Gibbs v Mercantile Mutual Insurance (Australia) Ltd

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,McHugh J,Kirby J,Hayne,Callinan JJ
• Judgment Date: 05 August 2003
• Neutral Citation: 2003-0805 HCA B,[2003] HCA 39
• Court: High Court
• Docket Number: P63/2002
• Date: 05 August 2003

[2003] HCA 39

HIGH COURT OF AUSTRALIA

Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ

P63/2002

Ian Wayne Gibbs & Anor

Appellants

and

Mercantile Mutual Insurance (Australia) Ltd

Respondent

Representation:

N J Mullany with P J Hannan for the appellants (instructed by Unmack & Unmack)

D F Jackson QC with G R Hancy for the respondent (instructed by Srdarov Richards Burton)

Insurance Contracts Act 1984 (Cth), s 9(1)(d).

Marine Insurance Act 1909 (Cth), ss 7, 8, 9.

Marine Insurance Act 1906 (UK).

Merchant Shipping Act 1894 (Imp).

Gibbs v Mercantile Mutual Insurance (Australia) Ltd

Insurance — Contracts — Insurance cover against liability to third parties arising from use of marine pleasure craft for commercial paraflying — Where paraflying to be conducted in estuarine waters — Whether policy a contract to which Marine Insurance Act 1909 (Cth) applied — Whether policy a contract of marine insurance.

Words and phrases — ‘contract of marine insurance’, ‘incident to marine adventure’, ‘maritime perils’, ‘sea’, ‘ship’.

ORDER

Appeal dismissed with costs.

1 Gleeson CJ. The respondent issued a policy of insurance which indemnified the appellants if, by reason of their interest in the vessel ‘Lone Ranger’, they incurred legal liability to third parties. The question in this appeal is whether the policy was a contract to which the Marine Insurance Act 1909 (Cth) applied. If the answer to that question is in the affirmative, two things follow. First, the contract was not one to which the Insurance Contracts Act 1984 (Cth) applied 1. Secondly, and in consequence, the failure of the appellants to give timely notice of an occurrence giving rise to such third party liability was fatal to any entitlement to indemnity, and could not be relieved under the provisions of the Insurance Contracts Act.

2 The facts are set out in the joint judgment of Hayne and Callinan JJ. The Marine Insurance Act applies to contracts of marine insurance, subject to certain presently immaterial exceptions (s 6). A contract of marine insurance is defined as a contract whereby the insurer undertakes to indemnify the assured against marine losses, that is to say, losses incident to a marine adventure (s 7). The definition is elaborated in ss 8 and 9.

3 A policy of insurance, described as a ‘marine pleasurecraft policy’, was entered into in 1986. It was signed on behalf of the respondent by its agent, Anchorage Marine Underwriting Pty Ltd. It covered the appellants and a ‘Mr Sodaberg’, as insured, in relation to the vessel ‘Lone Ranger’. It was entered into in contemplation of the use of the vessel in a business described in the policy as ‘commercial paraflying’. The vessel was described as a ‘runabout ski boat’, constructed of fibreglass, and 17 feet in length. The insurance covered the hull, motor and a trailer for specified amounts. It also provided ‘third party liability cover’ to $1 million. It contained a warranty that the commercial paraflying would take place within ‘Protected Waters of WA as per permit’.

4 The 1986 policy expired. In February 1988, a renewal certificate was issued, identifying the same parties and signed by the same agent. That is the policy in question in these proceedings. It did not cover the hull, motor or trailer, but covered third party liability in the same amount, and on the same terms, as the original policy. Perhaps for reasons of economy, the insured wished to maintain only the third party cover. As in the 1986 policy, that cover was expressed in terms of an undertaking by the insurer to pay the insured if ‘by reason of your interest in the Vessel you become LEGALLY LIABLE to pay any sum or sums in respect of any liability, claim, demand, damages and/or expenses for liabilities to third parties’.

5 The Full Court of the Supreme Court of Western Australia (Kennedy, Murray and Owen JJ) held that this was a contract of marine insurance 2. The appellants contend that this conclusion was in error for two reasons. The first relates to the scope of the cover provided by the policy; the second relates to the locality in which, in the contemplation of the parties to the contract, the vessel was to operate. By reason of either or both of those matters, it is said, the contract was not a contract of marine insurance, but was a contract of general insurance. If that is so, it is the Insurance Contracts Act, and not the Marine Insurance Act, that applies, and the failure to give timely notice was not necessarily fatal to a claim for indemnity.

