason of Georgia Inglis normally living with the insured on the date of the accident;
(iii)the insurer would be refusing to pay the claim by reason only of the act of Georgia Inglis normally living with the insured on the date of the accident.
The fact of Georgia Inglis normally living with the insured is not an inherent restriction. It is a matter of detail of the policy, not a restriction on the type or kind of policy. Section 54(1) of the Act applies in respect of the claim of the first third party and the second third party for indemnity and/or contribution by the fourth party.