Claim by a third party beneficiary for indemnity under a principal’s policy for losses suffered post fire damage accepted by the NSW Supreme Court pursuant to s48(1) Insurance Contracts Act.
In 2018, Admiral International Pty Ltd (“Admiral”) operated a warehouse, in which it stored goods for clients, predominantly imported alcohol and tobacco.
Insurance Australia Ltd trading as CGU Insurance (“CGU”) insured Admiral against damage to or destruction of property at the warehouse and gross profit from business interruption under an Industrial Special Risks policy (“the ISR policy”).
On 16 April 2018, a fire that had been deliberately lit at the warehouse, destroyed the warehouse and its contents. Brightcity International Pty Ltd (“Brightcity”), a client of Admiral, had approximately $2.36m worth of goods stored at the warehouse, which perished in the fire.
The case concerned two claims:
- Admiral’s claim for indemnity on the ISR policy for the loss of its equipment in the warehouse and consequential loss of gross profits; and
- Brightcity’s claim for indemnity on the ISR policy for the loss of its goods (with an alternative claim against Admiral in contract if the claim for indemnity failed).
Whilst it was uncontested that the fire had been deliberately lit, CGU denied Admiral’s claim on the basis of arson fraud. Although much of the decision of the Supreme Court was occupied by the finding of arson fraud on the part of Admiral, the focus of this report pertains to the claim by the third party beneficiary, which was not defeated by this finding.
Brightcity alleged that the ISR policy should respond to its claim, as Brightcity was:
- an Insured as defined in the ISR Policy; or
- an Insured to the ISR Policy by way of an endorsement; or
- a third party beneficiary to the ISR policy, as defined in section 11 of the Insurance Contracts Act 1984 (Cth) (“Act”), as it had an insurable interest under the Interests of Other Parties clause of the ISR Policy.
CGU denied that the ISR Policy extended coverage to Brightcity.
The decision at trial
Brightcity relied on the Interests of Other Parties (“IOP”) clause in the ISR Policy, which relevantly states (emphasis added):
The insurable interests of only those lessors, financiers, trustees, mortgagees, owners and all other parties specifically noted in the records of the Insured shall be automatically included without notification or specification; the nature and extent of such interest to be disclosed in event of damage.
Where the insurance covers the interests of more than one party, any act or neglect of an individual party will not prejudice the rights of the remaining party/parties; provided the remaining party/parties shall, immediately on becoming aware of any act or neglect whereby the risk of damage has increased, give notice in writing to the Insurer(s) and on demand pay such reasonable additional premium as the Insurer(s) may require.
It was found that if Brightcity falls within the IOP clause, then its entitlement to claim indemnity for its loss directly from CGU would be assured by s 48(1) of the Act, as follows:
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 contract.
“Third party beneficiary” is defined in s 11 of the Act as:
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.
The Court found in favour of Brightcity’s direct claim for indemnity in reliance on the IOP clause and s 48(1) of the Act based on the authority of the decision of the Full Court of the Federal Court in Insurance Australia Ltd v MOS Beverages Pty Ltd  FCAFC 165. Relevantly, in that case MOS Beverages Pty Ltd (“MOS”) was another customer of Admiral whose goods were also damaged in the subject fire who had sought indemnity directly from CGU under the ISR policy.
It followed that the Court determined Brightcity was a customer of Admiral whose goods were “from time to time and in variable amounts […] kept at the warehouse premises of Admiral and sufficiently noted in the records of Admiral, as required by the IOP clause.
Whilst CGU advanced arguments in support of construing the IOP clause more narrowly than in the proceedings with MOS, the Court considered itself bound to follow the decision in the MOS proceedings.
Even if a policy holder is not entitled to coverage, this will not necessarily impinge upon the rights of a third party beneficiary. When considering who might be intended to be covered by the policy, it is important to review the insuring clauses, specifically any clause dealing with the rights of a party not named in the policy.