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Section 54 encounters more turbulence - Does section 54 of the Insurance Contracts Act apply to an exclusion relating to a breach of a Civil Aviation Regulation?

Limiting your liability under the Civil Liability Act: who is your concurrent wrongdoer?

Section 54 encounters more turbulence

Does section 54 of the Insurance Contracts Act apply to an exclusion clause relating to a breach of a Civil Aviation Regulation?

Johnson v.  Triple C Furniture & Electrical Pty Ltd [2010] QCA 282

Facts

Mrs Johnson sustained serious injuries in an aircraft accident in which her husband, the pilot, was killed. She sued the owner of the aircraft (a company she controlled with her husband) alleging it was vicariously liable for the negligence of the pilot.

The owner joined the aircraft insurer as a third party claiming indemnity for any liability to Mrs Johnson. The insurer denied indemnity, relying on an exclusion that avoided cover where the aircraft was being operated in breach of a CA regulation. The regulation required the pilot to have satisfactorily completed an aeroplane flight review in the two years before the subject flight.

Trial

Mrs Johnson succeeded at trial and was awarded substantial damages. In order to exclude indemnity for that award, the insurer had the onus of proving that no flight review had been undertaken within the two years before the accident. It adduced evidence from the investigating loss adjuster that he had noted the pilot’s log book (which was recovered from the aircraft) did not record a review flight in the preceding two years. Neither the log book nor copies of its entries were produced at trial

The owner conceded it did not know the true position and did not call any evidence in rebuttal. Mrs Johnson gave evidence about the existence of a second log book but could not say what it contained. It was similarly not produced.

The trial judge found the insurer had not discharged its onus of proof and consequently could not rely on the exclusion clause. The trial judge also accepted there was a second log book and, as the first log book was out of date, he inferred the second log book was more recent. The insurer appealed.

Appeal

The appeal court overturned the trial judge’s finding and said the only sensible inference from the available evidence was that the log book recovered from the aircraft was the pilot’s current log book and, as it did not record a flight review in the preceding two years, the insurer was entitled to invoke the exclusion clause. Consequently, the insurer was able to deny indemnity for the claim unless section 54 of the Insurance Contracts Act precluded that result.

Materially, section 54 provides that if an insurer could refuse to pay a claim by reason of some act (or omission) of the insured or some other person after the policy was entered into, then the insurer may not refuse to pay the claim unless the act (or omission) could be regarded as the cause of the loss.

The owner argued that the pilot’s failure to satisfactorily complete a flight review was an omission within the meaning of section 54 and therefore the insurer was precluded from denying indemnity for the claim.

The appeal court found that section 54 did not apply for the following reasons:

• The pilot’s failure to comply with the regulation was not an omission within the meaning of section 54 because satisfactory completion of the flight test was not within the pilot’s control but was dependent upon the instructor’s assessment of his performance in a flight review. As a result, it was not something the pilot could omit to do under section 54.
• As the failure triggered an exclusion in the policy, there was simply no cover available. It was therefore an omission that was relied on by the owner to give rise to a claim that the owner could not otherwise make. Section 54 does not operate to relieve the insured of restrictions or limitations that are inherent in the claim but requires a claim for which the policy responds and an act or omission that founds the insurer’s refusal to pay the claim.

The appeal court said that if the above analysis was wrong, the omission was capable of causing or contributing to the loss and therefore entitled the insurer to deny indemnity.

The trial judge’s decision was therefore set aside.

Comment

The appeal court’s decision can be questioned on the following bases.

First, the exclusion clause requires the aircraft to be operated in circumstances where the pilot has not satisfactorily completed a flight review. The trigger for the exclusion is the positive act of operating the aircraft in those circumstances rather than an omission by the pilot to obtain the review.

Second, the essence of the insurer’s promise was to indemnify the insured for all sums it became legally liable to pay for bodily injury to passengers whilst on board the aircraft. It is arguable that the exclusion clause did not go to the essence or core of that promise (that is, an inherent restriction or limitation to the claim) but was simply the reason for the insurer’s refusal to pay an otherwise valid claim.

