Australia: Lost Policies And The Onus Of Proof

Insurance Update

The High Court has recently held that an insurer bears the onus of proof when asserting the applicability of an exception that precludes entitlement to indemnity or the existence of a limit of liability.

Mr Stewart was exposed to asbestos during the course of his employment with Pilkington Bros (Australia) Limited (Pilkington). He developed mesothelioma and commenced proceedings against Pilkington, QBE Insurance (Australia) Limited (QBE) (as insurer of Pilkington) and Wallaby Grip Limited (Wallaby) (the manufacturer of the products containing asbestos). Mr Stewart died before the matter was heard. The proceedings were continued by Mr Stewart's wife in her capacity as legal representative of his estate.

At the time of Mr Stewart's employment, it was a requirement of the Workers Compensation Act 1926 (NSW) (the Act) that an employer obtain a policy of insurance or indemnity from a licensed insurer in respect of the employer's liability at common law for any injury to a worker. Section 18(1) of the Act provided:

"Subject to (1A) of this section, every employer shall obtain from an insurer licensed under this Act to carry on business in the State, a policy of insurance or indemnity for the full amount of his liability under this Act to all workers employed by him and for an amount of at least forty thousand dollars in respect of his liability independently of this Act for any injury to any such worker and shall maintain such policy in force."

In the proceedings against Pilkington, Mr Stewart alleged the existence of a contract of insurance by which Pilkington was entitled to be indemnified against its liability for damages arising independently of the Act. During his employment, Pilkington indeed had a policy of insurance or indemnity of the kind required by the Act – it had a policy of insurance with Eagle Star Insurance Ltd (Eagle Star) (the Policy). QBE, as successor to Eagle Star, admitted the existence of the Policy and that it was responsible to meet any liability of Eagle Star to indemnify Pilkington, but it did not admit the Policy extended beyond the statutory minimum.

A Notice to Produce was issued to obtain a copy of the Policy, but it was not produced.

The Tribunal was asked to rule on which party had the onus of providing the monetary limit of the indemnity. The Tribunal concluded that at least an "evidentiary onus" lay upon QBE because it was asserting a limit to its liability.

QBE appealed to the NSW Court of Appeal. The Court of Appeal found the trial judge had erred:

"Where the extent of the cover is defined by a maximum amount it may be said that cover is limited to that amount but that is not to categorise that amount as an exception to, condition of or limitation to cover. It is an essential part of the primary obligation to insure."

The High Court granted special leave to Wallaby to appeal the decision of the Court of Appeal. Contrary to the Court of Appeal, the High Court considered it necessary only for Mrs Stewart to establish that a contract of insurance under the Act was in existence at the relevant time and that Pilkington was liable to her husband for his injuries. The first was admitted, the second was established by evidence. It followed that the claim was within the terms of the cover provided and the insurer's obligations arose.

The High Court distinguished between asserting the applicability of an exception (to preclude an obligation to indemnity from arising) and the existence of a limitation (which would not preclude the obligation to indemnify from arising but would limit the amount payable).

While a limitation could be placed upon the extent of the indemnity for the amount for which the employer was liable (according to a judgment or other determination) that existence of a limitation did not prevent the obligation to indemnify from arising:

"Where an indemnity is limited to payment of a specified maximum sum, proof of actual loss will identify whether all or part of the loss is recoverable, but that is merely a practical consequence. It does not reflect a condition of the insurance contract."

However, the distinction between an exception and a limitation of liability was of little practical significance in the subject appeal as the High Court held that in each case (whether alleging the application of an exception or the existence of a limit of liability) the insurer bears the onus of proof:

"The legal burden of proof arises from the principle: he who alleges must prove."

Consequently, QBE had to do more than decline to admit that Pilkington was entitled to an indemnity greater than the statutory minimum. It was required to establish what limit, if any, had been placed upon its liability to indemnify. It did not do so. Consequently, the High Court allowed the appeal.

This case illustrates that insurers, insureds and brokers should all be careful that policies of insurance (regardless of how old) are kept safely and within reach, as failure to do so may well prevent an insurer from relying on an exclusion or applying a limit of indemnity to cap the amount claimed.

Wallaby Grip Ltd v QBE Insurance (Australia) Ltd; Stewart v QBE Insurance (Australia) Ltd (2010) 264 ALR 425

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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