Professional Liability Guide

CHAPTER 13 – DUAL INSURANCE

The operation of section 54 of the ICA can be invoked by one insurer to set up the putative liability of another insurer to an insured as a basis for a claim for dual insurance contribution. 602 In that instance, an insurer cannot avoid a claim for dual insurance based on the argument that its policy would not have responded to the claim (if made by the insured) if the insured would have been able to invoke the protection of section 54. Making and defending claims for contribution Fundamentally, the approach to a dual insurance claim is no different from making or dealing with any other claim against a policy. It requires detailed consideration of the terms of both policies. Obviously, that will have been done in relation to the first policy (i.e. the policy of the insurer making the claim for contribution) when the claim under that policy is resolved. However, a similar analysis needs to be made of the second policy to determine whether it would have responded if the claim for indemnity had been made against it. Once it is determined that dual insurance applies, the first insurer may pursue a claim against the second insurer. It is important to remember that a claim for contribution based on dual insurance is a claim between the insurers directly. It is not a subrogated claim in the name of the insured. Section 76 of the ICA expressly recognises this right. Where dual insurance applies, an insurer is entitled to contribution for the payments made by way of indemnity. There is also no reason in principle why an insurer cannot recover contribution towards those expenses it reasonably incurred when investigating and resolving an insured’s claim (at least to the extent that the other insurer has benefited from those costs). Those costs may include legal, loss adjuster’s, and consultant’s costs. In first-party claims it is the responsibility of the insurer claiming contribution to establish that it is liable under its policy. Therefore, when the initial claim is adjusted and paid, it should be done against the various heads of cover under the policy so that it does not need to be done retrospectively. Furthermore, as the policy from which contribution is sought may often have similar heads of cover, adjusting a claim in this way may streamline the process for obtaining contribution. Invoices for costs incurred should contain sufficiently detailed narrations so that the nature of the work performed is properly understood. For insurers responding to a claim of contribution, these invoices should be considered in detail. For instance, contribution will not generally be available for: ƒ costs incurred in dealing with a claim by a party that is not an insured under the second policy; and ƒ legal and adjusting costs dealing with indemnity issues under the first policy. In the case of defence costs incurred on behalf of an insured, many insurance contracts provide that they are covered by an insurer only if permission is obtained to incur costs. In a contribution action, the second insurer will not usually have authorised the legal costs. In Government Insurance Office (NSW) v Crowley , 603 GIO had incurred legal costs in defending a negligence claim against the Sydney Turf Club. GIO sought contribution from the club’s workers’ compensation insurer. Although GIO was successful in recovering contribution, it could not recover legal costs because the workers’ compensation insurer had not consented to the legal costs.

602 Watkins Syndicate 0457 at Lloyds v Pantaenius Australia Pty Ltd (2016) 244 FCR 5. 603 [1975] 2 NSWLR 78.

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