Third, in finding that the failure to satisfactorily complete a flight review in the previous two years was the cause of the accident ignores the evidence that the pilot had only operated the aircraft for six weeks, had not previously used the aircraft on a gravel airstrip, and appeared stressed at the time of takeoff.

It remains to be seen how the implications of this decision in relation to the operation of section 54 are addressed in future.

Limiting your liability under the Civil Liability Act: who is your concurrent wrongdoer?

GEJ & MA Geldard Pty Ltd v. Mobbs & Ors (No 2) [2011] QSC (11 March 2011)

A defendant has the onus of proving that its liability should be limited under part 2 of the Civil Liability Act 2003 (Qld) (CLA), to avoid having to pay 100% of the damages.

The plaintiff claimed its cotton crop had been damaged by the drift of herbicides resulting from the aerial spraying of neighbouring properties. The plaintiff sued eight defendants including the neighbouring owners, the aerial spraying operator, its pilot and the company supplying the herbicides.

Before trial, the plaintiff settled its claim with all defendants except the aerial spraying operator and the pilot. At trial, the court found the aerial spraying operator and the pilot negligent: having sprayed the chemicals in incorrect ratios and mixes and in inappropriate weather conditions. Damages in the sum of $467,187.45 were awarded.

A further hearing was held to determine first, if the liability for those damages could be reduced by the settlement sum previously received by the plaintiff and second, if the liability for damages could be apportioned between all defendants, including the defendants who had earlier settled with the plaintiff.

With respect to the first point, the court found that the earlier settlement was not a “judgment” against a concurrent wrongdoer within the meaning of section 32B of the CLA and was therefore not relevant to any apportionment question.

With respect to the second point, the court found that the onus was on the defendants who were attempting to limit their liability (the aerial spraying operator and the pilot) to establish that the proceedings were an “apportionable claim” under section 28 of the CLA and that the other defendants were “concurrent wrongdoers” under section 30.

The court agreed the claim was apportionable as it involved economic loss suffered as a result of damage to property caused by a breach of duty of care.

In determining if other parties are concurrent wrongdoers, it is necessary to determine what was “just” (and therefore “equitable”) in terms of what burden each party should bear for the full loss. For example:

• Which of the wrongdoers was more actively engaged in the activity causing loss?
• Which of the wrongdoers was more able to effectively prevent the loss happening?

In the instant case, the other defendants who settled with the plaintiff were not concurrent wrongdoers as there was no evidence led at trial and no findings were made to establish that the acts or omissions of those other defendants had caused the plaintiff’s loss and damage.

Implications

Negligent defendants pursued by a plaintiff must prove that the claim is one in which liability can be shared and that the court has made findings that the other parties have contributed to and caused the same loss to the plaintiff before they can limit their liability and argue what proportion of the loss they justly deserve to bear.
 

Questions of whether embarkation stairs were safe and caused a passenger to fall were not relevant in deciding if an “accident” had occurred in accordance with international air carriers’ liability principles.

On 2 May 2007, Mr Brannock (who was then aged 84) and his companion commenced embarkation of a Jetstar flight from Brisbane to Adelaide.

After presenting their boarding passes at the gate entry, a flight attendant directed them to descend a flight of stairs to the tarmac and board the aircraft.

When they reached the bottom of the stairs, they could not find an open exit door leading to the tarmac, and started back up the stairs. When other descending passengers offered to show them the way, Mr Brannock turned and began to descend the stairs again. In so doing, he fell to the foot of the stairs and was injured.   

In his statement of claim, Mr Brannock pleaded that his injuries resulted from an “accident” which took place in the course of embarking as prescribed by section 28 of the Civil Aviation (Carriers Liability) Act 1959 (CACL).

Section 28 of CACL, which closely follows article 17 of the Warsaw Convention as amended by the Hague Protocol, relevantly provides:

“… the carrier is liable for damage sustained by reason of … any personal injury suffered by the passenger resulting from an accident which took place … in the course of any of the operations of embarking …”

In its defence, Jetstar denied the injuries resulted from an “accident” within the meaning of section 28 because they were not the result of an unexpected or unusual event or happening that was external to Mr Brannock.

