In the decision of Maxwell v Highway Haulers Pty Ltd the High Court has endorsed a broader interpretation of s54(1) of the Insurance Contracts Act 1984.  Insurers now have fewer grounds on which to deny coverage on the basis of an insured’s breach of the policy.

Section 54 denies an insurer the right to refuse to pay a claim due to an act or omission of an insured after the policy is in place except to the extent that the act or omission prejudices the insurer’s interest.

The Maxwell case involved an insurance claim where the insurance policy required, as a condition of coverage, that truck drivers working for the insured achieve a certain score in a driving test.  In the two accidents the subject of the case the drivers in each accident had not achieved the required score.  The insurer denied coverage on that basis.

The Queensland Court of Appeal decision of Johnson v Triple C Furniture & Electrical Pty Ltd upheld the refusal of a similar claim where a pilot had not completed a required training session before a flight.

However, the High Court has now indicated that decision is not to be followed and implicitly preferred the approach seen in the New South Wales Court of Appeal case of Prepaid Services Pty Ltd & Ors v Atradius Credit Insurance NV.

The insurer ultimately had to pay despite the insured having breached its obligation under the insurance policy.

The decision gives insured parties, including insolvency practitioner’s seeking to recover insurance proceeds, greater scope to challenging the rejection of claims by insurers.  Much will depend on the facts of each case.

For more information, contact Daren Anderson.