In our October 2009 edition we noted that Speno Rail Maintenance Australia Pty Ltd v Hammersley Iron Pty Ltd (2009) had been appealed to the High Court. That appeal has now been heard and this article sets out the High Court's findings.
The High Court has interpreted section 45 of the Insurance Contract Act (1984) (Act) strictly in finding that section 45 only applies to "other insurance" provisions in circumstances where the insured "has entered into" the relevant contracts of insurance giving rise to the potential for double insurance.
Speno Rail Maintenance Australia Pty Ltd (Speno) and Hamersley Iron Pty Ltd (Hamersley) entered into a contract for works which required Speno to ensure that Hammersly was noted on its general insurance policy with Zurich Australian Insurance Ltd (Zurich) (Speno Policy). Hamersley also held its own insurance policy with Metals & Minerals Insurance Pty Ltd (MMI) (Hamersley Policy) which contained an "other insurance" clause.
Both the Speno Policy and Hamersley Policy responded to the personal injury claim of a Speno employee who was injured during the course of his employment with Hamersley. Therefore, the issue of contribution arose as between Zurich and MMI.
MMI relied on the "other insurance" clause in the Hamersley Policy and resisted contribution. Zurich contended that the "other insurance" clause was void pursuant to section 45(1) of the Act.
Zurich's argument was accepted in the Supreme Court of Western Australia but rejected in the WA Court of Appeal. Zurich was granted special leave to appeal to the High Court in July 2009. The High Court ultimately confirmed the appellate court's decision, dismissing Zurich's appeal.
The High Court looked at the mischief sought to be prevented by section 45, namely that an insured could find himself in a situation of having no insurance cover where two policies, intended to cover its liability; both contained "other insurance" clauses, leaving no insurance cover at all.
Bypassing how, from a purposive approach, the situation of a named insured was different to that of a noted insured as it pertained to section 45, the High Court instead dealt with the question as a matter of construction, focusing on the words "entered into" appearing in section 45. Giving these words their ordinary meaning and construing this phrase narrowly, the High Court held that the inclusion of a person who was not a party to the insurance contract would be inconsistent with the meaning of section 45. As Hamersley had not "entered into" the Speno Policy, but was merely a noted insured, section 45 did not apply.
Although section 45 was found not to apply, the High Court nonetheless provided guidance as to how part of the clause affected by section 45 would be treated in circumstances where other provisions in the clause were unrelated to section 45. In this regard, the High Court indicated that it would only be the provision affected by section 45 that would be rendered void and not the entire clause. Therefore, the clause would be severed to the extent that section 45 applied to it.
Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] 261 ALR 468
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