Booze burns in warehouse blaze: Accounting for insurable interests of Third Party Beneficiaries
Claim by MOS Beverages (the Applicant), as a third party beneficiary, for indemnity for loss of goods under an Industrial Special Risks Policy issued by CGU (the Respondent) to Admiral International Pty Ltd (Admiral), and interpretation of policy wording regarding coverage of third parties.
Whether the Applicant is entitled to indemnity from the Respondent as a third party beneficiary under Section 48(1) of the Insurance Contracts Act 1984 (Cth), by reason of proper construction of the relevant policy wording and whether sufficient records of the Applicant’s insurable interests were kept.
On 16 April 2018, a fire occurred at a warehouse owned by Admiral International Pty Ltd (Admiral), who were insured under an Industrial Special Risks Policy (the Policy) issued by the CGU (the Respondent). MOS Beverages (the Applicant) conducted a business importing alcoholic and non-alcoholic beverages into Australia and would store beverages at the warehouse operated by Admiral. The Applicant sought to claim under the Policy as a third party beneficiary for the loss of stock from the fire.
The parties applied to the Court to determine policy construction and indemnity as a separate issue, with quantum to be determined at a later stage.
The Applicant did not submit that it was an insured under the Policy, rather the Applicant submitted that it was entitled to indemnity under the Policy as a third party beneficiary, as defined under Section 11 of the Insurance Contracts Act 1984 (Cth) (the Act), by virtue of Section 48(1) of the Act, which provides:
A Third Party beneficiary under a contract of general insurance has a right to recover from the insurer, in accordance with the contract, the amount of any loss suffered by the third party beneficiary even though the third party beneficiary is not a party to the contact.
Section 11 provides that a third party beneficiary is:
A person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends.
To establish themselves as a third party beneficiary, the Applicant relied on:
- a memoranda to the policy which provided an “Interests of Other Parties” clause, that the insurable interests of owners and “all other parties specifically noted in the records of the Insured, shall be automatically included (under the Policy)”; and
- an endorsement in the Policy Schedule, SALESXB4 Customers’ Goods, which provided that, “The policy extends to insure goods belonging to the Insured’s Customers at the Premises, to the extent that such goods are not otherwise insured”.
Further, the “Property Insured” under the Policy included property “for which the Insured is responsible, or has assumed responsibility to insure”.
The Respondent submitted that the mere mention of the Applicant’s goods within Admiral’s records was insufficient, and that identifiable and specific interests in property must be noted.
Chief Justice Allsop found that this was actually the situation in which the Applicant found itself. Records of Admiral (such as import notices and invoices) clearly identified the nature of the Applicant’s property and insurable interest at the warehouse. This is a different position to the earlier authority of Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd  4 VR 559, where it was found specific records were needed due to stricter policy wording requiring greater detail.
The decision (determined on the papers)
The Applicant was entitled to indemnity as a consequence of the “Interests of Other Parties” clause because the Applicant’s insurable interest was sufficiently noted in Admiral’s records. Otherwise, the ‘SALESXB4’ endorsement had the effect of simply clarifying the property insured under the policy and was not intended to undermine the requirement for notation of third party interests in the records of Admiral (as required by the “Interests of Other Parties” clause).
Implications for you
As an insurer underwriting like policies, it is crucial that you have a thorough understanding of what records are required by an insured to establish an insurable interest owed to a third party under the policy wording; otherwise, you are at risk of unintentionally indemnifying broad classes of goods.
As an insured or a third party where you place your goods in control of another party, it is important that both parties maintain clear, unequivocal records of who holds the goods attaching the insurable interests so that indemnity can be ensured even under strict policy wording.