Mr Brannock filed a reply alleging a number of facts and circumstances which he claimed constituted an unexpected or unusual event or happening external to him. For example, he alleged that:

• he anticipated he would be able to board the aircraft by simply entering the air bridge;
• upon descending the stairs, there were no signs or servants of the carrier to direct passengers;
• he could not open the doors to the tarmac; 
• when he attempted to turn on the stairs, they were steep, had no handrails, had no non-slip nosings, and caused him to fall.

Jetstar filed an application to strike out the statement of claim as disclosing no reasonable cause of action and alternatively, sought summary judgment against the plaintiff.

The District Court dismissed Jetstar’s application on the basis that, until the relevant facts were ascertained at trial, it was not appropriate to strike out the claim on the grounds that the series of alleged acts or omissions leading to Mr Brannock’s fall were not unusual, unexpected or external to him.

The District Court said:

“There must be a reasonable expectation that an airline will provide safe access from the terminal to the aircraft. To conclude that the concept of ‘accident’ in section 28 did not extend to the provision of unsafe stairs, or a poorly designed set of stairs, which caused injury, would mean that passengers injured in transit would be precluded from compensation for the negligence of the airline, because the carrier’s liability under section 28 is in substitution for any liability under the common law. Such a result would be contrary to the intention and purpose of Part IV of the Act.”

Jetstar appealed to the Court of Appeal contending that the District Court allowed concepts of common law negligence to influence the characterisation of the alleged unsafe stairs as an unusual external event and the cause of the injury. Jetstar argued that the circumstances going to the safety of the stairs were not relevant and no event external to Mr Brannock had been pleaded.

On appeal, Mr Brannock argued that to deny him an opportunity of a trial to test his assertions about the state of the stairs giving access to the tarmac was unjust.

In a majority decision (2 to 1), the Court of Appeal allowed Jetstar’s appeal and found:

• the facts as pleaded by Mr Brannock did not constitute an event external to him;
• the stairs were an ordinary feature of embarkation; 
• Mr Brannock’s approach to embarking and using the stairs was peculiar to him; and 
• that the District Court erred when finding that the questions of whether the stairs were unsafe and caused Mr Brannock’s fall were questions of fact for a trial.

The Court of Appeal considered a number of international case authorities in determining the meaning of “accident” and determined the starting point was the decision in Saks v. Air France In that decision, the Court found “that liability under Article 17 arises only if a passenger’s injury is caused by an unexpected or unusual event or happening that is external to the passenger. This definition should be flexibly applied after assessment of all the circumstances surrounding the passenger’s injuries”.

The Court of Appeal referred to the decision in Povey v Qantas Airways Limited in which the High Court said “In Article 17, “accident” is used to refer to the event rather than the cause of the injury” and also warned that “there is no basis for introducing, for example, concepts of the common law of negligence to the construction or application of an international treaty”.

Significantly, the Court of Appeal referred to the comments by Justice Kirby in Povey, who said:

“If the outcome derived by these techniques (of interpretation) sometimes appear unjust to local litigants, the injustice may be called to notice by the Courts concerned. Sufficient criticisms by Courts and others may ultimately enliven the cumbersome process of treaty re-negotiation and amendment or national supplementation of treaty rights. This has happened in the past with the Warsaw Convention as the several schedules to the Carriers Liability Act illustrates. What is impermissible is an attempt to manipulate the language of the international treaty to avoid an outcome that seems harsh by contemporary domestic perspectives. Few developments would so undermine the growing development of international law as this”.

An air carrier will only be liable if the passenger proves there has been an “accident”.

Despite the long line of cases that have considered the meaning of “accident” under the Warsaw system, courts continue to struggle with the strict liability system and attempt to incorrectly import notions of fault into the concept of accident.

This decision also serves as a salient reminder for passengers to ensure that they have appropriate travel or personal accident insurance when flying.

If you have any questions regarding this alert please contact Kevin Bartlett on 07 3231 2496.