An insurance policy exclusion that operates by reference to the character of a relationship between the insured and the claimant (such as 'a person who normally lives with you') describes a state of affairs, not an 'act' within s 54(1) of the Insurance Contracts Act 1984 (Cth). Section 54 therefore does not prevent an insurer from relying on such an exclusion. For s 54(2) in the context of legal liability cover, the relevant act must be reasonably regarded as legally capable of satisfying the causation elements of legal liability, not merely capable of increasing the risk of financial loss (obiter, McLure P only).
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