Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

CHAPTER 14 – OTHER INSURANCE

Indemnity insurance policies commonly contain other insurance provisions that provide that an insurer’s liability for the claim will be excluded or limited where other insurance applies to the same loss. The obvious problem is that if both policies contain such a clause, an insured could be left without cover. Section 45 of the ICA seeks to avoid potential injustice to an insured. It provides that where a provision included in a policy has the effect of limiting or excluding the insurer’s liability under the contract because the insured has entered into some other policy, the provision is void. The section does not, however, apply to a policy that provides insurance cover for some or all loss not covered by a policy specified in the first-mentioned policy. The section renders such clauses void unless they specifically identify the other policy - for example, where an insured takes out excess layer insurance in addition to its primary policy and that excess policy is specifically noted to be in excess of the primary layer policy. Section 45 was applied in Zurich Australian Insurance Limited v Metal and Minerals Insurance Pty Ltd, 606 which was the High Court appeal arising from the circumstances in the Speno v Hamersley case discussed in chapter 13. To briefly recap, Hamersley engaged Speno to maintain its rail tracks. Two workers employed by Speno were injured through Hamersley’s negligence while performing work under the contract. Both workers made a claim against Hamersley for damages. When it received the claims, Hamersley had two relevant insurance policies available to it. First was its own policy, which it had entered into with MMI. Second was Speno’s policy effected with Zurich in accordance with the terms of the maintenance contract. The Zurich policy extended to Hamersley as a named insured. Hamersley sought indemnity from Zurich under the Zurich policy, and Zurich subsequently paid the claims. Zurich then sought contribution from MMI based on the principles of double insurance. MMI countered by relying on the other insurance clause in its policy and argued that the MMI policy was excess to the Zurich policy. MMI’s other insurance clause provided that ‘in the event of the insured being indemnified under such other insurance effected by or on behalf of the insured … this policy shall be excess insurance ’. Zurich argued that section 45(1) of the ICA rendered the MMI’s other insurance clause void. The key to understanding section 45 is to start by ensuring that you are considering the correct ‘ other insurance ’ clause. In Zurich, it was the other insurance clause in the MMI policy that was under challenge. The focus of the argument was whether Hamersley had ‘entered into some other contract of insurance’ (being the Zurich policy) as contemplated by section 45. The Zurich policy was arranged by Speno on behalf of Hamersley. Hamersley was a non-contracting party. The High Court found that the phrase ‘entered into’ was limited to the circumstances where the insured is a party to the relevant insurance contracts. The High Court said that section 45 did not allow room for an interpretation that included a non-party insured among those who had ‘entered into the relevant contract’.

606 (2009) 240 CLR 391.

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