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Section 54 of the Insurance Contracts Act: still an insured's best friend
Section 54 of the Insurance Contracts Act remains a broad remedial provision to guard against technical policy exclusions. Has your insurer denied indemnity because you breached a policy term? Section 54 may save you. Forgot to notify your D&O insurer of a claim and now the policy has expired? Section 54 can help. Forgot to notify your insurer of circumstances that existed during the policy period that have now – after the policy has expired – given rise to a claim? Section 54 may be the answer.
In summary, section 54 has the effect that an insurer may not deny indemnity based on a technical breach of the policy or other act or omission after the policy was entered into unless the breach, act or omission could reasonably be said to have caused or contributed to the loss the subject of the claim.
Recently, Lloyds Underwriters (through a representative, Maxwell) sought to limit the operation of section 54 and were soundly rebuffed by the High Court. In Maxwell v Highway Hauliers, Highway Hauliers’ insurance policy provided that there would be no indemnity under the policy for damage to one of Highway Haulier’s trucks if the driver did not have a specified accreditation. Highway Hauliers claimed on the policy for damage to two trucks and indemnity was denied on the basis that the drivers did not have the relevant accreditation.
Highway Hauliers sought relief under s54. Lloyds argued that the effect of the policy was that damage to a truck driven by an unaccredited driver was not an insured risk, and that s54 only applies to insured risks. That is, the insurer argued that because the relevant endorsement was expressed in terms of there being “no indemnity” if the driver was not accredited, coverage never arose and that s54 cannot be permitted to allow the insured to circumvent deficiencies in a claim that result in it being outside the scope of cover. If Lloyds’ argument was accepted, this approach would result in the operation of s54 being substantially limited because many exclusions and endorsements could be drafted as carve-outs from the scope of cover.
Fortunately for the insureds in this case (and insureds generally), the High Court firmly disagreed with the insurer, finding that the word “claim” in s54(1) refers to any claim under a policy, not just a claim in respect of an insured risk. The High Court held that if the insurer can only refuse to pay the claim by reason of the relevant act or omission, s54 will be enlivened. Highway Hauliers’ omission for the purposes of s54 was an omission to ensure that each vehicle was operated by a driver that had the relevant accreditation. The parties accepted that the lack of the relevant driver accreditation could not reasonably be regarded as being capable of causing the damage to the trucks, so Highway Hauliers was held to be entitled to indemnity due to the operation of s54.