In the March 2009 edition of Legal Directions, we reported on the decision of the Western Australian Court of Appeal in the above case. Parts of the Court of Appeal's decision have now been appealed to the High Court which delivered its judgment on 2 December 2009. The decision of the Court of Appeal has been upheld with the High Court finding that 'other insurance' clauses are void only where the insured is a party to the other insurance contract and that parts of an 'other insurance' clause which do not have this effect remain valid.

The appeal to the High Court

In the High Court, Zurich challenged the finding of the judge at first instance that section 45 of the ICA only applied where the insured was a contracting party to the other insurance, arguing that it also applied where the insured was merely a beneficiary of the other insurance.

Zurich also challenged the Court of Appeal's finding that part of an 'other insurance' provision could be severed, leaving another part unaffected by section 45.

The High Court unanimously agreed with the view of the judge at first instance (unchallenged before the Court of Appeal) that section 45 of the ICA only applied where the insured was a contracting party to the 'other insurance'. French CJ, Gummow and Crennan JJ reached this conclusion after an analysis of the Australian Law Reform Commission's 1982 Report on Insurance Contracts which gave rise to the ICA, the Explanatory Memorandum to the Insurance Contracts Bill and sections 11 (non exhaustive definition of 'entered into'), 48 (rights of non contracting beneficiaries), 56 (fraudulent claims) and 76 (contribution claims) of the ICA. Hayne and Heydon JJ simply found that this was the ordinary meaning of the expression used in section 45, 'the insured has entered into some other contract of insurance'.

With regard to the second issue, the High Court was also unanimous in finding that the effect of section 45 was only to render the 'other insurance' clause void to the extent that it concerned situations in which the insured was a contracting party to the other insurance. French CJ, Gummow and Crennan JJ reached this decision on the basis that the part of the clause concerning contracting parties and the part concerning beneficiaries were both 'provisions' of the contract and that only the provision relating to contracting parties was rendered void. Hayne and Heydon JJ found that section 45 'directs attention to a particular operation which the contract would have according to its terms [and] renders that operation of the contract void'.

Conclusion

It is helpful for the insurance industry to have these matters definitively clarified by the High Court. It appears to be acknowledged in the following passage from the decision of French CJ, Gummow and Crennan JJ, however, that the effect of s45 is too narrow to fully remedy the problem which the ALRC intended to address:

There is no distinction made in the [ALRC] Report or the Explanatory Memorandum between "other insurance" provisions purporting to affect double insurance which included non-party insurance, and double insurance where the insured is a party to the relevant contract. ... However, notwithstanding the generality of the mischief to which section 45 was directed, the words "entered into" are not capable of encompassing a non-party insured.

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