Section 45 of the Insurance Contracts Act 1984 (Cth)
regulates the enforceability of what are known as 'other
insurance' provisions. An 'other insurance' provision
is a provision in a contract of insurance that excludes cover to an
insured for a liability in respect of which the insured is covered
under some other contract of insurance.
Section 45 of the Insurance Contracts Act
Section 45(1) is expressed in the following terms.
Where a provision included in a contract of general
insurance has the effect of limiting or excluding the liability of
an insurer under the contract by reason that the insured has
entered into some other contract of insurance... the provision is
The reach of the section has been examined by State courts in
recent times. The issue has been whether the section should be
given a strict interpretation or liberal interpretation.
The strict interpretation is that the section only renders void
an 'other insurance' provision to the extent that it
applies to some other contract of insurance the insured has
actually entered into.
It follows that the section only renders void an 'other
insurance' provision to the extent that it excludes cover for a
liability covered under some other contract of insurance to
which the insured is a contracting party.
The practical result of this interpretation is that the insurer
can decline cover where the insured is entitled to cover under some
other contract of insurance, only if the insured was a contracting
party (as opposed to a third party beneficiary or even
'additional insured'). In this instance, the insurer can
force the insured to seek cover under the other contract of
In Speno Rail Maintenance Australia Pty Ltd v Metals &
Minerals Insurance Pte Ltd  WSCA 31, the Full Court of
the Supreme Court of Western Australia adopted the strict
The liberal interpretation is that the section renders void an
'other insurance' provision to the extent that it applies
to some other contract of insurance under which the insured is
entitled to cover.
It follows that it is immaterial how the insured came to be
entitled to cover under the other insurance. It is enough that a
third party entered into the other contract of insurance on behalf
of itself and the insured or that the insured is covered under the
contract by operation of an extension (e.g. a principal's
This encompasses almost every 'other insurance'
The practical result of this interpretation is that the insured
is free to choose which contract of insurance it seeks cover under.
The insurer must pay and seek contribution from the other
In HIH Casualty & General Insurance Ltd v Pluim
(2000) 11 ANZ Ins Cas 61-477, the NSW Court of Appeal's
decision was consistent with a liberal interpretation although the
Court did not expressly consider this issue.
Although the liberal interpretation does not conform strictly to
the words of the section, it is arguably more consistent with the
intent of the section.
The section was seemingly meant to be remedial, given the
Australian Law Reform Commission report from which it stems. It was
meant to render void any 'other insurance' provision to the
extent that it applied to some other contract of insurance under
which the insured was entitled to cover. The circumstances in which
the insured came to have the benefit of cover were seemingly not
meant to be material.
However, as is often the case, the drafting of the section did
not achieve this purported intention.
High Court to decide
On 31 July 2009, the High Court granted leave to appeal from the
decision in Speno so far as it concerns the interpretation
of the section.
This means the High Court will have the final say as to whether
the strict interpretation or liberal interpretation should be
followed throughout Australia.
The High Court may also comment on a range of other issues
traversed in Sepno including the time when the effect of
an 'other insurance' clause is to be determined, the
severance of the void part, specification of underlying insurance,
utmost good faith where contribution is claimed in the face of a
waiver of subrogation, and the right of subrogation where
contribution has been paid.
The High Court is to hear the appeal in the October sittings of
the High Court at Perth and so a decision should be handed down
early next year.
Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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