This case involved an indemnity dispute between Zurich
Australian Insurance Ltd (Zurich) and Metals &
Minerals Insurance Pte Ltd (MMI), where there were
two insurance policies that could respond to a claim for personal
injuries suffered by employees of Speno Rail Maintenance Australia
Pty Ltd (Speno) whilst working for Hamersley Iron
Pty Ltd (Hamersley). The Western Australian Court
of Appeal provided further guidance on the effect and
interpretation of s45 of the Insurance Contracts Act 1984
(Cth) (Act) and dealt with the issue of
Speno agreed to indemnify Hamersley in respect of liability
arising from personal injury to Speno's employees
(contractual indemnity), and also added Hamersley
as an insured under Speno's public liability policy held with
Hamersley was later found liable for personal injuries suffered
by two of Speno's employees. Pursuant to the indemnity provided
to Hamersley, Speno and Zurich were ordered to indemnify Hamersley.
However, Hamersley also had a public liability policy with MMI
under which it did not make a claim for the injuries suffered by
Speno's employees because that loss had already been covered by
the contractual indemnity.
Accordingly, Zurich covered the losses resulting from the
workers' injuries pursuant to the contractual indemnity.
However, Zurich could not subrogate Speno's rights and pursue
Hamersley directly for contribution because subrogation rights had
been waived against Hamersley by virtue of Hamersley being a named
insured under Speno's policy with Zurich. Zurich therefore
sought contribution directly from Hamersley's insurer, MMI
under the principles of dual insurance.
In response to Zurich's claim, MMI commenced an action
against Speno and argued that: (1) it held the subrogated rights of
Hamersley as an insured; and (2) its policy was an excess policy as
defined under the 'underlying insurance clause'.
The Court disagreed with MMI on the issue of subrogation
confirming the principle that an Insurer cannot be subrogated as to
the rights of its insured without indemnifying the insured for the
loss. Further, the Court disagreed that these rights would exist if
MMI was forced to pay Zurich a contribution. The right to subrogate
is given only to the indemnifying insurer.
Zurich relied on s45 of the Act to defeat MMI's argument
that its policy was an excess policy, arguing that s45 voids any
provision that has the effect of limiting or excluding liability by
reason of another contract of insurance where the other insurance
is not specifically referred to. Section 45 of the ICA
"(1) Where a provision included in a contract of
general insurance has the effect of limiting or excluding the
liability of the insurer under the contract by reason that the
insured has entered into some other contract of insurance, not
being a contract required to be effected by or under a law,
including a law of the State or Territory, the provision is
(2) Sub-section (1) does not apply in relation to a contract
that provides insurance cover in respect of some or all or so much
of a loss that it is not covered by a contract of insurance that is
specified in the first mentioned contract."
The Court of Appeal therefore dealt with the issue of whether
the 'underlying insurance clause' could survive even if it
offended s45 of the Act. The Court of Appeal overturned the
decision at first instance and held, given the specific wording in
this case (where the clause in the MMI policy referred to insurance
taken out 'on behalf of' as opposed to 'by' the
insured), it was possible to sever the 'underlying insurance
clause'. Accordingly, MMI's policy did operate as an excess
policy and would only respond if Zurich's policy was exhausted
by the personal injury claim.
The points to note from this case are:
In cases of dual insurance, only the insurer who provides
indemnity for the full amount of the loss will have the right of
Section 45 of the Act does not necessarily void 'underlying
insurance clauses' where they are carefully worded and these
clauses may therefore be used to avoid dual insurance
Speno Rail Maintenance Australia Pty Ltd v Metals &
Minerals Insurance Pte Ltd (2009) 253 ALR 364;  WASCA 31
(6 February 2009)
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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