When is a policy one of marine insurance?
by Andrew Tulloch
The answer to this question is clearly not an easy one, as the High Court of Australia were divided 3:2 on the issue in the case of Gibbs v Mercantile Mutual Insurance (Australia) Limited  HCA 39. A narrow majority decided in favour of the insurer, that a policy which provided third party liability cover for a paraflying operation was indeed a marine policy.
The action itself arose out of an accident which occurred on estuarine waters of the Swan River. In an endeavour to land a parasailer, the boat driver came too close to the shore and dragged the parasailer through trees, causing her to suffer severe injuries.
The policy under consideration was one which was described as a 'marine pleasurecraft policy' when originally issued to cover a 17 ft runabout ski boat used for a business described as 'commercial paraflying'. The policy also provided third party liability cover. When the policy was subsequently renewed with third party liability cover only, its characterisation as a marine policy theoretically became more difficult.
Many breaches of the policy were alleged by the insurer. Whether the policy was governed by the Marine Insurance Act 1909 (Cth) or by the Insurance Contracts Act 1984 (Cth), was relevant to the consequences of alleged policy breaches and non-disclosure. The Insurance Contracts Act would provide a more consumer-friendly result, while the Marine Insurance Act would be somewhat more helpful to the insurer's position.
The majority found that the policy, although covering liabilities only, was nevertheless one which was a contract to indemnify the insured against losses incident to marine adventure. 'The relevant marine adventure was exposing the owners of, or other persons interested in or responsible for, the craft to liability by reason of maritime perils.' (per Hayne & Callinan JJ at p 199).
As Gleeson CJ stated:
'Subject to the argument about 'sea' it was plainly a contract of marine insurance. When, upon renewal … the cover was reduced to third party liability cover the character of the policy was not thereby transformed. The scope of the losses incident to marine adventure governed by the policy was reduced, but they remained primarily losses arising out of events occurring in the course of the navigation of the vessel.'
The majority also found that the Full Court of the Supreme Court of Western Australia had correctly adopted the view that the accident occurred on the 'sea', that not being limited to the open ocean, but rather being waters within the ebb and flow of the tide.
The dissenting judges, McHugh and Kirby JJ both took the view that as the insured vessel was never intended to operate on the open sea that the Marine Insurance Act could not apply. While they stated that it was not necessary for their decision, both also held that the Swan River estuary where the accident occurred was not part of the 'sea'.
Kirby J adopted the approach in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 in attempting to characterise the policy as a whole. He took the view that looking at the policy in its entirety in this way, the policy was best characterised as a business third party liability policy. Indeed, he went so far as to say that it seemed more connected with aerial activity than maritime activity!
Kirby J also seemed more comfortable than did the majority with the policy being one which should fall within the purview of the Insurance Contracts Act, and made a number of references to the work of the Law Reform Commission in relation to reform of the law of marine insurance.
The conclusion of McHugh J on the critical issues might not have carried the day but his judgment is nevertheless well worthwhile reading for all scholars of marine insurance, tracing in some depth the history of the law of marine insurance.
Since 1998 the application of the Insurance Contracts Act has been extended to private pleasure craft rather than being governed by the Marine Insurance Act. Clearly, however, the policy in this case concerned a commercial paraflying operation.
While the decision is of considerable interest to those involved in marine insurance in Australia and elsewhere, it is likely that it will not have much long term significance in Australia. The Australian Law Reform Commission has recommended that the application of the Marine Insurance Act in Australia be extended to cover losses occurring on inland waters. Whether those reforms will be adopted remains to be seen.
However, the likelihood is that this case will be of more academic interest than practical significance in Australia in the near future and may be more relied upon in foreign jurisdictions than it is at home.