Double Insurance/Contribution and the s45 of the ICA (Cth.)

Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50 (2 December 2009)


The appeal centred on section 45 of the Insurance Contracts Act 1984 (Cth.)


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.”


The media release provides a helpful summary of the key issues in the judgment and how they were disposed of:


Provisions in general insurance contracts which limit or exclude the liability of an insurer to indemnify the insured party against loss by reason that the party has entered into another contract of insurance in relation to the same risk are rendered void by s 45 of the Insurance Contracts Act 1984 (Cth). The High Court held today, however, that s 45 does not render void provisions which exclude or limit liability where the insured is not a party to the other insurance contract, although named in it as an insured person. Neither does s 45 render void an entire clause of an insurance contract merely because it includes a provision to which s 45 applies. That part of the clause to which s 45 does not apply maintains its effect…


Further the High Court held that the term “provision” in s 45 did not operate to render void an entire clause of a contract, of which only one aspect was offensive to s 45. There was no requirement that s 45(1) be construed so that its operation depended entirely upon the way in which a particular contract had been drafted. In the result, only that aspect of the underlying insurance clause which defined coverage by reference to an “other insurance” contract to which the insured was actually a party was rendered void by s 45.



Their Honours  French CJ, Gummow and Crennan JJ delivered the leading judgment and dismissed the appeal by Zurich and cross appeals. Hayne and Haydon JJ, whilst also dismissing the appeals framed their reasoning differently.



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].


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].


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:


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.”


Two persons were injured and judgment awarded against Hamersley for $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 brought a contribution claim against MMI to indemnify for liability under the Hamersley policy.


Procedural history



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.


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 the primary judge of the construction of s 45(1), in its application to non-party beneficiaries under general insurance contracts, was not challenged in the Court of Appeal[11].


The grounds of appeal



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.”





Their Honours examined at length the legislative history including the Australian Law Reform Commission (“the ALRC”) 1982 Report on Insurance Contracts.



In consideration of the words “entered into” considered the ALRC and its use in other parts of the Act.


The conclusion appears at paragraphs 26 & 27:




Zurich submitted that s 45(1) should be construed as if the text read:

“Where a provision … has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured [including a person entitled under s 48] has entered into [an arrangement giving it cover under] some other contract of insurance … the provision is void.”


That submission should not be accepted. The text of the provisions of the Act with which s 45 must be read points inexorably to the conclusion that s 45 is only concerned with “other insurance” provisions affecting double insurance where the insured is a party to the relevant contracts of insurance. It does 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. The inclusion of persons not parties to the relevant contract would be inconsistent with the ordinary or any plausibly extended meaning of “entered into” in relation to contracts. In so saying, it must be acknowledged that the purpose of s 45 as appears from the ALRC Report and the relevant Explanatory Memorandum is not so confined as to indicate such a construction. There is no distinction made in the Report or the Explanatory Memorandum between “other insurance” provisions purporting to affect double insurance which includes non-party insurance, and double insurance where the insured is a party to the relevant contract. The most that can be said is that the Report seems to have proceeded upon the assumption that the problem of “other insurance” clauses arose in cases in which the insured was a party to both contracts. However, notwithstanding the generality of the mischief to which s 45 was directed, the words “entered into” are not capable of encompassing a non-party insured.



The preceding construction was that adopted by the primary judge[38]. Her Honour’s conclusion was not challenged in the Court of Appeal[39]. What was challenged was her application of s 45(1) to render void the whole of the Underlying Insurance clause.



The second construction question concerned the interpretation of “provision” whether it should be severed from the balance of the section.


Paragraph 29:


…In so holding, the primary judge adopted the approach to a similarly worded clause taken by Robin DCJ in the District Court of Queensland in Austress-PSC Pty Ltd v Zurich Australian Insurance Ltd[41]. His Honour’s reasoning in that case did not extend beyond the proposition that he could not detect any legislative intention in s 45(1) “that the provision be saved so far as it may have other effects.”[42] That approach, with respect, begged the question about the proper construction of the word “provision” in s 45(1).


The conclusion reached at paragraph 31 was:


This question requires attention to be given to the meaning of “provision” in s 45(1). The word “provision” has been described rightly as “a word of diverse meanings which slide easily into each other.” As Lord Simonds, who made that comment, observed[50]:


“It may mean a clause or proviso, a defined part of a written instrument. Or it may mean the esult ensuing from, that which is provided by, a written instrument or part of it.”


It is clear enough that “provision” in s 45(1) is used in the former sense. The relevant definition in the Oxford English Dictionary is[51]:


“Each of the clauses or divisions of a legal or formal statement, or such a statement itself, providing for some particular matter; also, a clause in such a statement which makes an express stipulation or condition; a proviso.”


The important element of that definition is that a provision provides “for some particular matter”. The fact that there may be more than one provision for a particular matter in one numbered clause of a contract is an accident of drafting. The inclusion in one clause of two statements of rights or liabilities in the form “if X, then Z” and “if Y, then Z” has the same effect as the inclusion of those statements in two separate numbered clauses. Each statement is a provision of the contract. There is no requirement to construe s 45(1) so that its operation depends upon accidents of paragraphing or numbering in contracts of insurance. The Underlying Insurance clause contains two statements each specifying a circumstance in which the Hamersley Policy will be reduced to an Excess Insurance policy. Each is properly regarded as a “provision” of that insurance contract. The question whether a clause of an insurance contract may contain a “provision”, within the meaning of s 45(1), with different elements so intertwined that neither can be regarded as a distinct “provision”, does not arise in this case. In the result, s 45(1) operates only to render void that part of the Underlying Insurance clause in the Hamersley Policy which relates to double insurance to which the insured is a party.


Hayne and Haydon JJ:



The limitation on MMI’s liability provided by the Underlying Insurance Terms could apply in two different circumstances. First, the limitation could apply where Hamersley itself effected insurance coverage specific to a particular project, agreement or risk. Secondly, it could apply where another party effected insurance coverage on behalf of Hamersley. In respect of the claim now in question, the second operation of the Underlying Insurance Terms applied.


The second operation of the Underlying Insurance Terms was not a limitation of MMI’s liability for the reason identified in s 45(1) of the Act. It was not a limitation “by reason that [Hamersley] has entered into some other contract of insurance”. Hamersley had not entered any contract of insurance with Zurich. Speno, not Hamersley, had made the Zurich contract. And as the joint reasons explain, nothing in other provisions of the Act, or in the history of the Act, provides any footing for reading the relevant expression in s 45(1) – “the insured has entered into some other contract of insurance” – otherwise than in accordance with its ordinary meaning.


Section 45(1) would be engaged in respect of the operation of the Underlying Insurance Terms where Hamersley itself entered a contract of insurance, but that was not this case. Section 45(1) did not engage with the operation of the Underlying Insurance Terms that applied in the circumstances of this case.


The extent of the avoidance worked by s 45(1) does not depend upon the way in which the particular insurance contract is drafted[52]. What s 45(1) makes void is a provision included in a contract of general insurance where it has the effect described in the sub-section. The Act’s reference to a provision having a particular effect is not to be read as reference to a discrete collocation of words. Section 45(1) directs attention to a particular operation which the contract would have according to its terms. It renders that operation of the contract void.


It follows that no question of severance arises. However the insurance contract may be drafted, the contract cannot be given an operation of the kind that is identified in s 45(1). That operation of the contract, which is to say, the provision made by the contract to that effect, is void. But no other operation of the contract is avoided.




Brisbane Barrister – David Cormack

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