Panellists ask – does Maxwell change the rules?

Is the High Court’s decision in Maxwell v Highway Hauliers a game changer?

The answer differs, depending what hat you wear. That was the consensus from an AILA Queensland panel discussion on the impact of the decision and the consequences for s54 of the Insurance Contracts Act.

Moderator Richard Douglas QC said interpretation of s54 was even more vexed after the Maxwell decision, but it did resolve some issues. He was surprised by the brevity of the High Court of Australia’s (HCA) judgement, and speculated that perhaps HCA judges had reverted to hand writing their decisions.

Noel Smith, National Transport Insurance’s national manager - underwriting operations, told the panel the HCA decision many have provided some clarity on s54, but insurance still had many grey areas. However, the days of insurers trying to rely on exclusions to reject claims on a questionable basis were gone.

Western Australian-based interstate transport business Highway Hauliers was insured with Lloyd’s underwriters. The policy included an exclusion for B-double trucks unless drivers had achieved a specified driver profile score on psychological testing on attitudes to safety, known as a PAQS test.

Highway Hauliers had two separate claims for incidents on June 16, 2014, and April 2, 2005. Neither driver had undertaken a PAQS test. The insurers denied the claims on that basis.

The insured was successful in the WA Supreme Court and the Appeal Court. The insurers conceded the fact the drivers were untested did not cause or contribute to the losses. The insurers also conceded they were not prejudiced by that failure.

The question for the HCA was whether s54 (1) was engaged. The judges found because Highway Hauliers made claims seeking indemnity for accidents that occurred during the period of insurance, that was sufficient to engage s54 (1) so the insurers “may refuse” to pay those claims only for acts that occurred after the contract was entered into.

Highway Hauliers’ omission to ensure drivers were tested occurred during the period of insurance.

Mr Smith said the decision revolved around causation. Was the act or omission relevant to the loss?

Highway Hauliers was a high-risk client, with very expensive trucks – each could be valued at $1 million on the road - travelling between Perth and Sydney. It had “a large and problematic claims history”.

Mr Smith said as a transport underwriter, he queried the value of the PAQS test. “Is it a silver bullet for quality?”

His advice for insurers was to:
• Pick your fights;
• Consider your risk appetite and whether to decline high risks;
• Examine the underwriting process – identify high risks and prove prejudice;
• Have written guidelines for risk acceptance and proof;
• Increase premiums and excesses for high-risk clients;
• Examine wordings, scope of cover is relevant;
• Don’t rely on exclusions – causation is always relevant; and
• Implement risk management – partner with clients to agree on exclusion standards.

Willis’s Qld general manager Paul French argued Maxwell changed nothing. “The grey areas continue. Insurance contracts are always open to interpretation and each loss is different from the last,” he said.

“When an event occurs you need to look at the circumstance and the policy wording.” He conceded Maxwell reinforced that insurers declined claims at their own peril.

There was a need to bring wordings in line with that was intended to be covered. “We need to put more time into comparing insurers’ offerings at placement, even with broker-prepared wordings.” Clarity of cover was “impossible, but we must get as close as possible before policy inception”.

Mr French urged brokers to analyse clients and their businesses and obtain quality underwriting data. “That process will be more important going forward, but it is business as usual for brokers.”

He suggested scaled excesses for drivers who had not passed PAQS tests or restricted policy limits, in the same way that more coverage was available to properties with burglar alarms fitted.

But he acknowledged competitive forces often outweighed other issues. Brokers were seeking the best options as the market ebbed and flowed.

He said insurers may rely on other remedies, for example, s28, which covered nondisclosure and misrepresentation.

DLA Piper partner Sophie Devitt said Maxwell was “a shift” in interpretation of s54, but not a dramatic shift. “It’s more generous to insureds, but we were already there before this decision.” The HCA had focused on substance over form in policy wordings.

Underwriters that tried to control risk purely through exclusion clauses may be “unnerved”, but those that followed normal underwriting processes would be less concerned.

In Maxwell, the insurers had not argued causation. If an exclusion were important it should impact on the risk.

She advised insurers to: “Get your head around what is the risk we are writing? What information do we need to underwrite it? Is it better to have questions in the proposal to get the information required before inception?”

She said Maxwell highlighted the importance of understanding the risk. “Focus on policy drafting and supporting evidence for prejudice.”