The Marine Insurance Act: out of warranty?

• Author: Quintin Alexander Rares
• Position: The author is a solicitor in the Supreme Court of NSW and is also a unit of study co-ordinator at the University of Sydney. The author thanks Frazer Hunt, Charles Street and the anonymous reviewers for their feedback on earlier drafts of this article. The author's errors are his own
• Pages: 36-41

(2013) 27 A&NZ Mar LJ

36

THE

MARINE INSURANCE ACT

: OUT OF WARRANTY?

Quintin Rares*

The Marine Insurance Act pr ovides tha t an insurer is discharged from lia bility from th e date that the insur ed

breach es a warra nty in the policy, even when the breach of war ranty is not causa tive of the loss. Not

surprisingly, insur eds have tried to prevent insurer s playing this tr ump car d and after centuries of losing ca se-

after-ca se, insureds appear to finally be tur ning the tide. This article explores the judicia l decisions of superior

courts tha t exemplify this recent tr end and questions whether a deviatio n from the centuries ol d legal position is

wise judicial policymaking. Interventions by parliaments ar e briefly discussed.

The Insur ance Contra cts Act

1 (ICA) and the Marine Insurance Act2 (MIA) are the two main statutes governing

insurance co ntracts in trade and transport in Australia.3 The MIA has traditionally allowed insurers to escape

liability if there is a breach of warranty (for example, the insured warranting a ship will be in survey throughout

the policy), regardless of whether the breach of that warranty was causative of the loss claimed. The ICA,

however, has traditionally not allowed insurers to rely on warranty breaches to deny inde mnity where the breach

was not causative of the loss.

Not surprisingly, in these situations, insurers often atte mpt to prove that the MIA applies to the policy and the

insured tries to prove the ICA applies. However, this is not always straightforward. Neither is the question of

whether the traditional rule, as summarised above, actually holds nowadays. This brief paper will address first

the question o f when the MIA applies to an insurance policy, and second when the MIA will permit insurers to

deny liability for breach of warranty where it does apply.

When does the Marine Insurance Act Apply?

The MIA applies to ‘contracts of marine insurance’.4 Section 7 of the MIA defines this as insurance which covers

losses incidental to marine adventures. What is a marine adventure? An adventure with marine perils.5 What is a

marine peril? A peril related to the navigation of the sea. 6 To understand what perils are related to the navigation

of the sea, one must first define what ‘the sea’ is.

What is ‘the Sea’?

Most, but not all, Australian Acts defini ng the ‘sea’, state that it is a body of water affected by the ‘ebb and flow

of the tide’. Such Acts include the Admiralty Act7 and the Navigation Act.8

Obviously, ‘the sea’ does not include inland waters, unless they ar e affected by the ebb and flow of the tide.

Clearly this distinction creates problems where the sea meets inland waters. The High Court of Australia

encountered this difficulty in its decision in Gibbs v Mercantile Mutual Insur ance,9 in which the Court split 3:2.

In this case, a woman was seriously injured when paraflying on the Swan River, near where the river meets the

Indian Ocean. The question was whether the Swan River estuary was ‘the sea’. Gleeson CJ (in the majority) said

that he saw no reason why the ‘sea’ must be limited to the open ocean, and stated that, since the area under

which the paraflier flew was affected b y the ebb and flow of the tide, it must have b een on ‘the sea’. McHugh J

(in the minority) disagreed with this on a legal level and on a common-sense practical level, stating: ‘I doubt

that any Perth resident who had spent a day pic nicking by the shores of the Swan River would regard him or

herself as having spent a day at the sea-side.’

In fairness to the picnicker, they probably were not thinking of the sea’s legal definition under the Mar ine

Insuran ce Act at the time of their imagined contemplation. Important to that legal definition is t hat interpretation

* The author is a solicitor in the Supreme Court of NSW and is also a unit of study co-ordinator at the University of Sydney. The author

thanks Frazer Hunt, Charles Street and the anonymous reviewers for their feedback on earlier drafts of this article. The author’s errors are

his own.

1 Insurance Contra cts Act 1984 (Cth).

2 Marine Insurance Act 1909 (Cth).

3 The New Zealand position will be discussed later in this article, as its legislative structure is substantively different.

4 Marine Insurance Act 1909 (Cth), s 7.

5 Ibid, s 9.

6 Ibid.

7 Admiralty Act 1988 (Cth).

8 Navigation Act 1912 (Cth).

9 Gibbs v Mercantile Mutual Insurance (2003) 214 CLR 604.