What is a policy of marine insurance? Gibbs v MMI [2003] HCA 39

1. What is a policy of marine insurance?Gibbs v MMI [2003] HCA 39 Dr Sarah C Derrington CML Interest Group Lecture 23 October 2003

2. The Australian Insurance Law Framework • Insurance Contracts Act 1984 • does not apply to contracts of insurance to which the MIA applies (s.9(1)(d)) • but does apply to pleasure craft (s.9A(2)) • a ship that is used or intended to be used: (a) wholly for recreational activities, sporting activities, or both; and (b) otherwise than for reward…

3. Marine Insurance Act 1909 s.7 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 s.9(1) Every lawful marine adventure may be the subject of a contract of marine insurance s.9(2) In particular there is a marine adventure where:… (c) any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils

4. “maritime perils” means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons and barratry, and any other perils, either of the like kind or which may be designated by the policy. “perils of the seas” refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves (Schedule 2 Rules for Construction of Policy)

5. s.8(1) A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to a sea voyage (2) Where a ship in course of building, or the launch of a ship, or any adventure analogous to a marine adventure, is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall apply thereto; but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined

6. Does it matter which Act applies? • Gibbs was insured on a “Marine Pleasurecraft Policy” which • covered third party liabilities • Extended to any person navigating or in charge of the vessel • Extended to cover commercial paraflying • Contained a navigation warranty of “Protected waters of WA as per permit” • Mrs Morrell was injured • Gibbs claimed on the policy

7. MMI alleged certain matters had not been disclosed and that there had been some material misrepresentations • If the MIA applied, MMI was entitled to avoid the policy • If the ICA applied, Gibbs may have been able to avail himself of the ameliorating provisions in ss. 28 and 54

8. The Marine Insurance Act applies…but why? • S.9A(2) of the ICA was not in force at the relevant time; nonetheless it would not have applied because the “pleasure craft” in this case was used for reward • The ICA would, therefore, only apply if the policy was not one to which the MIA applied • High Court 3:2 said the policy was one of marine insurance…but not for the same reasons

9. Gleeson CJ The “sea” is not limited to the open ocean It extends to waters within the ebb and flow of the tide (as would be included in the definition of ‘sea’ in the Admiralty Act & the Navigation Act The accident occurred in estuarine waters of the Swan River and was, therefore, a “peril of the sea” Hayne & Callinan JJ Maritime perils are not limited to perils occurring while the vessel is at sea No need to determine whether the event took place on “the sea” What is determinative is the nature of the risk…the insured losses were losses incident to marine adventure careless operation of marine craft is a peril properly described as a peril “consequent on, or incidental to, the navigation of the sea” The relevant marine adventure was exposing the owner of the craft to liability by reason of maritime perils The reasoning of the majority

10. McHugh J Swan River is not the “sea” in ordinary parlance The MIA does not cover policies in respect of risks in relation to ships never intended to go on voyages in the open sea Refers to the amendments to the hull clauses in support BUT Phillips v Barber Kirby J The policy was a business third party liability insurance policy and therefore was not within the MIA The court should give the “sea” its ordinary meaning, particularly as the MIA draws a distinction between the sea and inland waters ALRC report supports the view that the MIA does not apply to inland waters The reasoning of the minority

11. Conclusion • The two conflicting legislative regimes in Australia continue to promote uncertainty in relation to the governing law • The ALRC proposed that the MIA be amended to make clear that it covers risks on inland waters by inserting in s.8 two new subsections: (3) Unless it expressly provides otherwise, a contract of marine insurance protects the assured against losses on all inland waters (4) Unless the contract expressly provides otherwise or the context requires otherwise, all references in this Act and in a contract of marine insurance to the “sea” and the “seas” include references to inland waters • Were these sections in force, it is likely the decision would have been 4:1 in favour of the insurer!