Contents
Flying by the Seat of Their Pants
More than She Bargained For
Bounced
Black Ice
Uberrima Fides
Third Parties & Good Faith
Odd Spot

The owner of a light aircraft insured it under an aircraft hull policy.  Cover was for 12 months but payment of the premium was by way of three instalments.

The first instalment was received 10 days late.  The second instalment was received over seven weeks late, and even then only after the insurer chased up payment.  The third instalment was over six weeks late.

Andrew Lyle
Partner

The policy was then renewed.  The first instalment of the renewed policy premium was over six weeks late.  The second instalment was never paid, despite the insurer chasing payment.  Four weeks after the third instalment (also unpaid) was due, the aircraft was destroyed in an accident.

The insured claimed on the policy.  The insurer denied the claim, relying on the following condition in the policy:

“...it is a condition that in the event of any instalment not being paid by its due date the cover afforded by this Policy shall be deemed to have ceased at midnight of such due date”.

The insured sued the insurer in the New South Wales Supreme Court.  The judge noted that the Insurance Contracts Act makes a clear distinction between cancelling the policy for failing to pay an instalment and refusing a claim for non‑payment of an instalment.  Moreover, the policy was not an instalment contract within the scope of section 39 of the Act - which governs the refusal of claims for non-payment under an instalment contract - because under the Act an instalment contract must involve at least seven instalments, whereas here there were only three. 

The Court found that the effect of the policy condition was that the cover had ceased when the second instalment was not paid by the due date and, because it was not subsequently paid, cover had never been revived.

However, the Court went on to find that the insurer’s conduct in previously accepting late payments estopped in from relying on the breach of the policy condition to deny the claim.  The Court noted that both the insurer and the insured had conducted themselves on the basis that punctual payment of the premium instalments was not essential to the maintenance of cover under the policy. For the insurer to rely on late payment as a ground for denying cover, it would have had to have told the insured that it would no longer accept late payments.

Query whether the insured should also have run an argument under section 54 that his “omission”(non‑payment of the instalment) occurred after the policy commenced and did not cause the loss, so the insurer could only reduce payment to the extent of any prejudice, but could not refuse the claim:  Waterman v Gerling Australia.