6 The identification of a contract as one of marine insurance sometimes gives rise to difficulty because of the mixed nature of the cover provided. In Leon v Casey3, Scrutton LJ said:

‘In the time of Sir James Mansfield insurance was almost entirely marine. As time went on insurance of other kinds came into use, and large companies grew up which dealt with a bulk of insurance which was not marine in any sense, and where the adventure never involved any marine risk. But Lloyd's confined themselves to marine insurance until enterprising underwriters began insuring all sorts of risks which their predecessors never thought of, such as risks of loss through frauds of servants or of cricket matches being spoilt by rain, and I know not what.’

7 In that case, and in the more recent case in this Court of Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd4, a policy of insurance covered a number of risks which included, but were not limited to, risks of a kind ordinarily regarded as incident to a marine adventure. In both cases it was held that the problem is to be resolved as one of characterisation, viewing the policy in its entirety. That is somewhat different from the problem that arises in the present case. Here, it is the singular nature of the cover that is relied upon by the appellants for one part of their argument. The insurance was related to the interest of the insured in a vessel (which, for the reasons explained by Hayne and Callinan JJ, was relevantly a ship), but it is only against legal liability to third parties.

8 The indemnity clause in the policy was expressed to extend, subject to certain qualifications, ‘to any person navigating or in charge of the Vessel who is legally competent to do so and who has [the insured's] permission’. It is clear

that the ambit of the cover provided by the policy was primarily against liability arising out of events occurring in the course of navigation of the vessel. The vessel was to be used for commercial purposes, including, in particular, ‘commercial paraflying’. Liability to third parties might include liability to customers or other passengers on the vessel, to people engaged in water sports or other activities on or near the water, or to the owners or users of other vessels. Putting to one side for the moment the argument as to locality, s 9 of the Marine Insurance Act provides that every lawful marine adventure may be the subject of a contract of marine insurance. It also provides that there is a marine adventure where any liability to a third party may be incurred by the owner of, or another person interested in or responsible for, insurable property, by reason of maritime perils (s 9(2)(c)). Maritime perils is an expression defined to mean the perils consequent on, or incidental to, the navigation of the sea. On the assumption that the ‘Lone Ranger’ was to operate in waters which were part of the sea, then the vessel was to be exposed to maritime perils, and liability to third parties could be incurred by reason of maritime perils. The simplest example would be if the vessel capsized, or struck a submerged object, and sank. That would not necessarily occur in circumstances giving rise to liability to a third party, and a claim for indemnity under the policy; but it well might. It was not, and could not have been, suggested on behalf of the appellants that the cover provided by the policy was illusory. Indeed, it was claimed that the cover applied to the event described in the joint judgment, and the resulting legal liability.

9 Providing indemnity against legal liability to third parties is a form of marine insurance, reflected in what Lord Brandon of Oakbrook, in Firma C-Trade SA v Newcastle Protection and Indemnity Association5, described as ‘the long-established practice of shipowners to enter their ships in Protection and Indemnity Associations (“P & I Clubs”) for the purpose of insuring themselves against a wide range of risks not covered by an ordinary policy of marine insurance’. In the present case, the original policy, written in 1986, covered hull and machinery, and third party liability. Subject to the argument about ‘sea’, it was plainly a contract of marine insurance. When, upon renewal in 1988, the cover was reduced to third party liability, the character of the policy was not thereby transformed. The scope of the losses incident to marine adventure covered by the policy was reduced, but they remained primarily losses arising out of events occurring in the course of the navigation of the vessel.

10 The terms of s 9(2)(c) of the Marine Insurance Act make it clear that the incurring of liability to a third party by reason of maritime perils can involve a loss incident to a marine adventure. If the particular form of maritime activity in contemplation is the operation of a commercial vessel carrying passengers for the purpose of engaging in water sports, then liability to a passenger may result from

perils incident to the navigation of the vessel. It was against such liability that the original policy provided such cover, in addition to other cover. It was solely against such liability that the renewal policy provided cover. The present dispute is not as to whether such cover existed, or whether it included the liability incurred by the appellants...