Dual insurance: dealing with the absurdity

Legal Directions

Foster v QBE European Underwriting Services (Australia) Pty Ltd as Managing Agent for Lloyds Syndicate 386 [2018]

In the recent decision in Foster v QBE European Underwriting Services (Australia) Pty Ltd as Managing Agent for Lloyds Syndicate 386 [2018] NSWSC 440, the New South Wales Supreme Court found that two separate policies, each containing ‘other insurance’ or ‘excess clauses’, operated to provide indemnity for loss suffered by the plaintiff, such that each insurer was equally responsible to indemnify for any such loss.

Facts

The plaintiff sued Reed Constructions Australia Pty Ltd (Reed) for personal injuries sustained while working under its direction (via a labour hire agreement) on a construction site for the Roads & Maritime Services (RMS). Reed went into liquidation. QBE and Allianz Australia Insurance Limited (Allianz) were subsequently joined as defendants.

Pursuant to the contract between RMS and Reed, RMS had effected a policy of insurance with Allianz that covered Reed, RMS and all subcontractors in relation to the construction works, including for personal injury. The Allianz policy included a provision for ‘other insurance’ which specified that, where there were two or more policies covering the same liability, the Allianz policy would operate as an ‘excess policy’.

Reed had also insured with QBE against third party liability including for personal injury. The QBE policy also contained a provision in relation to ‘excess insurance’, which was applicable in circumstances where the principal had agreed, as between the insured and the principal, to provide a policy of insurance covering the same liability.

The plaintiff’s claim against Reed for damages for his injuries was covered by both policies.

Issues

The issues considered by the Court included:

  • Whether the principle of ‘dual insurance’ applied
  • The entitlement of third party beneficiaries to sue for the enforcement of the promise under a policy
  • Whether the other insurance clauses were voided by operation of s45(1) of the Insurance Contracts Act 1984 (Cth).

Relevant Allianz policy

Allianz conceded that the principle of dual insurance applied. This was not conceded by QBE, which relied on an alleged admission by Allianz that an earlier Allianz policy effected by RMS for the benefit of Reed (which did not contain an excess clause’) applied, and the excess clause in the QBE policy. The Court determined that the applicable Allianz policy was the later policy, which contained the ‘excess clause’.

Third party beneficiaries

The Court examined the development of the common law position in relation to dual insurance, and the High Court’s decision in Trident General Insurance Co Limited v McNiece Brothers Pty Ltd. It said that since then, whether because of that decision or because of the intervention of the legislature, the law had been applied consistently with the proposition that third part beneficiaries of the kind in this proceeding could sue for the enforcement of the promise under the policy.

Insurance Contracts Act

The Court then also considered ss48 and 45 of the Insurance Contracts Act 1984 (Cth).

Section 48 provides for the rights of recovery from an insurer of a third party beneficiary under a contract of general insurance.

Section 45(1) provides that ‘other insurance’ provisions or ‘excess provisions’ (being policy provisions which limit or exclude liability of the insurer by reason that the insured has entered into some other contract of insurance), are void. Section 45(2) provides that s45(1) does not apply if the policy provides cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first‑mentioned contract.

The Court held that s45(1) applies only in circumstances in which the insured has entered into another ‘contract of insurance’. In this case, Reed (who had entered into the QBE policy) was not the ‘insured’ under the Allianz contract and the RMS (which was the insured under the Allianz policy) did not enter into the QBE contract. Accordingly, it found that neither ‘excess clause’ was void.

Dual insurance

The Court stated that the difficulties associated with ‘double insurance’ are not resolved by determining whether each insurance policy covers an identical risk. So long as each insurance policy would, but for the ‘other insurance’ or ‘excess clause’, require the insurer to cover or indemnify the damage or loss in question, the issue arises.

The Court found that the relevant provision of the Allianz policy was an ‘excess clause’ that would cover only the excess over any other valid insurance held which covered the loss or damage covered by the Allianz policy. It also found that the relevant provision of the QBE policy also operated in the circumstances as an excess clause that provided coverage only when the insured is not indemnified for loss or liability covered by the other policy.

It noted that the ordinary grammatical and commercial reading of each policy was that each contained an ‘excess clause’ that excepted cover where another insurance policy indemnified the loss. It said that each of those excess clauses potentially created an absurdity which, when taken together and giving each policy its ordinary, grammatical and commercial interpretation, required a construction that the ‘other insurance’ must be operative and not contain a similar ‘excess clause’.

The Court held that in those circumstances, both the Allianz and the QBE policies operated to indemnify Reed for loss or liability, if any, occasioned by the damage to the plaintiff and for which the plaintiff sued. It therefore held that each of Allianz and QBE was equally responsible to indemnify the loss and damage payable to the plaintiff.

Conclusion

The decision serves as a useful example of the Courts’ approach to the issues of dual insurance, particularly in circumstances where there are two policies which cover the loss but each contains an ‘excess clause’. It also underlines the potential impact of s45 of the Insurance Contracts Act in cases where there is dual insurance.

Further information / assistance regarding the issues raised in this article is available from the author, Greg King, Special Counsel or your usual contact at Moray & Agnew.


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