The matter of Lloyds v Pantaenius Australia Pty Ltd [2016] FCAFC 150 confirms the operation of Section 54 of the Insurance Contacts Act 1984 (Cth) in ensuring that insurers are not unduly denying insurance claims.


Background

Mr Phillips was the owner and operator of a luxury yacht. He held policies of insurance against damage to his yacht. He had one policy with Pantaenius Australia Pty Ltd for the period 4 May 2013 and 4 May 2014. He had another policy with Watkins Syndicate 0457, which covered the yacht between for the period 1 December 2012 and 1 December 2013.

On or around 22 June 2013, when both policies were active, the yacht was returning from Australia when it was struck and damaged. It was unrepairable and claims were made by Mr Phillips under both policies. Pantaenius accepted liability and effected a payment of $341,179.51 to Mr Phillips.

However, Watkins Syndicate 0457 denied the claim on the basis that cover under its policy would be suspended if the yacht left Australian waters and would only resume if the yacht had gone through Australian customs was is cleared to enter Australian waters. As the yacht had not cleared Australian customs when the damage occurred, indemnity was denied.


Determination

Foster J in the Full Court of the Federal Court of Australia held that if Watkins Syndicate 0457 intended to offer a policy that only provided cover for domestic travel, it should have been expressed within the policy. The act of leaving Australian waters was a necessary pre-condition to the suspension of the insurance policy, it cannot be accepted as an exclusion clause unless it was expressed within the policy.

The Court was satisfied that section 54(1) of the Insurance Contacts Act 1984 (Cth) applied. The Court said that as the insured’s act did not cause loss and the insurer had suffered no prejudice, the Court was satisfied that the insurer would be prevented from refusing a claim.


Implication

This case shows the consistency of the Courts in applying section 54 of the Insurance Contracts Act 1984 (Cth). Insurers must ensure that its exclusion clauses are not drafted such that the effect of the contract of insurance would be to deny claims.