Double insurance, double the fun? Double insurance and section
The High Court's decision in Zurich Australian Insurance Ltd
v Metals & Minerals Insurance Pte Ltd  HCA 50 gives
valuable guidance to the operation of section 45 of the Insurance
Contracts Act and the liability of insurers when two policies apply
to one loss - that is, double insurance. It's a particularly
important decision if you require your suppliers to take out
insurance naming you as the insured.
The contract, the indemnity, and the double insurance
Speno entered into a contract with Hamersley to perform certain
services for Hamersley. Part of the deal required Speno to
indemnify Hamersley for any common-law claims for personal injury
to Speno's employees engaged in contract works, and any
liability arising from the performance of the works. Speno also had
to arrange liability insurance to cover Hamersley's interest as
Speno took out insurance with Zurich, naming Hamersley as the
insured. Hamersley then took out its own insurance with MMI, which
contained an "other insurance" clause. This said that if
another policy covered the same risk, the MMI policy would act only
So, Hamersley now had two policies in which it was the insured,
covering the same sorts of risks. This double insurance is not
rare, and insurers try to deal with it by including an "other
insurance" term to limit or exclude their own liability.
Enter section 45 of the Insurance Contracts Act. This tries to
sort out the confusion by saying that:
provisions which have the effect of limiting or excluding the
liability of the insurer, and do so by reason that the insured has
entered into some other contract of insurance (ie. "other
insurance" clauses), are void
they are, however, still valid if the other policy is a primary
policy, clearly specified as such, over which the intention of the
insurer is to write excess coverage.
Inevitably, two workers were injured, and Zurich sought
contribution from MMI. MMI pointed to the "other
insurance" clause, saying that this meant it was only liable
for any excess. Zurich countered by saying the "other
insurance" clause had no effect because of section 45. Who was
How section 45 of the Insurance Contracts Act operates
The High Court said that section 45 is only concerned with
"other insurance" provisions affecting double insurance
where the insured is a party to the relevant contracts of
In this case, Hamersley did not enter into the
insurance contract with Speno, but was merely the insured under an
insurance contract made by two other parties.
What if - as here - the "other insurance" provision
tries to limit or exclude an insurer's liability because the
insured has entered into another contract of insurance or been
named as the insured (as was the case here)? Are all parts void?
The High Court said no - you can sever the part that breaches
section 45 and the rest is left standing - such as, for example, a
part which limits the insurer's liability because the insured
has the benefit of other insurance without having entered into the
That means that the "other insurance" clause in its
contract with MMI can operate, and MMI is liable only for the
So what does this mean for you?
If you require suppliers to arrange insurance for your benefit,
as part of your service and supply contracts, then this decision is
an important one for you.
You will need to insulate your own insurance policies from being
called into contribution with the other insurances under which you
are entitled to cover, but which you did not take out.
make sure that your own policy's "other
insurance" clause makes it excess of insurance the benefit of
which extends to you, not into which you have entered or which you
have taken out; and
double-check your service and supply contracts. Does the term
requiring the other party to arrange insurance for your benefit say
that it must do so on your behalf, or "on behalf of itself and
the purchaser"? If so, it should be amended to require that
you (purchaser) be noted on the supplier's policy as a person
to whom the benefit of the insurance extends.
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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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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