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The Western Australian Court of Appeal has left open a door through the operation of s.45 of the Insurance Contracts Act 1984 (ICA) thereby impacting upon insurers' ability to claim contribution on the basis of double insurance 1
Section 45
Section 45 renders a provision in a policy void if it has the effect of limiting or excluding liability if the insured has entered into another contract of insurance covering the same loss. These so called "other insurance" clauses are however permitted if the "other insurance" is a compulsory statutory policy e.g. employer's liability, or the policy containing the clause is a true excess policy which is designed to cover the insured's liability over and above that covered by another specified policy.
The issue
In 2007 the Western Australian Supreme Court held 2 that s.45 only voids an "other insurance" clause which refers to another contract of insurance entered into by the insured itself and to which it is a party. It does not apply to an "other insurance" clause which refers to another contract of insurance entered into on the insured's behalf by a third party which simply names the insured as a beneficiary or additional insured. These sorts of policies are common, particularly in contract works settings, where either a principal or sub-contractor agrees under the contract to take out insurance naming the other as an insured. An issue arises if the non-party beneficiary to the policy has their own insurance which includes a clause excluding or limiting liability in the event of "other insurance" covering the same loss.
The ambit of s.45 is important because it can mean the difference between a successful and an unsuccessful claim for double insurance.
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The Court of Appeal's decision
A number of issues stemming from the trial judge's interpretation of s.45 and a subrogation claim included in the action went on appeal to the Western Australian Court of Appeal. The trial judge's ruling that "other insurance" clauses which purport to operate on policies arranged on an insured's behalf by a third party do not fall foul of s.45 was not challenged and appears to have been accepted by the Court of Appeal.
A more detailed analysis of the Court of Appeal's decision, including the degree of specification required in order for an "other insurance" clause to pass muster in situations where the insured has itself entered into another policy of insurance, what the Court had to say on the subject of utmost good faith and its views concerning a rather novel subrogation claim by one of the insurers will be the subject of a future eBulletin.
Comment
The Court of Appeal's decision may give renewed impetus to the inclusion of "other insurance" clauses in wordings, and insurers declining indemnity to insureds to encourage them to claim on the other insurance.
If dual insurance depends on which insurer the claim is made upon and that insurer accepts or rejects the claim due to an "other insurance" clause, then amending legislation will be required as this is the mischief that s.45 was meant to eliminate. The draft Bill, released by the Howard Government in Feb 2007 and containing reforms to the ICA following the Cameron/Milne Reports, did not contain any proposed reforms to s.45. It is understood that further consultation with the industry occurred after release of the draft Bill and that the Rudd Government intends to introduce a revised version into Parliament later this year. Whether the apparent anomaly in s.45 is addressed remains to be seen.
In the meantime, insurers should carefully examine current and future claims made by other insurers for dual insurance to determine whether:
a) s.45 does not operate on the basis of the Court of Appeal's decision; and
b) the policy has an appropriately worded "other insurance" clause.
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Further information
Michael Landvogt | Partner
+61 3 9269 9101
mlandvogt@landers.com.au
James Tully | Special Counsel
+61 3 9269 9187
jtully@landers.com.au
Kate Clark | Special Counsel
+61 3 9269 9315
kclark@landers.com.au
[1] Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd [2009] WASCA 31 (6 February 2009)
[2] Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2007] WASC 62
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