Abstract

Double insurance- escape clauses - Insurance Contracts Act s.45 - Contribution - Master Policies - Effect of definition

Article

 

“There is double insurance when an assured is insured against the same risk with two independent insurers. To insure doubly is lawful but the assured cannot recover more than the loss suffered and for which there is indemnity under each of the policies. The insured may claim indemnity from either insurer. However, as both insurers are liable, the doctrine of contribution between insurers has been evolved. It began in the second half of the eighteenth century with Lord Mansfield’s decisions with respect to marine insurers and there is no doubt that it now applies generally to insurance which provides the insured with an indemnity. There is no reason why the doctrine should not apply to insurance against liability to third parties and there is every reason in principle that it should. The doctrine, however, only applies when each insurer insures against the same risk, although it is not necessary that the insurances should be identical.
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There is no double insurance unless each insurer is liable under his policy to indemnify the insured in whole or in part against the happening which has given rise to the insured’s loss or liability.” Albion Insurance Co Ltd v Government Office (NSW) [1969] HCA 55; (1969) 121 CLR 342 at 345-6; [1969] HCA 55

Where there is said to be double insurance, the court should first examine the terms of both policies separately, and which responds and to what extent depends on their interpretation: Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59 at 67; Lambert Leasing Inc v QBE Insurance (Australia) Ltd (2016) 93 NSWLR 166; [2016] NSWCA 254 at [178]; M A Clarke, The Law of Insurance Contracts (5th ed, 2006). If it is the result that each would respond but for the existence of the other, the exclusions cancel each other out, and both insurers remain liable. It is a matter of construction by excluding from the category of co-existing cover any cover which is expressed to be itself cancelled by such co-existence: Weddell v Road Transport and General Insurance Co Ltd [1931] 2 KB 563 at 567-8; National Employers Mutual General Insurance Association Ltd v Haydon [1980] 2 Lloyd’s Rep 149 at 152; Lambert Leasing Inc v QBE Insurance at [176]-[178]; Malcolm A Clarke, The Law of Insurance Contracts (6th ed, 2009) at par 28-9B; Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271.

If in the case of double insurance, one policy contains an “other insurance” provision which converts the cover into excess insurance if that there be other “valid and collectible insurance”, and the other policy contained an “escape” clause by which it did not cover liability which “forms the subject of insurance by any other policy”, the combined primary effect of both provisions would be to deny liability under each policy because of the existence of the other, but the clauses cancel each other out with the result that both policies respond, and the insurer which indemnified the insured is entitled to contribution from the other: Weddell v Road Transport and General Insurance Company Ltd [1932] 2 KB 563; National Employers Mutual General Insurance Association Ltd v Haydon [1980] 2 Lloyd’s Rep 149 at 156; Lambert Leasing Inc v QBE Insurance (Australia) Ltd (2016) 93 NSWLR 166. The principle is applicable only where the insured is entitled to indemnity under both policies: Haydon. Valid and collectible insurance refers to insurance which has legal force issued by a solvent insurer: Clarke, The Law of Insurance Contracts at par 28-9B, citing Alabama Insurance Guarantee Association v Magic City Trucking Service Inc, 947 So 2d 849 at 854-855; Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271.

Such clauses do not have any effect different from two similarly worded competing excess clauses or two competing escape clauses, nor is there any significance if one is an excess clause and the other an escape clause. Each policy is to be construed independently and if each insurer would be liable but for the existence of the other policy, then the exclusions would be treated as cancelling each other out, both insurers are then liable: Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271.

If a policy contains a provision  that it would operate as excess insurance if there was “Underlying Insurance” as defined, and another policy contains an “escape” clause by which it did not cover liability which “forms the subject of insurance by any other policy”, it is not “Underlying Insurance” (which is defined as referring to a policy that provides cover for a risk, which save for the Underlying Insurance would be covered by the policy) because by virtue of its escape clause it does not cover the risk in question. The escape clause is designed to protect that insurer from contribution claims by excluding liability under the policy in circumstances where such potential liability for contribution might otherwise arise. In the absence of strong contradiction such as exists in relation to the meaning of “Underlying Insurance”, the words “the subject of insurance by any other policy” refers to insurance, an entitlement to indemnity, provided by that policy in relation to the subject claim, but not to that which might respond to some claims related in some fashion to the other policy but not to the claim under consideration: Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271.

In such a provision, the words, “forms the subject of insurance by any other policy”, rather than words such as “which is the subject of indemnity under any other policy”. look to the existence of a policy which covers the claim rather than whether the insured can actually obtain indemnity under it. A policy is to be given a businesslike interpretation, which would not be the outcome if the circumstances in which the clause excludes cover include the possibility that the other policy may not respond, leaving its insured without an indemnity under either policy: Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15]; Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271.

 

 

Section 45(1) of the Insurance Contracts Act 1984 (Cth) does not render an “other insurance” provision in a policy void if the insured has not “entered into” it. Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50; (2009) 240 CLR 391 at [26]; [2009] HCA 50; Lambert Leasing Inc v QBE Insurance (Australia) Ltd [2016] NSWCA 254; (2016) 93 NSWLR 166 at [119]- [133]; [2016] NSWCA 254.

 

 

 

The principles of contribution apply only when there is an obligation to indemnify under two or more insurances: see Albion Insurance Co Limited v Government Insurance Office [1969] HCA 55; (1969) 121 CLR 342 at 345, 350; [1969] HCA 55.

 

As to the operation of Master Policies in the context of other policies written as primary cover each must be looked at on its own merits by reference to the statement of how such cover might operate: Flexys America LP v XL Insurance Co Ltd [2010] Lloyd’s Rep. IR 132 at [20]; Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271;DK Derrington and RS Ashton, The Law of Liability Insurance (3rd ed, 2013) vol 2 at par 11-477.

If an expression is defined, effect should be given to it: In re George and the Goldsmiths and General Burglary Insurance Association Ltd [1899] 1 QB 595, 602, 607 and 609; Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd's of London [2019] NSWCA 271. See generally Perry Herzfeld, Thomas Prince and Stephen Tully, Interpretation and Use of Legal Sources: The Laws of Australia (2013, Thomson Reuters) at par 25.3.220.