Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

A similar situation arose in HIH Claims Support Limited v Insurance Australia Limited. 595 The case concerned the collapse of HIH Group, which resulted in the government-backed HIH Claims Support Scheme being established to enable HIH policyholders to access funds that would have otherwise been payable by the failed insurer. The Scheme made a claim payment on behalf of an HIH insured and, in turn, sought contribution from a second insurer (IAL) on the grounds of dual insurance. The High Court considered the basic principles of equitable contribution and referred to Albion Insurance, where Kitto J stated, ‘persons who are under co-ordinate liabilities to make good the one loss … must share the burden pro rata .’ 596 The High Court also considered whether a common obligation ‘of the same nature and to the same extent’ would arise if one insurer’s obligations arose under statute and the other insurer’s obligations arose under contract. 597 Caledonia North Sea Ltd v British Telecommunications plc 598 established that obligations regarding indemnity under a contract and an insurance policy do not constitute obligations ‘of the same nature and to the same extent ,’ the obligations under a contract being primary and the obligations under an insurance policy being secondary. 599 Overall, on review of the relevant authorities, the High Court found ‘ that equity will not intervene in the absence of a common legal burden or co-ordinate liabilities. ’ 600 Both insurers must be liable For dual insurance to apply, both insurers must be liable to the insured under their respective policies. Where the first insurer makes an ex gratia payment under its policy, it cannot claim contribution from the second insurer because the first insurer was not liable to make the payment under its own policy. However, principles of equity can intervene in those circumstances, and the first insurer may exercise rights of subrogation against the second insurer on the basis that the payment by the first insurer effectively discharged the second insurer from its burden to indemnify the insured. Rateable contribution clauses also create difficulties. In GRE Insurance Ltd v QBE Insurance Ltd, 601 the purchaser of a property obtained a fire policy covering the interests of the purchaser and the vendor. The vendor obtained a separate fire policy from QBE. Each policy contained a clause whereby if at the time of the damage there was another policy covering the property, the insurer would not be responsible for more than its rateable proportion of the loss. When fire damaged the property, the first insurer paid the claim and sought contribution from QBE. QBE argued that it was not liable to contribute because the first insurer, having paid more than its rateable contribution could not seek contribution for the excess payment. The Court rejected that argument as being contrary to the principles of equity and justice on which claims for dual insurance and contribution are based. Notwithstanding this, the insurer from whom contribution is sought is still entitled to challenge the first insurer’s settlement on the basis that it was not sound in law or was excessive. However, in the context of liability insurance, the first insurer does not need to prove that the insured was liable to the third party, only that the settlement was reasonable.

595 (2011) 244 CLR 72. 596 (1969) 121 CLR 342, 350. 597 BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 345. 598 [2002] 1 Lloyd’s Rep 553. 599 Ibid 559. 600 HIH Claims Support Limited v Insurance Australia Limited (2011) 244 CLR 72, 91. 601 [1985] VR 83.

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