In the case of Lambert Leasing Inc. v QBE Insurance (Australia) Ltd1, the New South Wales Court of Appeal considered a number issues arising from double insurance and the applicability of “other insurance” clauses, following an air disaster.

The decision confirms that an insured cannot generally recover from an insurer payment for losses where another insurer has already paid in respect of the same loss, notwithstanding the characterisation of the insurance payment as a loan to be repaid by the proceeds of other insurance.

Background

The appellants, Lambert, sold an aircraft to a partnership which leased it to a third party. The aircraft crashed, killing all on board. The victims’ relatives commenced proceedings in the United States, against the appellants. The appellants claimed under an insurance policy with the first insurer in relation to the US proceedings. The first insurer agreed to indemnify the appellants as subsidiaries of the named insured.

The appellants and the first insurer later discovered a policy of insurance with the second insurer which the partnership had been required to obtain as part of the aircraft purchase agreement. The agreement also contained an indemnity in favour of the appellants arising from the partnership’s “use and operation” of the aircraft.

The two policies each contained “other insurance” clauses which sought to limit the insurers’ liability by reason of the insured having entered into another policy of insurance.

The appellants claimed indemnity from the first insurer, which declined indemnity pending resolution of a dispute over access to reports which the appellants refused to provide due to privilege.

The appellants commenced proceedings against the second insurer and the partnership in the Supreme Court of New South Wales seeking a declaration of indemnity. The proceedings were dismissed as being premature.

Subsequently, the US proceedings settled and the first insurer paid the settlement and the appellants’ defence Costs. The first insurer also entered into a deed with the appellants (Deed) which characterised past and future payments as a loan to be repaid with insurance proceeds received from the second insurer.

The Appellants appealed the decision of the primary judge, having settled the US proceedings.

Appeal

The appeal considered whether s45 of the Insurance Contracts Act 1984 (Cth) (ICA) rendered the second insurer’s “other insurance” clause void and, if not, whether the two “other insurance” clauses cancelled each other out. The court held that, for s45 of the ICA to apply, the appellants must have “entered into” both contracts of insurance. Although the appellants were either ‘named insureds’ or ‘additional insureds’ under the policies, they did not negotiate terms or pay premiums and therefore failed to establish they had “entered into” the policies. As s45 of the ICA did not apply, the “other insurance” clauses cancelled each other out.

Were the appellants entitled to indemnity from the Partnership under the Agreement?

The Court of Appeal unanimously held that the appellants had been indemnified by the first insurer and were precluded from being indemnified twice. The first insurer was liable to (and did) indemnify the appellants and re-characterising the payment as a “loan” did not change this position. Therefore, the appellant’s claim against the second insurer failed.

The decision confirms that an insured cannot recover from an insurer payment for losses where another insurer has already paid in respect of the same loss. The characterisation of the insurance payment as a loan to be repaid by proceeds of other insurance did not alter this.