In brief - Queensland Supreme Court finds that, in the circumstances, an excess policy was a marine policy subject to the Marine Insurance Act

By operation of section 9 (1) (d), the Insurance Contracts Act 1984 (Cth) does not apply to contracts to which the Marine Insurance Act 1909 (Cth) applies.

This was a critical issue considered by Justice Bond in the Supreme Court of Queensland late in 2020 in the case of DMS Maritime Pty Ltd v Navigators Corporate Underwriters Ltd & ors [2020] QSC 382 in the context of an excess policy covering the legal liability of the plaintiff company as a ship repairer.

The issue considered in this case is one which insurers are often required to consider but which rarely reaches the courts for consideration.

Court considers whether the excess policy was a marine policy subject to the Marine Insurance Act or governed by the Insurance Contracts Act

DMS Maritime Pty Ltd (DMS) had a contract with the Commonwealth of Australia to design, manufacture and supply Armidale class patrol boats and to provide support services to them for 15 years after commissioning.

In August 2014, the HMAS Bundaberg was destroyed by fire as a result of negligent welding work by a subcontractor DMS.

DMS successfully pursued a claim for indemnity from Royal & Sun Alliance PLC under the primary insurance policy (which was settled for $31.5 million), but a claim for indemnity under an excess policy was resisted on the basis of an assertion that there had been a breach of the duty of disclosure prior to entry into the excess policy.

The obligations being somewhat different under the two Acts, it was relevant in these circumstances to consider whether the excess policy was a marine policy that was subject to the Marine Insurance Act (MIA) or whether the Insurance Contracts Act (ICA) governed the policy. This issue was considered by the Court as a preliminary question.

Scope of DMS Maritime's excess policy

The excess policy provided for an indemnity of $40 million in relation to losses in excess of $10 million.

While the risks covered by the policy were fairly wide and extensive, the policy provided indemnity for all sums which DMS became liable to pay by reason of its legal liability as a ship repairer for loss or damage to any vessel or aircraft which was in its care, custody or control for the purpose of being worked upon under the contract with the Commonwealth.

The question then was whether a legal liability policy could properly be regarded as a marine policy that was subject to the MIA rather than the ICA.

Judge considers whether the perils insured against could be regarded as maritime perils as defined under section 9(2) of the Marine Insurance Act

Under section 7 of the MIA, "a contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure."

Section 9 (1) of the MIA provides that "every lawful marine adventure may be the subject of a contract of marine insurance" and section 9(2) (c) includes as a marine adventure "any liability to a third party incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils."

In the circumstances, Justice Bond considered it critical to determine whether the perils insured against by the policy could be regarded as perils "consequent on or incidental to the navigation of the sea", those words being used in defining "maritime perils" in section 9(2) of the MIA.

He noted that Chief Justice Gleeson in Gibbs v Mercantile Mutual Insurance (Australia) Limited (2003) 214 CLR 604 had followed the conclusions in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 that where policies covered mixed land and sea risks, it was important to characterise the risks insured by the policy as a whole rather than to characterise the particular loss giving rise to a claim.

The fact that the policy was characterised as a liability insurance policy did not mean that it could still not be considered to be a marine policy.

Looking at the risk covered by the policy, the judge noted that: 

The risks encountered in the marine adventures were not limited to risks encountered on the high seas, but extended to risks encountered in harbours, dry docks and ports, where the boats were to be maintained by the plaintiff in such a way as they could continue on their marine adventure and the plaintiff could discharge its contractual obligations. Being the subject of work of that nature must be regarded as incidental to or a consequence of marine adventure. The risk of a ship being damaged or lost by fire while the subject of work of that nature is a “maritime peril” within the meaning of s 9 of the MIA.

In the circumstances, he concluded that the MIA applied to the policy rather than the ICA.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2021.

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