The interaction between competing ‘other insurance’ clauses can be a fraught issue particularly in circumstances where the competing policies contain different types of clauses. In the recent decision of Allianz Insurance Australia Limited v Certain Underwriters at Lloyd's of London subscribing to policy number B105809GCOM0430 [2019] NSWSC 453, the New South Wales Supreme Court considered this issue in the context of a competing ‘excess clause’ and ‘escape clause’.
Background
Allianz Insurance Australia Limited (Allianz) was the issuer of a Construction Risks - Material Damage, Public and Products Liability Policy (Allianz Policy), which provided cover to Baulderstone Hornibrook Pty Ltd (Baulderstone). Baulderstone had successfully recovered under the Allianz Policy in respect of a claim involving an injured worker. Allianz then sought a contribution from Certain Underwriters of Lloyd’s of London (Lloyd’s) on the basis that Baulderstone was also a beneficiary under a Lloyd’s Public and Products/Contract Works Liability Policy (Lloyd’s Policy), which Allianz asserted also responded to the claim.
Relevantly, both policies contained the following ‘other insurance’ clauses:
- The Allianz Policy contained what is commonly referred to as an ‘excess clause’. In general terms, this provided that the Allianz Policy operated as excess insurance over and above any ‘Underlying Insurance’1 ‘or ‘any other valid collectible insurance’ held by the insured. Clauses 8.17 and 8.20 of the Allianz Policy relevantly provided:
8.17 Difference in Conditions Cover
In circumstances where an Underlying Insurance has been arranged, this Policy shall be deemed to be the ‘Master Policy’.
(a) In the event of the Insured being indemnified by an Underlying Insurance in respect of a claim for which indemnity is available under this Master Policy, the insurance afforded by this Policy shall be excess insurance over the applicable limit of indemnity of the Underlying Insurance.
(b) Coverage under this Master Policy shall not apply unless and until a claim for payment is made under the Underlying Insurance up to the amount of the Underlying Limit which, save for the limit of indemnity of the Underlying Insurance, would be covered by this Master Policy.
(c) Should any such Underlying Insurance, by virtue of its scope of cover, definitions, deductibles or excesses, conditions or limits of indemnity, not indemnify the Insured in whole or in part in respect of a loss, damage, liability, costs or expenses indemnifiable under this Master Policy, this Master Policy will provide indemnity to the extent that such indemnity is not provided by the terms and conditions of such Underlying Insurance. For the purpose of clarity, it is intended that indemnity by this Policy extends to cover losses not covered under the Underlying Insurance by virtue of the fact that such Underlying Insurance has a higher deductible or excess than the Excess under this Master Policy.
8.20 Other Insurance
Where allowable by law, this Policy is excess over and above any other valid and collectible insurance and shall not respond to any loss until such times as the limit of liability under such other primary and valid insurance has been totally exhausted…
- The Lloyd’s Policy contained what is commonly referred to as an ‘escape clause’, which purported to wholly exclude any liability which was the subject of insurance by any other policy. Of note, the Lloyds escape clause was a blanket ‘escape’, it was not expressed to be contingent on whether the other policy was claimed upon, responded to or paid out under. Clause 10.5 of the Lloyd’s Policy relevantly provided:
10 GENERAL EXCLUSIONS
This Policy does not cover liability ...
10.5 which forms the subject of insurance by any other policy and this Policy shall not be drawn into contribution with such other insurance.
Section 45 of the Insurance Contracts Act, which has the effect of rendering void those policy terms which have the effect of limiting or excluding the liability of the insurer by reason of an insured having entered into some other contract of insurance, did not apply in this case because Baulderstone was a third party beneficiary and not a contracting party to either policies.
As a consequence of the above, the Court was called upon to consider whether there was double insurance; i.e. was there overlap in cover such that Baulderstone was insured against the same risk with Allianz and Lloyd’s and if so, in the event that neither of the policies responded due to the existence of the other, whether the other insurance clauses ‘cancel each other out’ such that both insurers are liable (as provided in the often cited decision of Weddell v Road Transport and General Insurance [1932] 2 KB 563 (Weddell)).
Submissions and decision
Allianz argued that the Lloyd’s Policy was Underlying Insurance within the meaning of its policy; there was double insurance and by applying the principles in Weddell, the other insurance clauses under both policies cancelled each other out, meaning that Allianz, as the paying insurer, could claim a contribution from Lloyd’s. Lloyd’s argued the contrary position noting that when both policies are properly interpreted, only the Allianz Policy afforded cover to Baulderstone. The Court ultimately found in favour of Lloyd’s, leaving Allianz to bear the entire risk.
In considering the parties’ submissions, Justice Rees made it clear that the issues should be determined by examining each policy independently of the other rather than putting the 2 policies side by side and interpreting one policy by reference to the clauses in the other. Adopting this approach, her Honour held that this was not truly a case of double insurance, but instead was one in which the Allianz Policy responded and the Lloyd’s Policy did not. In her Honour’s view, the excess clause in the Allianz Policy specifically contemplated, and would provide cover in circumstances where, there was another policy arranged by the insured covering the same risk, but that other policy did not ultimately result in indemnity for the insured because of its precise wording (as was the case here).
Implications
The prospect of double insurance arises surprisingly regularly in practice but Australian courts have not previously given detailed consideration to the position involving a competing ‘excess’ and ‘escape’ clause. The Court noted in this case that each case must be considered on its own merits and in light of the specific language used. The usual principles of contractual interpretation should be applied in all cases.
The decision also supports the position that s 45 of the Insurance Contracts Act will not render void ‘other insurance’ provisions where the party seeking indemnity is not a contracting party, as most recently considered in Lambert Leasing Inc. v QBE Insurance (Australia) Ltd [2016] NSWCA 254.
The decision was clearly a win for Lloyd’s and its escape clause. It also reinforces the position that the outcome in Weddell (i.e. the mutual cancellation of terms resulting from double insurance) is not necessarily the most likely outcome from a court’s decision, and much will turn on the precise wording employed in each policy. Insurers faced with a potential double insurance scenario would do well to look carefully to ensure that their own policy response is not affected by another potentially operative policy. In addition, brokers looking to add greater certainty and expedite policy responses will benefit from close consideration to their client’s overall insurance program.
1 ‘Underlying Insurance’ was defined in the Allianz Policy to mean ‘a policy of insurance arranged by or on behalf of an Insured either voluntarily or pursuant to a Contract (which may include a policy(ies) arranged by joint venture partners, principals, contractors, etc.) that provides cover to an Insured for a risk, which save for the Underlying Insurance, would be covered by this policy. Underlying Insurance includes those policies identified in the Schedule’. No policies were identified in the Schedule.
