The Victorian Supreme Court has recently revisited the complexities of double insurance, deciding that the time at which the existence of double insurance is to be considered is whether or not a common liability existed at the time of the relevant occurrence.
The part of the proceeding which was subject of the appeal was a contribution claim, based on double insurance, brought by Zurich against MMI. MMI defended the claim on the basis that there was no double insurance because it could rely upon an 'other insurance' clause which entitled it to deny policy cover. Zurich argued that the 'other insurance' clause was rendered void by section 45 of the Insurance Contracts Act (ICA) which provides, relevantly, that where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer by reason that the insured has 'entered into' some other contract of insurance, the provision is void.
The 'other insurance' clause in the MMI policy had the effect of converting the policy into an excess of loss policy where the insured was either a party to another contract of insurance covering the same loss or where, although not a party to the other contract of insurance, it was entitled to the benefit of that insurance.
In this case, MMI's insured was not a party to the other contract of insurance (the Zurich policy), but was named in it as a party entitled to benefit.
The Judgment at first instance
The judge at first instance found that section 45 only applied in circumstances where the insured was a contracting party to the other insurance, but that because the 'other insurance' clause in the MMI policy had both a prohibited effect (where the insured was a party to the other insurance contract) and a permitted effect (where the insured was merely a beneficiary under the other policy), the entire clause was rendered void. Zurich's contribution claim therefore succeeded.
The decision of the Court Of Appeal
The trial judge's finding that section 45 of the ICA only applied where the insured was party to the other contract of insurance was not challenged before the Court of Appeal. The Court of Appeal found, however, that the permitted part of the 'other insurance' clause could be severed from the prohibited part with the result that the clause was effective to exclude cover (save for excess of loss) in respect of MMI's insured because it was a beneficiary (but not a contracting party) under the Zurich policy. This defeated Zurich's contribution claim.
The Court's decision in this case is relatively straightforward. However, it is important to have an understanding of the complex factual matrix with events leading to this case to appreciate what issues were before the Court.
The catalyst of the series of proceedings which preceded this case was the resulting damage caused to a large screen at the 1998 Grand Prix when the structure supporting it collapsed. Screenco had been retained to provide the screen. Screenco sub-contracted the scaffolding to a company, Dew, and Dew in turn subcontracted the works to Steele. The scaffolding failed and Screenco sued Steele and Dew in the NSW Supreme Court.
Steele held a liability insurance policy with a company in the HIH group (HIH). HIH accepted Steele's claim for indemnity. HIH paid a certain amount of Steele's defence costs prior to its liquidation ('the HIH defence costs'). Steele then assigned his rights under the HIH policy and his rights against any third party to HIH Claims Support Limited (HCSL), the Scheme established by the Commonwealth government to assist HIH insureds. In return, HCSL agreed to pay 90% of any award against Steele and 90% of his own defence costs, with Steele responsible for paying the balance.
Steele was found liable to both Screenco and Dew in the NSW proceeding. HCSL paid Screenco and Dew 90% of the sums awarded against Steele.
HCSL then commenced subrogated proceedings in the Victorian Supreme Court in Steele's name against Insurance Australia Limited (IAL) who, by that time, had been vested with SGIC's rights. At first instance it was held that the HCSL was not an insurer, that the agreement between HCSL and Steele was not an insurance contract, and the payments made on behalf of Steele were characterised as welfare payments. It was further held that the SGIC policy responded to Steele's claim, and that IAL was also liable to contribute to one half of the HIH defence costs.
The decision in relation to the payment of the HIH defence costs was upheld on appeal, but the decision in favour of Steele was overturned. It was found that the contract between HCSL and Steele was not a contract of insurance, but that the payments made by HCSL were made under a contract between HCSL and Steele by which there was a contractual obligation to indemnify, and they were not voluntary payments. As Steele had already been indemnified by HCSL pursuant to that contract, he could not be indemnified again under the SGIC policy. The Court concluded that it may have been open for HCSL to seek contribution from IAL if their liabilities were co-extensive or coordinate, but that the question had not arisen in the proceeding save in respect of the HIH defence costs.
In this proceeding, HSCL sought contribution from IAL.
HCSL argued that the court was required to consider whether a situation of double insurance would have arisen as between HIH and AIL as liability insurers of Steele, in which case HCSL argued it would have such rights as the successor of HIH.
IAL argued that HSCL had a primary contractual obligation to indemnify Steele, and that IAL had a secondary obligation as insurer to indemnify him.
In the alternative, IAL argued that the relevant date for considering whether or not HSCL and IAL had a common liability to indemnify Steele was as at the date of the incident. HCSL was created after the incident and accordingly it could not have shared a common liability with IAL.
Hollingworth J considered herself bound to apply the recent Victorian Court of Appeal decision in QBE Insurance (Aust) v Lumley General insurance Limited  VSCA 124, (see the August 2009 edition of Legal Directions for a case summary), in determining that double insurance arises if there is a common liability as at the insuring clause event. Her Honour considered HIH and HCSL as two separate entities. HCSL did not exist at the date of the relevant occurrence and there was obviously no contract for indemnity between HCSL and Steele at that time. Her Honour also found that HSCL's obligation to indemnify Steele was primary in nature, and that IAL's obligation to indemnify Steele as insurer was secondary, in which case HCSL and IAL's rights were not co-ordinate in which case there was also no right of contribution on that basis. HCSL's claim for contribution against IAL was dismissed.
This decision follows a line of recent Australian decisions that insurers must have a common liability as at the time of the insuring clause event for double insurance to arise. We understand that HCSL has appealed.
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