It is a common provision in car rental agreements that if the car is damaged as a result of the driver breaching a law in force where the accident occurs, insurance coverage will not be available. The clauses are often drafted to cover a wide range of breaches of the law but that would almost always include an accident that occurs when the driver was “over the limit” for blood alcohol.
One of the features of the Insurance Contracts Act, which governs a number of classes of insurance policies including car rental agreements, is that if there is a “technical” breach of the policy, but that particular breach did not cause the loss or increase the risk of loss, the insurer may not be able to refuse cover. However, that principle only applies where a policy of insurance exists – as Gardam’scase shows, it has no application to a document (such as a rental agreement) that is not an insurance contract.
The relevant facts are fairly simple: Mr Gardam rented a car which he later rolled and damaged a van whilst driving in Tasmania. At the time his blood alcohol level was 0.053, but the legal limit was 0.050. He had a rental agreement containing a provision which said, in effect, he would be covered by an AVIS Insurance policy unless, relevantly, he had a blood alcohol content exceeding the state legal limit. The upshot was that the rental agency required him to pay for the costs of repairs.
The renter did not pay, the rental agency sued successfully for the cost of repairs, and the renter then appealed.
A particular provision of Tasmanian law rendered void, any clause in an insurance contract that purported to allow an insurer to avoid its contractual liability on the basis that a driver exceeded the legal blood alcohol limit in that state. The renter, therefore, argued that the documents he signed were an “insurance contract” so the fact that he (slightly) exceeded the legal blood alcohol limit did not entitle the rental agency to avoid insurance cover. The Full Court of the Tasmanian Supreme Court disagreed. It distinguished between the rental agreement (which contained a “waiver” clause); and an insurance contract. On the evidence in this case, the provision that meant the renter did not have insurance cover, was a provision in a rental agreement not a provision in an insurance contract. The provision of Tasmanian law, therefore, did not apply; nor was the broader power under the Insurance Contracts Act available to enable the renter to argue that whilst the excessive blood alcohol reading existed, it had little or no impact on causing the collision and the insurer should not be allowed to avoid payment.
Although the distinction between the two types of documents is fairly technical, it is nonetheless a very important one in real life. Had the particular clause in this case been part of an insurance contract, it is highly likely the renter would have had insurance cover. However, because it was a clause in the rental agreement, the renter did not have insurance and found himself liable for the costs of repairs. The position may be different in other circumstances depending on what particular documents are signed when a vehicle is rented – so if cover for an accident is declined, it may be worth looking carefully at the nature and content of the documents, since insurance cover may, in fact, be available: Gardam v WTH Pty Ltd  TASFC 10.