New South Wales Court of Appeal CITATION : Hansen Development Pty Limited v MMI (Australia) Pty Limited & Anchorage Marine Underwriting Agency Pty Limited. [1999] NSWCA 127 FILE NUMBER(S) : CA 40058/97 HEARING DATE(S) : 25 February 1999 JUDGMENT DATE : -1 January -1 PARTIES : Hansen Development Pty Limited (ACN 000 694 986) v Mercantile Mutual Insuarnce (Australia) Limited (ACN 000 456 799) & Anchorage Marine Underwriting Agency Pty Limited (ACN 001 829 063) JUDGMENT OF : Priestley JA at 1; Meagher JA at 2; Stein JA at 17 LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : DC 286/92 Wollongong LOWER COURT JUDICIAL OFFICER : P.R. Bell DCJ COUNSEL : Appellant: P.E. King/J.Watts Respondent: A.W.Street/J.G. Chapman SOLICITORS : Appellant: Attwood Marshall by their city agents Norton Smith & Co. Respondent: McCulloch & Buggy CATCHWORDS : Insurance; Marine Insurance Act; Insurance Act; interpretation of insurance policy Marine Insurance Act, 1909 ACTS CITED : Marine Insurance Act, 1909 Insurance Contracts Act 1984 DECISION : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA: 40058/97 CORAM: PRIESTLEY JA MEAGHER JA STEIN JA Wednesday 23 June 1999 HANSEN DEVELOPMENT PTY LIMITED v MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LIMITED & ANOR JUDGMENT 1 PRIESTLEY JA: I agree with Meagher JA. 2 MEAGHER JA: This is an appeal arising out of proceedings which were initiated by a Miss Marie Corby as plaintiff. There was only one defendant to her original District Court Statement of Claim, namely the present appellant Hansen Development Pty Limited. It traded under the name Cabarita Gardens Lake Resort. She claimed damages for injuries received as a consequence of the defendant's negligence or breach of contract in operating something called a "wave sled ride" at the defendant's resort situated at Cugden Lake, which is in New South Wales. Wave sledding is akin to aquaplaning, and is not akin to water-skiing. That was decided by this Court in Anchorage Marine Underwriting Agency Pty Limited v Bill Stanley (unreported, 18/9/1996). 3 The defendant filed a Notice of Grounds of Defence denying liability and also issued a Third Party Notice against its insurer, Mercantile Mutual Insurance (Worker's Compensation) Limited, (the First Third Party), claiming breach of a contract of insurance by refusal to indemnify and also alleging negligent advice by the Third Party through its agent Anchorage Marine Underwriting Agency Pty Limited, the second respondent to this appeal. It later issued a Third Party Notice (the Second Third Party Notice) against Anchorage Marine Underwriting Agency Pty Limited directly, alleging negligent advice and failure to effect adequate insurance cover. The First Third Party amended its grounds of defence to allege failure of the defendant to comply with certain clauses in the policy of insurance and failure to pay the insurance premium on time; to which the defendant filed a reply which alleged (inter alia) that the policy was governed by the Insurance Contracts Act and not the Marine Insurance Act. The Second Third Party filed a Notice of Grounds of Defence which mainly put in issue the allegations contained in the second Third Party Notice. 4 At an early stage the issues between the plaintiff and the defendant were settled, leaving the judge, Philip Bell DCJ, to decide all issues between the defendant and the respective third parties. This contest ultimately resolved into a victory for the third parties on the most important issues. From that contest the present appeal between the defendant (the appellant) and the third parties (the respondents) arises. 5 The first matter to discuss is the nature of the insurance policy between the parties. The accident on which the plaintiff sued having taken place on 22 February 1987, the parties are agreed that the relevant policy was one dated 24 December 1984 and was due to commence on that date. The formal parts refer to such items as "vessel name", "hull details", "motor details", "navigation warranties", and after a limitation on the "maximum speed of the vessel not to exceed" are typed the words "40 knots". There is a typed warranty which is as follows: "Warranted: That Sections 1 + 2 of the Policy are deleted, the Policy being restricted to Third Party only. Further Warranty 1 is amended to permit Commercial Water Skiing and hire of the vessels as per approvals notwithstanding all other terms and conditions." 6 It also includes the following terms: "It is hereby noted that Section 3 of the within Policy is increased to $500,000 and in respect of the above described Flightcraft Vessels (registered numbers GF 166N and GF 165N) the cover is further extended to include Commercial Water Skiing and Commercial Paraflying. In the event of GF166N or GF165N being removed from service it is further noted that 15ft ski Nymph, registered number GF 167N, may be substituted in respect of Section 3 of the policy only. The maximum number of vessels to which Commercial Skiing and Commercial Paraflying P&I Cover shall be extended, being limited to two only, as earlier described. It is further noted that section 3 of the within Policy is extended to include Commercial Water Skiing only, in respect of Hallet Runabout, registered number EJ753N. Cover in respect of this vessel being restricted to Section 3 only. It is further noted that Section 3 of the policy is increased to $500,000 and shall apply in respect of 30 unpowered Hire Craft, used as Hire craft as per permit. In respect of the aforementioned adjustments and extensions it is to be noted that Section 3 of the Policy remains limited to $500,000 in respect of any one accident or series of accidents arising out of the same event. Policy Excess: The Policy excess of $250 applies to each and every claim." 