Case Note - Admiral International Pty Ltd v Insurance Australia Ltd; Brightcity International Trading Pty Ltd v Admiral International Pty Ltd [2021] NSWSC 1440

The NSW Supreme Court held that Brightcity International Pty Ltd, an importer of goods, was entitled to indemnity as a third party beneficiary under an Industrial Special Risks insurance policy issued by CGU Insurance to Admiral International Pty Ltd, a warehouse operator who stored Brightcity’s goods.

These proceedings arose after a fire at Admiral’s warehouse which damaged Brightcity’s goods. A number of claims were made. This article focuses on Brightcity’s claim for indemnity under Admiral’s ISR Policy as a third party beneficiary.

In arriving at its decision, the Court found that Brightcity fell within the “Interest of Other Parties’ clause in the ISR Policy. As such, section 48(1) of the Insurance Contract Act 1984 (Cth) allowed Brightcity to claim against CGU despite not being a contracting party to the Policy.

This follows the recent and related Full Federal Court decision of Insurance Australia Ltd t/as CGU Insurance v MOS Beverages Pty Ltd [2021] FCAFC 165 in which the Court, on Appeal, dealt with a similar claim by another customer of Admiral arising out of the same warehouse fire.

NB: this case note focuses on the Court’s consideration of third party beneficiary principles and does not discuss Brightcity’s claim for loss and damage against Admiral, or Admiral’s claim against CGU for indemnity under its own policy.

Background

This matter concerned loss and damage sustained by Brightcity International Trading Pty Ltd (Brightcity), an international trader, against Admiral International Pty Ltd (Admiral), a warehouse operator, and CGU Insurance (CGU), Admiral’s Industrial Special Risks (ISR) insurer.

A fire occurred at Admiral’s warehouse in April 2018 (Fire). Damage was caused to stock owned by Brightcity. Admiral held an Industry Special Risks Insurance Policy (ISR Policy) issued by CGU.

Issues before the court

The court was asked to determine three claims:

  1. Brightcity’s claim against Admiral for loss and damage to its stock;
  2. Admiral’s claim against CGU for indemnity under the ISR Policy; and
  3. Brightcity’s claim against CGU for indemnity under the ISR Policy as a third party beneficiary under section 48 of the Insurance Contracts Act 1984 (Cth) (Act).

This article focuses primarily on the third issue.

Brightcity argued that it was entitled to indemnity under the ISR Policy as:

  1. it was an ‘Insured’ as defined in the ISR Policy;
  2. in the alternative, it was an ‘Insured’ under the Policy by force of an endorsement, “SALESXB4”, which purported to extend the coverage to goods belonging to Admiral’s customers;
  3. again in the alternative, it had an insurable interest under the ‘Interests of Other Parties’ clause in the ISR Policy (IOP Clause) and therefore it was a third party beneficiary, as defined in section 11 of the Act.

Of these arguments, the Court considered the third argument first. Finding in Brightcity’s favour, the Court subsequently did not go into the first and second issues in any great detail.

The Court’s Analysis

Section 11 of the Act defines a ‘third party beneficiary’ 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.

Under section 48(1) of the Act, a third party beneficiary under a general insurance policy has a right to recover from the insurer even though the third party beneficiary is not a party to the insurance contract.

In considering whether Brightcity fit this bill, the Court closely considered whether Brightcity fell within the IOP Clause, which read:

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...

If Brightcity fell within the IOP Clause, it would be a person to whom the benefit of the insurance cover provided by the ISR Policy extended, satisfying the definition of third party beneficiary under section 11 of the Act.

The Court considered at length the recent Full Federal Court decision of Insurance Australia Ltd t/as CGU Insurance v MOS Beverages Pty Ltd [2021] FCAFC 165, which dealt with a very similar claim against CGU under the ISR Policy arising out of the same Fire by another customer of Admiral, MOS Beverages Pty Ltd (MOS). In that case, it was found that MOS could claim against CGU because:

  1. MOS, being a customer of Admiral, fell into a class within the IOP Clause as its ownership of the products and insurable interests were noted in Admiral’s records as well as the SALESXB4 endorsement;
  2. the interpretation of the Policy in favour of MOS is commercially sound as Admiral stands to gain an economic benefit from insuring the full value of the products for MOS;
  3. The SALESXB4 endorsement operates as a basis for section 48 of the Act to operate for a third party to bring their own action against the insurer; and
  4. Documents evincing communications between MOS and Admiral established that MOS was a customer of Admiral where MOS would, from time to time, keep goods or products at Admiral’s warehouse. This was sufficient to establish that MOS’s insurable interests were specifically noted in Admiral’s records, as required under the IOP Clause.

The definition of ‘Property Insured’ in the ISR Policy meant that claims for damage to any property for which Admiral was responsible, including property which Admiral took into its possession as bailee, were covered.

Importantly, emphasis in MOS – and Brightcity’s case – was placed on the need to give commercial efficacy to the IOP Clause. That is, the right of customers of Admiral to bring a claim against its insurer was necessary to give practical effect to Admiral’s contractual promise to insure its customers’ goods.

The SALESXB4 endorsement was considered briefly in MOS, but not in as great detail as the IOP Clause, given that clause clearly afforded protection to Admiral’s customers by ensuring that they had a direct claim to indemnity from CGU.

In the present case, the Court noted the “identical circumstances” of Brightcity’s position. Documents evincing communications between Brightcity and Admiral clearly indicated Brightcity was a customer of Admiral, whose custody of the goods was well recorded. Accordingly, Brightcity had an insurable interest and was a third party beneficiary “to whom the benefit of the insurance cover provided by the contract extends” as defined in the Act, just as MOS was.

Concluding remarks

This case serves as a timely reminder for Insurers to ensure that their insurance policy wordings and schedules accurately reflect the parties they wish to cover.

It is also a reminder to businesses who suffer loss or damage to their property in the custody of another entity, that insurance cover may be available under the custodian entity’s policy. An entity need not prove they are an Insured under the custodian’s policy – merely that they are a person “to whom the benefit of the insurance cover provided by the contract extends”. In each individual case the precise words of the policy must be considered.