Insurer not entitled to deny coverage for jet ski accident
The recent decision of the Supreme Court of the ACT in Whittington v Smeaton  ACTSC 76 serves as a timely reminder of the breadth and application of Section 54 of the Insurance Contracts Act 1984 (Cth) (ICA).
On 27 November 2010, the plaintiff was water-skiing with brothers, Todd Smearton (the first defendant) and Scott Smearton (the second defendant), at the Ross River reserve, near Townsville, Queensland. The plaintiff was acting as a spotter on the back of a jet ski driven by the second defendant. The jet ski was owned by the first defendant, who was water-skiing behind the jet ski.
The plaintiff had very little boating experience and no experience of jet skis or water-skiing. The second defendant explained to the plaintiff that as spotter his role was to notify the driver if the skier fell off and, if the towrope was not in use, to pull it up to take the slack out of the rope so that it did not get caught in the jet ski propulsion system.
The first defendant fell whilst water-skiing. As instructed, the plaintiff notified the second defendant and leaned forward to take the slack out of the rope. He reached far enough towards the back of the jet ski that his bottom was off the seat. As the jet ski was turned around to pick the first defendant up, it struck the wake of another boat and the plaintiff fell into the water. The plaintiff’s leg became entangled in the towrope and his foot was traumatically amputated.
The plaintiff commenced proceedings against the first and second defendants in the Supreme Court of the ACT for damages in negligence.
The first defendant held a “Club Marine” policy of insurance with Allianz Insurance Australia Limited (Allianz). The defendants commenced third party proceedings claiming an indemnity from Allianz.
Quantum was agreed in the sum of $800,000.
Were the defendants negligent?
The experts called on behalf of the plaintiff and Allianz both gave evidence that the plaintiff should have been instructed to not try to pull the towrope in until the jet ski was nearly stationary. The trial judge held that a reasonable person in the position of the defendants would have taken the precaution of ensuring that the plaintiff understood that he only needed to lift the towrope away from the rear of the jet ski when it was almost stationary, because that was the only point at which there was any appreciable risk of it becoming entangled in the propulsion system of the jet ski. Given that the plaintiff was a rearward facing passenger and was unable to hold on to the person in front, the trial judge also found that the defendants ought to have given the plaintiff some warning about holding on and some direction as to the options for doing so. The trial judge found that the second defendant ought to have taken the additional precautions of warning the plaintiff of approaching conditions and avoiding sudden movements of the jet ski which had the potential to unbalance the plaintiff.
Was the plaintiff engaged in a dangerous recreational activity?
The defendants relied on sections 17 to 19 of the Civil Liability Act 2003 (Qld) (the CLA), which provide the basis for a defence in relation to dangerous recreational activities, allowing that there is no liability for harm suffered as a result of the materialisation of an obvious risk of a dangerous recreational activity. Both experts gave evidence that acting as an observer on a jet ski was not an activity that involves a significant risk of harm. The trial judge concluded that the plaintiff was not engaged in a dangerous recreational activity and the defence in sections 17 to 19 of the CLA was therefore not triggered.
Judgment was entered for the plaintiff against the defendants in the sum of $800,000.
Was Allianz entitled to deny indemnity?
The policy contained an exclusion clause which excluded any claim arising from an incident involving the jet ski when it was under “the control of an unlicensed person when a licence is necessary”. Under Queensland law, a user of a personal watercraft (PWC) was required to either have a Queensland PWC licence or a current equivalent licence under a law of another State.
Although the second defendant held a New South Wales boating licence at the time of the incident, he did not hold a PWC licence. Allianz relied on the exclusion clause in order to deny indemnity on the basis that the second defendant was not licenced to drive the jet ski under Queensland law. The principal issue between the defendants and Allianz was whether or not section 54 of the ICA entitled Allianz to deny indemnity for that reason.
Neither the defendants nor the plaintiff contended that the requirements of section 54(2) of the ICA were not satisfied. The claim by the defendants against Allianz therefore turned upon whether the defendants could prove for the purposes of section 54(3) of the ICA that no part of the loss that gave rise to the claim was caused by the act of the second defendant driving the jet ski while unlicensed.
Allianz gave substantial evidence about the regulatory regime that governed the issuing of PWC licences in Queensland. Allianz submitted that some of the errors on the part of the defendants which led to the incident were addressed in a course that was required under Queensland law in order to obtain a PWC licence and that the defendants had therefore failed to prove that no part of the loss that gave rise to the claim was caused by that act. However, the trial judge noted that:
- There was nothing in the BoatSafe Competency Standard or the PWC licence course regarding water-skiing or rearward facing observers; and
- The course was directed largely at first-time PWC users and would have involved driving a jet ski for 10 to 20 minutes.
The second defendant gave evidence that he had obtained a NSW boating licence at age 16 and had operated a jet ski on hundreds of occasions prior to the incident – in open and closed waters, with waves and without, with and without towing water-skiers. Having regard to the second defendant’s experience, skill and attitude in relation to driving a jet ski, the trial judge found that on the balance of probabilities the obtaining of a Queensland licence would not have made any difference to the loss suffered by the plaintiff. He held that no part of the loss that gave raise to the claim was caused by the unlicensed driving of the jet ski and therefore section 54(3) had the effect that Allianz could not refuse to pay the claim by reason of that act.
Judgment was entered for the defendants against Allianz in the sum of $800,000.