7 In order to decide whether the policy is a policy of Marine Insurance or not, some attention will have to be paid to the content of section 1 and 2. Section 1 (insofar as relevant) says: "Section 1 -Physical Loss or Damage Subject to the terms, conditions, exclusions and warranties appearing in this Policy, this Policy insures the Vessel up to the amount of the Sum Insured specified in the schedule against physical loss or damage EXCEPT to the extent that such physical loss or damage is in the nature of occurs or in any way results from: 1. Outboard motors dropping off or falling overboard unless bolted through the transom or attached by some additional method to that required by the manufacturer. 2. Mechanical and/or electrical breakdown, weathering, wear and tear, deterioration, vermin, borers or marine growth. 3. Loss or damage to sails and protective covers split by the wind or blown away while set, unless in consequence of damage to the spars to which the sails are bent. 4. The cost of repairing or replacing any part condemned solely in consequence of a latent defect or costs incurred solely in remedying a fault or error in design or construction. 5. The cost of rectifying any damage or defect following maintenance repair or alteration work. 6. Additional expenditure incurred by reason of improvement or alteration in design. 7. Theft of the Vessel's machinery gear or equipment, including any of the property referred to in the Schedule, unless following upon visible forcible entry in to the Vessel or place of storage. 8. Theft of the Vessel when not afloat unless reasonable precautions have been taken to secure the Vessel or any part thereof in such a way as to prevent the removal thereof. 9. Damage to any boiler caused by stress except in time of peril. 10. Parts that are not in accordance with the manufacturer's original specifications." 8 Section 2 deals with salvage charges and other similar expenses. Section 3 in its unamended form, says as follows: "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, we will pay to you or on your behalf all such sums up to the limit specified in the Schedule in respect of any one accident or series of accidents arising out of the same event. In addition, we will pay all legal costs and all charges and expenses incurred with our written consent or which may be ordered to be paid in respect of any legal action which is defended with our written consent. Our liability under this Section shall, in the event of more than one claim arising out of the same happening, occurrence or event, be limited to the total amount of the Sum Insured. The indemnity granted by this Section shall extend to any person navigating or in charge of the Vessel who is legally competent to do so and who has your permission provided that: 1. Such person has not been refused any type of liability insurance of the continuation thereof, 2. Indemnity is not granted against liability which at the time of the occurrence giving rise to a claim is otherwise insured. Exclusions to Section 3: We shall not be liable for any claims in respect of death or bodily injury to any person or damage to property made against you or any other person indemnified under this Section: 1. Arising out of water skiing, aquaplaning or paraflying or any aerial sport or activity involving the towing in the air of any person or object, or any other similar sport or recreational pursuit unless the cover provided by this Policy is extended by written endorsement and by payment of the required additional premium PROVIDED THAT any such extended cover shall be excluded if there is not aboard the Vessel a competent observer in addition to the person driving the Vessel." 9 The contract of insurance, therefore, indemnifies Hansen Development Pty Limited against liability for injuries suffered as a result of its "boats"; little, if anything, else; and that, only if incurred as a result of "water ski-ing". It is as Mr King SC, learned senior counsel for the appellant, asserted, a public liability policy. A question which arises, however, is whether it is also a contract of marine insurance; or, more appropriately, a contract to which the Marine Insurance Act 1909 applies. That is a question which in my view it is difficult to answer. Certain provisions of the Act should be set out. Sections 7, 8 and 9 of the Act are in the following form: "Marine Insurance defined 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. "Mixed sea and land risks 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 any sea voyage. "(2) Where a ship in course of building, of 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. "Marine adventure and maritime perils defined 9.