“Other insurance” clauses in insurance policies

 

A topic of constant debate within the insurance industry is aspect of “other insurance” clauses in policies. A significant case was the Allianz Insurance Australia Limited v Certain Underwriters at Lloyd’s of London [2019] NSWCA 271, where a road worker employed by a subcontractor (Mr Dempsey) to Baulderstone Hornibrook Pty Ltd (Baulderstone) was seriously injured in the course of his employment (the Incident).

Baulderstone was insured under two insurance policies:

  1. as a contractor under the first policy issued by the appellant (Allianz); and
  2. as a subsidiary under the second policy issued by the respondents (the Lloyd’s Underwriters).

Mr Dempsey obtained consent judgment for $1,025,000 in proceedings that he commenced against Baulderstone in relation to the incident. Allianz indemnified Baulderstone in respect of that judgment then commenced proceedings seeking a declaration that Lloyd Underwriters were liable for equitable contribution.

The “Other Insurance” Clauses

The policy issued by Allianz included an “other insurance” provision which converted the cover against loss under the policy into excess insurance in the event that there was other “valid and collectible insurance” (cl 8.20). It additionally provided that the policy would operate as excess insurance if there was “Underlying Insurance”, as defined in the Allianz Policy (cl 8.17).

Whereas the policy issued by Lloyd’s Underwriters contained an “escape clause” such that it did not cover liability that “forms the subject of insurance by any other policy” (cl 10.5).

Section 45(1) of the Insurance Contracts Act 1984 (Cth) did not void the “other insurance” provisions as Baulderstone had not “entered into” either policy (that is, they were not a contracting party to either policy).

The Outcome

At first instance, Rees J held that Lloyd’s Underwriters would not have been liable to indemnify Baulderstone in respect of the loss arising out of the Incident had Allianz not done so. Accordingly, Allianz’s claim for contribution failed.

Allianz appealed to the NSW Court of Appeal, where Bathurst CJ and Meagher JA (Macfarlan JA dissenting), overturned the decision of Rees J at first instance.

The basis of the NSW Court of Appeal’s decision to allow the appeal included a finding that:

  1. the Allianz Policy fell within the meaning of cl 10.5 of the Lloyd’s Policy.
  2. Clause 8.17 of the Allianz Policy had no effect because the Lloyd’s Policy did not fall within the definition of an “Underlying Policy”, given the position reached above that the Lloyd’s Policy did not cover the risk in question (note that Macfalan JA reached a different conclusion on this point).
  3. Clause 8.20 of the Allianz Policy converted the policy to an excess policy where there was “any other valid and collectible insurance” – that is, “insurance which has legal force issued by a solvent insurer”. Accordingly, this clause had the effect of excluding liability under the Allianz Policy because of the existence of the Lloyd’s Policy.

In reaching the above position, the NSW Court of Appeal then applied the rule of construction in  Weddell v Road Transport and General Insurance Company Ltd [1932] 2 KB 563, whereby the competing “other insurance” clauses were held to cancel each other out. The result was that both policies were found to respond and Allianz, having met the claim, was entitled to contribution from the Lloyd’s Underwriters.

Interestingly, it is worthy to note that four judges (the judge at first instance and three judges on appeal) considered the same provisions and reached different conclusions as to their effect. In essence, of the four judges, not one agreed with another as to each of the interpretation points before them.

Postscript

Note: Lloyd’s Underwriters application for special leave to appeal to the High Court was refused on 24 April 2020.[1]

In summary, Lloyd’s Underwriters sought to challenge the Court of Appeal’s interpretation of clause 8.20 of the Allianz Policy, submitting that for insurance to be “valid and collectible”, it has to be both covered and also the subject of a solvent insurer’s issue. Lloyd’s Underwriters also submitted that the correct construction of clause 8.17 to be adopted was that of Rees J at first instance. While Lloyd’s Underwriters submitted that the appeal dealt with matters of public importance (i.e. the matter was dealing with the application of standard wordings and policies issued by large insurers, apparently intended to be of general application (rather than bespoke contracts)), the High Court was of the view that the issues submitted for consideration by the High Court of Australia were already well settled principles as to the terms of the policies.  The High Court of Australia refused to grant special leave.


[1] See Certain underwriters at Lloyd’s of London Subscribing to Policy Number B105809GCOM0430 –v- Allianz Australia Insurance Limited [2020] HCATrans 058.