Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pty Ltd [2009] HCA 50
Judgment: 2 December 2009
Insurers can rely upon an ‘other insurance’ clause to decline coverage to an insured that is entitled to indemnity under another contract of insurance, provided that the insured is not a contracting party to the other policy.
On 2 December 2009, the High Court of Australia (HCA) handed down its decision in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pty Ltd [2009] HCA 50, applying a strict interpretation of section 45 of the Insurance Contracts Act 1984 (Cth) (s.45).
s.45 regulates the enforceability of what are known as ‘other insurance’ provisions. It states:
"Other insurance" provisions
- Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.
- Subsection(1) does not apply in relation to a contract that provides insurance 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 considered the issue of subrogation and the interpretation of s.45 in the context of two insurance policies which could respond to claims for personal injury suffered by employees of Speno Rail Maintenance Australia Pty Ltd (Speno) while they were working for Hamersley Iron Pty Ltd (Hamersley). In particular:
- the policy Speno held with Zurich Australian Insurance Ltd (Zurich). Speno had agreed, by way of contract, to indemnify Hamersley in relation to any injuries suffered by the relevant workers and added Hamersley as an insured under the Zurich policy.
- the policy held by Hamersley with Metals & Minerals Insurance Pte Ltd (MMI).
Hamersley contracted Speno to perform work for it (Works Contract) and during this process an employee of Speno, Mr Nolan, suffered injury. Mr Nolan sued Hamersley in the District Court of Western Australia and was awarded $1,259,969.00 in damages. In accordance with the Works Contract, Speno effected an insurance policy with Zurich that covered Hamersley under a principal’s extension.
Hamersley claimed on the Zurich policy in respect of its liability to pay damages to Mr Nolan. Zurich accepted the claim and discharged Hamersley’s liability. As Hamersley was also entitled to indemnity under its own liability policy, held with MMI, Zurich sought contribution from MMI.
MMI refused the claim for dual insurance on the basis of an ‘other insurance’ provision in the MMI Policy. MMI submitted that it was not obliged to indemnify Hamersley because Hamersley had been indemnified by Zurich.
Zurich contended that MMI was not entitled to rely on the other insurance provision because it contravened s.45(1).
The Full Court of the Supreme Court of Western Australia concluded that s.45(1) was confined in its operation to a policy the insured “…has entered into” . The HCA agreed and found that MMI was entitled to rely on the ‘other insurance’ provision which provided that MMI was not liable to indemnify the insured if the insured was entitled to indemnity under the Zurich policy. The result of this was that MMI was entitled to resist a claim for contribution from Zurich.
The Court considered the questions of non-contracting insureds. They ultimately concluded that ‘entered into’ in the context of s.45 must have a narrow meaning therefore excluded third party beneficiaries or any other party covered under the contract, even if described as an ‘insured’, that was not a party to the contract. The contract of insurance relevant to this matter did not allow room for a construction which would include a non-party insured among the ranks of those who have ‘entered into the relevant contract’.
Justices Hayne and Heydon further commented that in this case, the insurance was insurance effected on behalf of (but not by) Hamersley in respect of a claim for which indemnity was available under the MMI contract. Because Hamersley could be indemnified under the Zurich contract, the… ‘other insurance clauses’…had the effect of limiting MMI's liability, in effect, to excess insurance.
Despite the operation of s.48(1) of the Insurance Contracts Act, providing that an insured has "a right to recover the amount of [its] loss from the insurer in accordance with the contract notwithstanding that [it was] not a party to the contract", the HCA determined that s.45(1) was not engaged.
Conclusion
Subject to the wording of the insurance contract, the effect of the decision is that an insurer can rely upon an ‘other insurance’ clause to decline coverage to an insured entitled to indemnity under another insurance contract. This is so provided that the insured is not a contracting party to that other contract of insurance (e.g. a third party beneficiary).
This case is of particular significance for insurers seeking contribution on the basis of dual insurance. Unless a party entered into the contract of insurance there will be no entitlement to seek contribution from other insurer/s.
For both insurers and insureds, the decision highlights the importance of understanding the interaction of insurance and indemnity arrangements and understanding the difference between being a named insured and being an insured by way of extended definition.