(1) Subject to the provisions of this Act, every lawful marine adventure maybe the subject of a contract of marine insurance." "(2) In particular there is a marine adventure where: (a) any ship, goods, or other moveables are exposed to maritime perils. Such property is in this Act referred to as "insurable property." (b) the earning or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loan, or other disbursements, is endangered by the exposure of insurable property to maritime perils; (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. "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 detainment's of princes and peoples, jettisons, barratry, and any other perils, either of the like kind, or which may be designated by the policy." 10 Section 4 might also be of passing relevance. It says: "Saving of rules of common law The rules of the common law, including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, shall apply to contracts of marine insurance." 11 It will be observed that, despite the heading of s.7, that section hardly qualifies as a description. The whole Act appears to assume that the established English law of marine insurance still exists, and supplies the answer to the question. If so, the answer to the question whether the Maritime Insurance Act applies must be in the negative. English law seems to have proceeded on the basis that any policy in or to the effect of an "SG" policy (or its later replacements) was a "marine" policy: see, generally, Arnould on Marine Insurance, sixteenth ed. Chapter 1. A marine policy, so understood, covered all sorts of misadventures which might be sustained by a vessel: storm, tempest, fire, collision, average, damage to cargo etc., in fact almost everything except death or injury to third parties. Indeed, in some policies, they were specifically excluded: see, for example,pages 101 and 172. In the whole of Arnould's work I have not located a single example of a public liability risk being treated as a marine insurance risk, let alone a policy dealing with nothing but public liability being treated as a marine policy. Particularly must this be so when no "sea" is involved: Cugden Lake can hardly be said to be a "sea". 12 The next question is whether the injury was covered by the policy. His Honour held that it was not. In this regard, so it seems to me, His Honour was clearly correct: "aquaplanning" would have to be endorsed on the policy in order to be covered, and it was not; and, for that matter, to make things worse, the use of the wave sled was not covered by the policy. His Honour therefore held that the First Third Party was entitled to a verdict in its favour. Moreover, if this be so, there can be no way the defendant could succeed against the First Third Party. 13 There was much debate as to whether there was a breach of either (or both) Regulation 6 or Regulation 8 of the Water Traffic Regulations. The former, in effect prohibits the towing of more than three people when one is conducting an aquaplaning exercise. The latter requires a person who conducts such an exercise to have an aquatic license from the Maritime Services Board. The consequences of breach of either regulation would be of some importance if the defendant's insurance policy were governed by the Marine Insurance Act, as that Act might possibly have the effect of invalidating the policies if it applied. However, as in my view a) the Act does not apply, and b) the insurance policy did not cover the risk, I see no point in considering the matter. 14 His Honour held that the Second Third Party, the insurance broker, was liable to the defendant. There would be no reason to dispute this. Shortly after 7 December1985 the defendant wrote to the Second Third Party a note in the following terms: "Ross, further to our phone conversation on 7/12/85 pls (sic) find enclosed cheque for $3,074.51 for renewal of our policy also pls (sic) include that Water Skiing includes any form of Towed rides (except aerial equipment) eg. Tube, Toboggan and Wave Sled. Thank you Lance K Hansen" 15 His Honour held that the Second Third party either refused to follow its instructions or alternatively falsely represented it had done so. In either case it must be negligent. However, the trial judge thought there was no damage. On the view I take, the reason he gave has no application. If the second third party had done as it was asked, the defendant would have been covered. 16 I would therefore make the following orders in favour of the appellant: 1. Appeal allowed against the second respondent, Anchorage Marine Underwriting Agency Pty Limited. 2. Judgment of P R Bell DCJ dated 13 January 1997 in proceedings 286 of 1992 at Wollongong for the second Third Party, Anchorage Marine Underwriting Pty Limited, set aside. 3. In lieu thereof, judgment against the second respondent in the amount of the settlement agreed by the appellant/defendant with the plaintiff together with the costs incurred in defending the action and interest. 4. Costs of the appeal including the hearing of the Bullock order to be paid by the second respondent. 17 STEIN JA: I agree with Meagher JA. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.