How Can Section 54 Assist Your Claim For Insurance Cover?

Section 54 of the Insurance Contracts Act 1984 (Cth) aims to protect policyholders by preventing insurers from denying claims based on policy conditions that have no causal connection to the loss or damage suffered by the policyholder.

For example, if a policyholder breaches the conditions of their policy by failing to notify their insurer of a claimable event as soon as possible, the insurer cannot deny coverage unless that delay caused (or contributed to) the loss the policyholder seeks to be covered for. In other words, the insurer cannot rely on a technical breach of the policy because the breach (the delay) played no part in the loss for which cover is sought.

If a policyholder’s breach of a policy causes, or contributes, to the loss for which they seek cover, the insurer is not necessarily entitled to deny the claim but may reduce the amount paid in settlement of the claim to an amount that fairly represents the extent to which its interests were prejudiced by the policyholder’s acts.

Section 54 has been considered and applied in cases involving different types of insurance and scenarios. Some examples are:

• In FAI General Insurance Co Lty v Australian Hospital Care Pty Ltd [2001] HCA 38, the insurer argued that the insured hospital had breached a condition of the policy by failing to notify the insurer of any circumstances that might give rise to a claim as soon as possible. The court found that the hospital’s delay in notifying the insurer did not cause or contribute to the liability and that the insurer was not prejudiced by the delay. Therefore, the insurer could not refuse to pay the claim by reason only of the breach of the policy.

 

• In Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33, the insurer argued that the policy only covered drivers who had passed a specific test and that the driver of the truck (in respect of which cover was sought) had not passed the test. The court found that the driver’s failure to pass the test did not cause or contribute to the accident and that the insurer was not prejudiced by the driver’s lack of qualification. Therefore, the insurer could not refuse to pay the claim by reason only of the driver’s failure to have taken the test.

 

• In CGU Insurance Limited v AMP Financial Planning Pty Ltd [2007] HCA 36, the insurer argued that the insured financial planner had breached a condition of the policy by failing to maintain certain records and documents. The court found that the financial planner’s breach did not cause or contribute to the liability created by the financial planner’s alleged professional negligence. As such, the insurer was not prejudiced by the failure to maintain documents and was prevented by section 54 from refusing to provide indemnity against the claim.

 

It is important for policyholders to be aware of the role of section 54 if their claim is being denied for acts/omissions said to have prejudiced the insurer’s position.

Unless that act/omission cause or contributed to your loss, you may be able to rely on section 54 to obtain a better insurance settlement.