Dual Insurance and the Battle of the 'Other Insurance' Clauses
Dec 2019 | InsuranceDual insurance occurs where two or more insurance policies cover the same insured risk. Claims for dual insurance between insurers are often complicated by 'other insurance' clauses whereby a policy seeks to exclude or limit coverage because of the existence of the other policy.
In the recent decision of Allianz Australia Insurance Ltd v Certain Underwriters at Lloyd’s of London,1 the New South Wales Court of Appeal examined the interplay between an ‘excess clause’ in one policy and the ‘escape clause’ in another, and found both insurers were required to indemnify an insured for its liability to pay damages.
Background
On 8 September 2009, Mr Thomas Dempsey was working for a company subcontracted by Baulderstone Hornibrook Pty Ltd (Baulderstone) when he sustained serious injuries after being struck by a vehicle. Baulderstone was insured under two policies which would potentially respond to Mr Dempsey’s claim for damages, though it was not a contracting party to either policy.2 The two policies were:
- Policy 1 issued by Allianz Australia Insurance (Allianz) to the Roads and Traffic Authority of NSW (RTA) which covered Baulderstone as ‘any contractor’ of RTA (Allianz policy); and
- Policy 2 issued by Lloyd’s of London (Lloyd’s) to Bilfinger Berger Australia Pty Ltd (Bilfinger) which covered Baulderstone as a subsidiary of Bilfinger (Lloyd’s policy).
Dempsey obtained a consent judgement against Baulderstone for $1,025,000 which Allianz paid under its policy. Allianz then commenced proceedings seeking equitable contribution for the indemnity from Lloyd’s as another insurer liable to indemnify Baulderstone.
The Policies
The relevant clauses in each of the policies were as follows:
- Clause 10.5 of the Lloyd’s policy — which excluded cover for any liability forming the ‘subject of insurance’ by any other policy (escape clause);
- Clauses 8.17(a) and 8.17(b) of the Allianz policy — which made the Allianz policy operate in excess to any ‘Underlying Insurance’;3
- Clause 8.17(c) of the Allianz policy – which provided that where the Underlying Insurance did not respond, the Allianz policy would; and
- Clause 8.20 of the Allianz policy — which made the Allianz policy excess insurance to any other ‘valid and collectable insurance’.
First Instance
The key issue was whether the excess clauses in the Allianz policy and the escape clause in the Lloyd’s policy operated to deny liability under each policy because of the existence of the other policy. If that was the case, the clauses would cancel each other out because of the rule of construction in Weddell,4 and Allianz would be able to seek contribution from Lloyd’s.
At first instance, the Supreme Court found the Lloyd’s policy was ‘Underlying Insurance’ within the meaning of the Allianz policy. The Lloyd’s policy did not respond due to its relevant escape clause, which meant cl 8.17(c) of the Allianz’s policy was enlivened, and Allianz would be the sole responder to the loss. The Supreme Court considered cl 8.17(c) of the Allianz policy contemplated the exact scenario which had arisen: that is, where another policy had been arranged by an insured which covered the same risk, but because of the wording of that other policy, did not result in an indemnity for that insured.
The Appeal Decision
In a two to one judgment, the Court of Appeal overturned the Supreme Court’s finding that the Lloyd’s policy was ‘Underlying Insurance’. This was because, by virtue of clause 10.5, the Lloyd’s policy did not actually provide cover for Baulderstone’s risk. Therefore, cl 8.17 of the Allianz policy had no application and Allianz was not required to solely respond where the ‘Underlying Insurance’ did not.
This left clause 8.20 of the Allianz policy which dealt more broadly with any other ‘valid and collectable insurance’. This only required the Lloyd’s policy to be ‘valid insurance’,5 and there was no necessity for the Lloyd’s policy to actually respond. Clause 8.20 therefore excluded liability under the Allianz policy because it converted the policy to excess cover only due to the existence of the Lloyd’s policy, with the effect being that clauses 8.20 and 10.5 cancelled each other out.6
The Court of Appeal found both the Allianz and Lloyd’s policies responded to the loss, and Allianz could therefore seek contribution from Lloyd’s for Baulderstone’s liability to pay damages.
Conclusion
Instances of dual insurance arise frequently in practice, and the complexities surrounding ‘other insurance’ clauses continue to be the subject of much debate and dispute within the insurance industry. This decision highlights that escape clauses will not necessarily be resolute to avoid liability in instances of dual insurance, and reaffirms the need to examine the wording of escape and excess clauses carefully and in the context of the policy as a whole.
1 [2019] NSWCA 271.
2 This meant s 45 of the Insurance Contracts Act 1984 (Cth), which renders 'other insurance' provisions in a policy void, did not apply.
3 ‘Underlying Insurance’ was defined under the policy as referring to a policy that provides cover for a risk, which, but for the Underlying Insurance, would be covered by the Allianz policy.
4 Weddell v Road Transport and General Insurance Company [1932] 2 KB 563.
5 Being insurance which had legal force issued by a solvent insurer- Clarke, The Law of Insurance Contracts at par 28-9B.
6 Weddell v Road Transport and General Insurance Company [1932] 2 KB 563.
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