Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Hayne,Heydon JJ.
• Judgment Date: 02 December 2009
• Neutral Citation: 2009-1202 HCA A,[2009] HCA 50
• Docket Number: P33/2009
• Date: 02 December 2009

[2009] HCA 50

HIGH COURT OF AUSTRALIA

French CJ,, Gummow, Hayne, Heydon and Crennan JJ

P33/2009

Zurich Australian Insurance Ltd

Appellants

and

Metals & Minerals Insurance pte Ltd & Ors

Respondents

Representation

J E Maconachie QC with H M O'Sullivan and J S Emmett for the appellant (instructed by SRB Legal)

B W Walker QC with C A Elphick for the first and third respondents (instructed by DLA Phillips Fox)

E M Corboy SC with S F Popperwell for the second respondent (instructed by Pynt & Partners)

Insurance Contracts Act 1984 (Cth), ss 45(1), 48.

Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd

Insurance contracts — Validity of ‘other insurance’ provision — Whether rendered void by s 45 of Insurance Contracts Act 1984 (Cth) — Where s 45 rendered void provisions in contracts of general insurance that had effect of limiting or excluding liability of insurer under the contract by reason that the insured had entered into some other contract of insurance — Whether s 45 applied to provision purporting to limit or exclude liability by reason that the insured was named as non-party beneficiary under another contract of insurance — Whether insured had ‘entered into’ that contract within meaning of s 45.

Statutes — Interpretation — Meaning of ‘provision’ in s 45 of Insurance Contracts Act 1984 (Cth) — Where ‘other insurance’ clause applied in two different circumstances, only one of which attracted application of s 45 — Whether clause void only to the extent that it had the impugned effect — Whether clause void as a whole — Whether s 45 rendered void words or operation of clause.

Words and phrases — ‘double insurance’, ‘entered into’, ‘excess insurance’, ‘other insurance’, ‘provision’.

ORDER

Appeal dismissed with costs.

Introduction

1 Section 45 of the Insurance Contracts Act 1984 (Cth) (‘the Act’) renders void so-called ‘other insurance’ provisions of general insurance contracts. Such provisions limit or exclude the liability of the insurer to indemnify the insured against loss because the insured has entered into another contract of insurance in relation to the same risk. The first question in this appeal, brought by Zurich Australian Insurance Ltd (‘Zurich’), is whether s 45 applies to provisions which purport to exclude or limit liability where the insured is not a party to the other contract of insurance but is named in it as an insured person. The second question is whether the section renders void an entire clause of an insurance contract which includes a provision to which the section applies notwithstanding that the clause may include other provisions to which it does not apply. The answer to both questions is in the negative. As a result the appeal must be dismissed.

Factual and procedural history

2 On 1 March 1992, Hamersley Iron Pty Ltd (‘Hamersley’) entered into a contract with Speno Rail Maintenance Australia Pty Ltd (‘Speno’) for the provision of rail grinding services (‘the Speno/Hamersley Contract’). One of its terms required Speno to indemnify Hamersley and insure itself against all claims occurring as a result of anything done in the performance of the contract causing death or injury to any person 1 . It was also a term that Speno's insurance policy be endorsed to include Hamersley as a named insured 2.

3 Pursuant to the Speno/Hamersley Contract, Speno entered into a Combined General Liability Insurance Policy with Zurich on 12 September 1995 (‘the Speno Policy’). Although not a party to the policy, Hamersley was included as a named insured under it 3.

4 Hamersley took out its own contract of insurance with Metals & Minerals Insurance Pte Ltd (‘MMI’) (‘the Hamersley Policy’). That policy contained an ‘other insurance’ clause in the following terms:

‘UNDERLYING INSURANCE

Underwriters acknowledge that it is customary for the Insured to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk.

In the event of the Insured being indemnified under such other Insurance effected by or on behalf of the Insured (not being an Insurance specifically effected as Insurance excess of this Policy) in respect of a Claim for which Indemnity is available under this Policy, such other Insurance hereinafter referred to as Underlying Insurance, the Insurance afforded by this Policy shall be Excess Insurance over the applicable Limit of Indemnity of the Underlying Insurance but subject always to the terms and conditions of this Policy.

