Australia: Insurance: Speno - The Final Frontier

Last Updated: 4 December 2009
Article by Catherine Elphick and Mark Williams

The High Court of Australia has confirmed that carefully worded 'other insurance' clauses are not voided by the Insurance Contracts Act 1984 (Cth) and can, in some circumstances, be used by insurers to avoid double insurance claims.

On 2 December 2009, the High Court of Australia dismissed Zurich Australian Insurance Ltd's appeal in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd1 (the first of three appeals against the decision in Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd & Ors2). In doing so, the Court confirmed that section 45 of the Insurance Contracts Act 1984 (ICA):

  • Does not apply to provisions in insurance contracts which purport to exclude or limit liability where the insured is not a party to another contract of insurance but rather is only named in it as an insured person.
  • Does not void an entire clause of an insurance contract where that clause includes one provision to which section 45 applies and another provision to which the section does not apply

The dismissal of Zurich's appeal led to the consequential dismissal of Metals & Minerals Insurance Pte Ltd's (M&M) and Hamersley Iron Pty Ltd's related appeals. This was because those parties accepted that it was not necessary to resolve those appeals if Zurich's claim for contribution against M&M failed. Accordingly, the law (in Western Australia at least) remains that an insurer's ability to recover money paid out for a claim where another insurer is also potentially liable to contribute to the claim under the principle of double insurance is limited in certain circumstances. As such, insurers should continue to consider measures that encourage their insureds to make a claim for indemnity under their policy first (even if another insurance policy providing cover has a lower deductible) to avoid the loss of a right of subrogation.


Speno Rail Maintenance Australia Pty Ltd's employees were injured while they were performing work under a contract between Speno and Hamersley. The contract required Speno to indemnify Hamersley against Hamersley's liability to the injured workers. It also required Speno to arrange public liability insurance on Hamersley's behalf. Speno took out that policy with Zurich.

Following a District Court trial,3 Speno and Zurich were each ordered to indemnify Hamersley against its liability to the workers. Zurich indemnified Hamersley against this amount, which totalled more than $1.2 million. However, Speno did not make any payment to Hamersley. Due to a waiver of subrogation clause in Zurich's policy, Zurich could not subrogate to Hamersley's rights and was precluded from pursuing Speno under the judgment. Consequently, Zurich had to look to other avenues to recover its losses.

Zurich therefore sued M&M (Hamersley's own insurer) for contribution under the principles of double insurance. M&M denied it was liable to Zurich because of an 'underlying insurance' clause in its policy with Hamersley. In the clause, M&M acknowledged that it was customary for Hamersley to effect, or for contractors to effect on Hamersley's behalf, insurance specific to a particular project or contract. The clause said that if Hamersley was indemnified under such a policy, the insurance provided under M&M's policy was excess insurance only (underlying insurance clause).

As a precaution however, M&M asked the Court for a declaration that, if it was liable to contribute, it would also be entitled to subrogate to Hamersley's rights against Speno. Its intention was to enforce the District Court's judgment against Speno to the extent that M&M was required to contribute, and thereby M&M would have no net exposure in the claim.

The WA Court of Appeal decision

The Supreme Court of Western Australia Court of Appeal held that section 45 of the ICA only voided 'other insurance clauses' when those clauses referred to a policy 'entered into' by the insured (as opposed to a policy where the insured is simply named as an insured). The Court also held that the parts of the underlying insurance clause in M&M's policy which fell within the scope of section 45 could be severed from the parts that did not. As a result, section 45 of the ICA did not void the underlying insurance clause to the extent it applied to policies entered into by Hamersley's contractors (under which Hamersley was entitled to cover) rather than Hamersley itself. The Court therefore held that the underlying insurance clause in M&M's policy transformed it into an excess layer policy for the particular claim, and dismissed Zurich's claim for contribution.

While it was not necessary to consider the issue after dismissing Zurich's claim, the Court of the Appeal nonetheless then addressed M&M's claimed right to subrogate to Hamersley's entitlement to enforce the original District Court judgment against Speno.

The Court held that the doctrine of subrogation did not permit subrogation by an insurer who makes a payment of a contribution to another insurer. The Court said the insurer who indemnifies the insured has an exclusive right of subrogation, and extending a right of subrogation to a contributing co-insurer could not be justified by the core purpose of the doctrine of subrogation - that being (in the Court's view) the avoidance of double recovery by the insured. The Court relied on a body of authority that a payment or agreement by an insurer of a full indemnity was a pre-condition to it exercising a right of subrogation.

In apparent recognition of the impact that its finding would have, the Court commented in passing that where co-insurers know of the existence of double insurance, it is open to them to take that into account in determining which insurer is to indemnify the insured. Further, the Court said that if the ability to exercise a right of subrogation is of particular importance to an insurer, it is open to that insurer (at least when it knows there is double insurance) to pay on the indemnity early so as to obtain the right of subrogation.

Zurich, M&M and Hamersley all applied for and were granted special leave to appeal to the High Court against the Court of Appeal's decision.

Appeal to the High Court of Australia

The High Court considered Zurich's appeal before the other two appeals. This was because M&M and Hamersley acknowledged that it would not be necessary for their appeals to be resolved if Zurich's appeal failed (ie M&M's claimed right to subrogate to Hamersley's entitlement to enforce the original District Court judgment against Speno was moot if M&M was not liable to contribute to Zurich under the principles of double insurance).

