A warning for dual insurers and the effectiveness of excess clauses8 May 2018 | Insurance Issues
The NSW Supreme Court held that two different insurance policies, each containing excess clauses, negate the effect of the other excess clause where the practical effect of the clauses would be to deprive the insured of any cover.
- The operation of “other insurance” clauses in policies of insurance issued by QBE European Underwriting Services (Australia) (QBE) and Allianz Australia Insurance Limited (Allianz), both of which would otherwise have provided indemnity to Reed Constructions Australia Pty Ltd (Reed) for its liability to a worker injured on Reed’s construction site.
The plaintiff commenced proceedings against Reed for damages arising from personal injuries allegedly suffered during the course of his employment under Reed’s direction as “lent labour” on an RMS construction site. RMS effected insurance with Allianz that extended to cover contractors including Reed, although it was in issue whether it was the Allianz policy in force when the contract for the construction works was first entered into (the 2009 policy) or the policy in force at the time of the plaintiff’s accident (the 2011 policy) that was the relevant Allianz policy.
Reed also insured against third party liability with QBE.
Each of QBE and Allianz denied that its policy responded to the plaintiff’s claim by relying upon “other insurance” clauses in their respective policies.
The Decision at Trial
Rothman J found that the relevant Allianz policy that responded to the plaintiff’s claim against Reed (subject to the application of the other insurance clause) was the 2011 policy because the plaintiff’s accident occurred during its period of insurance.
His Honour then had to determine whether the “other insurance” clauses in the QBE policy and the Allianz 2011 Policy cancelled each other out; or whether they could operate together but not deprive Reed of indemnity entirely. It was common ground that s 45 of the Insurance Contracts Act 1984 (Cth) did not render the other insurance clauses void because Reed did not enter into the Allianz 2011 policy (rather RMS did so).
Despite each insurer arguing that its “other insurance” clause trumped the other insurer’s clause; Rothman J held that the clauses covered the same field despite being slightly differently worded. Both were excess clauses that purported to exclude coverage where another insurance policy covered the loss. His Honour held that when taken together, and giving each policy its ordinary, grammatical and commercial interpretation, each of these clauses created the absurd result that whichever policy one looks at, it is always the other one that is effective. Accordingly, the excess provisions were held to cancel each other out, applying the approach taken in Weddell v Road Transport and General Insurance Co Ltd  2 KB 563. This meant that both policies provided cover to Reed for its liability to the plaintiff and Reed was doubly insured for its liability to the plaintiff’s claim.
Implications for you
This case highlights, depending on the factual circumstances, the impotency of some other insurance clauses in an insurance policy if another policy has a similar other insurance clause. If the other insurance clauses cancel one another out, both policies will provide indemnity and the principles of double insurance will apply.
This case note was prepared by Onjawli Chakravarty, a graduate in our Insurance & Health Law team.