Mr and Mrs Inglis, were insured under an Allianz Homeowner’s Liability policy (policy). On 17 October 2004, their children, 12-year-old James Inglis and 10-year-old daughter Georgia Inglis were at the home of their neighbours, Mr and Mrs Sweeney and their 11-year-old son Stephen Sweeney. On that day Georgia Inglis suffered serious injuries as a result of being run over by a ride-on lawnmower (lawnmower) driven by Stephen Sweeney. The lawnmower was in fact owned by Mr Inglis and it was alleged that it was brought over to the home of Mr and Mrs Sweeney by James Inglis.
The injured child commenced proceedings against Mr and Mrs Sweeney. Mr and Mrs Sweeney cross claimed against Mr and Mrs Inglis in negligence who in turn, sought indemnity under the policy.
Clause 14 of the policy relevantly covered legal liability for payment of compensation in respect of, amongst other things, bodily injury caused by an accident. By reason of the definition of the words, ‘you’ and ‘your’ in the policy, cover also extended to family members of the insured which included James Inglis.
However, the exclusion clause excluded cover for ‘injury to any person who normally lives with you, or damage to their property’.
Arguments and the Court’s findings
Mr & Mrs Inglis argued that s54 of the Insurance Contracts Act 1984 (Cth) (ICA) applied so as to prevent the exclusion operating because the exclusion allowed Allianz to refuse to pay the claim by reason of an ‘act’ of the insured or some other person. They argued the relevant ‘act’ was the fact Georgia Inglis was residing at home with Mr and Mrs Inglis.
The issues before the WA Court of Appeal were:
- Whether there was an ‘act’ for the purposes of s54 of the ICA; and
- If so, whether the act in any event, fell beyond the scope of s54 of the ICA because it occurred before the policy was entered into.
It held that the issue of whether or not there was an ‘act’ had to be determined by the natural meaning of the word and it meant ‘something done or being done by a person‘, which is different from a ‘state of affairs‘. Further, as the issue of whether Georgia Inglis normally lived with Mr and Mrs Inglis had to be considered by reference to their conduct over an extended period of time, Georgia Inglis’ living situation constituted a ‘state of affairs’ rather than an ‘act’. Accordingly, there was no ‘act’ to which s54 of the ICA could apply to prevent the operation of the exclusion clause and Allianz’s appeal was upheld.
In relation to the second issue, it held that if it found Georgia Inglis’ living situation to have constituted an ‘act’, it would not fall beyond the scope of s54 of the ICA if the facts after entry into the policy supported an inference that on the date of the accident, she was normally living with Mr and Mrs Inglis. This is because it would be an act which occurred after the policy was entered into.
The WA Court of Appeal also made interesting obiter comments regarding the words, ‘liability for injury to any person’, in the exclusion clause. Mr & Mrs Inglis submitted that the exclusion was to be narrowly read, and therefore, did not extend to the claim because it did not involve a claim for injury to a person, but rather, involved a claim for contribution. In rejecting that argument, the court stated that there was no general rule of construction of insurance contracts requiring terms, such as exclusion clauses, to be construed narrowly or strictly. The Court referred to case of Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, 510, wherein the High Court held that the meaning of a limiting term:
‘[I]s to be determined by construing the clause according to its natural 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.’
Take home message
- Insurers can find some comfort in the decision as it confirms that Courts will not go to unreasonable lengths to identify an ‘act or omission’ to apply s54 of the ICA to nullify the operation of exclusions in insurance policies. It reinforces the fact the purpose of s54 of the ICA is not to improperly rectify claims or to bring claims within cover where they are outside the scope of the policy.
- Insurers can also find some comfort in the finding that there is no general rule requiring a Court to read their exclusion clauses narrowly or strictly, where their natural and ordinary meaning are clear.
- However, the decision also highlights the need to be mindful of the distinction between an ‘act’ and a ‘state of affairs’. It may not always be clear and will likely be based on the facts of the particular case. Further, the decision also demonstrates that it can not be assumed s54 of the ICA will not operate simply because an ‘act’ commenced prior to the inception of the policy. Section 54 of the ICA may still operate if the facts support an inference that the act in question continued after the policy incepted.
This article was written by Madeleine Whiteaker, Solicitor and David Chew, Partner.