In considering Zurich's appeal, the High Court analysed the following two questions.

Does section 45 apply to provisions that purport to exclude or limit liability where the insured is not a party to the contract of insurance but rather is merely a named insured?

In considering this question, the High Court considered the legislative history of section 45, the statutory framework of the ICA, the ordinary meaning of the term 'enter into' and the construction of section 45 itself.

Chief Justice French and Justices Gummow and Crennan held that the text of the provisions of the ICA, with which section 45 had be read, pointed to the conclusion that section 45 was only concerned with 'other insurance' provisions affecting double insurance where the insured was a party to the relevant contracts of insurance. It did not allow room for a construction that included a non-party insured among the ranks of those who had 'entered into' the relevant contract.

Their Honours concluded that the inclusion of people who were not parties to the relevant contract would be inconsistent with the ordinary or any plausible extended meaning of 'entered into' in relation to the contracts. In doing so, their Honours acknowledged that the purpose of section 45 appeared from the Australian Law Reform Commission Report and the relevant Explanatory Memorandum. They thought the most that could be said was that the ALRC Report seemed to have proceeded on the assumption that the problem of 'other insurance' clauses arose in cases in which the insured was a party to both contracts. Their Honours concluded, however, that notwithstanding the generality of the mischief to which section 45 was directed, the words 'entered into' were not capable of encompassing a non-party insured.

In separate reasons for their decision, Justices Hayne and Heydon held that there was nothing in the provisions of the ICA, or in the history of the Act, which provided any footing for reading section 45(1) and the phrase 'the insured has entered into some other contract of insurance' otherwise than in accordance with its ordinary meaning. Hamersley has not entered in to any contract of insurance with Zurich. Speno, not Hamersley, had made the Zurich contract.

Does section 45 render void an entire clause of an insurance contract where the clause includes a provision to which section 45 applies and a further provision to which it doesn't apply?

The High Court considered arguments regarding both severance and the proper construction of the word 'provision' when deciding this issue.

Chief Justice French and Justices Gummow and Crennan commented that the relevant definition in the Oxford English Dictionary of the term 'provision' was 'each of the clauses or divisions of a legal or formal statement, or such a statement itself providing for some particular matter', with the important element of the definition being 'for some particular matter'.

Their Honours held that the fact that there may be more than one provision for a particular matter in one numbered clause of a contract was merely an accident of drafting. The inclusion in one clause of two statement of rights or liabilities in the form of 'if X, then Z' and 'if Y, then Z' had the same effect as the inclusion of those statement in two separate numbered clauses. Each statement was a provision of the contract. Their Honours concluded that there was no requirement to construe section 45(1) so that its operation depended upon accidents of paragraphing or numbering in contacts of insurance. M&M's underlying insurance clause contained two statements, each specifying a circumstance in which the M&M policy was to be reduced to an Excess Insurance policy. Each of those statements was to be properly regarded as a 'provision' of the insurance contract. The result was that section 45(1) voided only that part of the Underlying Insurance clause in M&M's policy that related to contracts of insurance to which Hamersley was a party.

Similarly, Justices Hayne and Heydon held that the extent of the avoidance worked by section 45(1) does not depend upon the way in which a particular insurance contract has been drafted. The ICA's reference to a provision having a particular effect was not to be read as reference to a discrete co-location of words. Their Honours held that section 45(1) directs attention to a particular operation which the contract would have according to its terms. It renders that operation of the contract void but no other operation. In the circumstances, their Honours concluded that no question of severance arose.

Impact on insurers and claims handling

The implications of the decision (and the consequential dismissal of the related appeals) are significant:

  • Contractors are often required to take out insurance on behalf of principals even though principals have taken out their own insurance. A carefully drafted 'other insurance' clause in the principal's insurance policy will enable the principal's insurer to avoid double insurance claims made by a contractor's insurer.
  • Judgments need to be worded carefully where more than one party is ordered to indemnify a defendant. In particular, reference should be made in the terms of the judgment as to which party's liability to indemnify is primary and which is secondary. (The original District Court judgment in this case was drafted in 1999, which was before the emergence of case law that specifically addressed the distinction between the primary and secondary liability of an insurer and someone who has agreed to providing a contractual indemnity).
  • An insurer cannot indemnify its insured unless and until it is called on to do so by its insured. If an insured does not claim an indemnity from its 'own' insurer and is instead indemnified by a contractor's insurer (who might have a lower excess on its policy), the insured's 'own' insurer will not be able to reduce its losses by way of a subrogation claim if it is later called upon to make a contribution to the contractor's insurer. If the contractor's insurer has waived its right of subrogation against the contractor, who might have been the cause of the loss or otherwise liable to indemnify the insured against that loss, insurers will need to consider whether:
  • They should argue that they have been prejudiced by their insured's omission to claim indemnity under their policy first, and their liability to contribute is therefore reduced to the extent of that prejudice.
  • They should include a condition in their policies to the effect that the insured must make a claim for indemnity under their policy first.
  • The now exclusive right of subrogation will be enjoyed only by those insurers who offer the lowest deductibles to their insureds.

1. [2009] HCA 50
2. [2009] WASCA 91M
3. The trial judge's decision was upheld on appeal: see Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2009] WASCA 408; (2000) 23 WAR 291

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.