In the event of cancellation of the Underlying Insurance or reduction or exhaustion of the Limits of Indemnity thereunder, this Policy shall:

• (i) in the event of reduction pay the excess of the reduced underlying limit

• (ii) in the event of cancellation or exhaustion continue in force as underlying insurance

but subject always to the terms and Conditions of this Policy.’

5 The present litigation was preceded by an action brought in the District Court of Western Australia by two employees of Speno carrying out work under the Speno/Hamersley Contract who were injured as a result of the negligence of Hamersley. The proceedings led to judgment in favour of one of the employees against Hamersley in the amount of $1,110,186.35 and a settlement of $25,000 in favour of the other. Zurich and Speno were ordered to indemnify Hamersley in respect of the judgment sum 4. Zurich paid the damages under the judgment and the settlement.

6 The present appeal arises out of contribution proceedings brought subsequently by Zurich against MMI in the Supreme Court of Western Australia in relation to MMI's liability to indemnify Hamersley under the Hamersley Policy. MMI argued that it had no coordinate liability with Zurich which would ground an equity of contribution. It relied upon the Underlying Insurance clause to reduce the extent of its liability to Hamersley to the provision of the excess insurance within the meaning of the clause. Zurich contended that s 45(1) of the Act rendered the Underlying Insurance clause void. Zurich's contention was accepted at first instance in the Supreme Court of Western Australia 5, but was rejected in the Court of Appeal 6 . Zurich was granted special leave to appeal to this Court on 31 July 2009 7.

7 Section 45 provides:

• ‘(1) 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.

• (2) 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.’

8 The primary judge held that s 45(1) does not avoid an ‘other insurance’ provision in an insurance policy where such provision relates to another contract of insurance to which the insured is not a party but in which it is named as a non-party beneficiary 8 . Her Honour nevertheless held that the Underlying Insurance clause in the Hamersley Policy was void as a whole because of that element of it which was caught by s 45(1) 9. Her Honour made a declaration that Hamersley

was doubly insured by Zurich and MMI in respect of its liability to the two injured employees and gave judgment in favour of Zurich against MMI in the sum of $869,357.

9 The Court of Appeal held that the primary judge had erred in finding that s 45(1) applied to avoid the Underlying Insurance clause in its entirety 10 . It set aside the judgment and ordered that the Zurich contribution action be dismissed. The view taken by application to non-party beneficiaries under general insurance contracts, was not challenged in the Court of Appeal 11.

The grounds of appeal

10 The grounds of appeal, amended by leave at the hearing of the appeal to include ground number 4, were as follows:

• ‘2. The Court of Appeal erred in failing to find that section 45(1) of the Insurance Contracts Act 1984, on its true construction, renders void the whole of the relevant provision of the First Respondent's policy of insurance and not just the offending element of it.

• 3. The Court of Appeal held that the “other insurance” or “underlying insurance” provision in the First Respondent's policy of insurance was capable of being, and should be, read distributively so as to sever elements from that provision and thereby misconstrued, or alternatively misapplied, section 45(1) of the Insurance Contracts Act 1984.

• 4. The Appeal should be upheld on the ground that section 45(1) of the Insurance Contracts Act 1984 operates such that the phrase “ the insured has entered into some other contract of insurance” applies to the situation where a person has the benefit of a contract of insurance even though not a party to that contract of insurance himself or herself.’

The legislative history of s 45

11 Prior to the enactment of the Act insurance contracts were subject to what the Australian Law Reform Commission (‘the ALRC’) described in its 1982 Report on Insurance Contracts as a ‘bewildering variety of laws’ 12 . These laws included the common law and Imperial 13, State and Commonwealth statutes. The Act, which gave effect to recommendations made by the ALRC, repealed the Imperial Acts applicable to contracts of insurance covered by the new Act in their application to insurance contracts and in so far as they were part of the law of the Commonwealth 14.

12 A particular cause of concern expressed in the ALRC Report was the operation of terms of insurance contracts dealing with double insurance or ‘other...