HIH Claims Support Ltd v Insurance Australia Ltd [2001] HCA 31

Background

In our June alert, we referred to the case of HIH Claims Support Ltd v Insurance Australia Ltd which was heard in the High Court on 2 June 2011.  The judgment was handed down yesterday.

The case involved the allocation of liability following damage to a large and valuable video screen which occurred at the time of the 1998 Grand Prix event. 

Steele was insured under a policy issued by a company in the HIH group (“the HIH Policy”).  After HIH’s collapse in 2001, the HIH Claims Support Scheme (“the Scheme”) was established by the government and HIH Claims Support Ltd (“HCSL”) was appointed as trustee and administrator of the Scheme.  Steele, upon confirmation of his entitlement to indemnity under the HIH Policy, was eligible for assistance from the Scheme.  In general terms, Steele agreed to assign to HCSL his right to receive any benefit from any claim made under the HIH Policy and to make any claims against any other parties. 

Steele was also an insured under a policy issued by SGIC General Insurance Ltd.  All of SGIC’s rights, liabilities and obligations subsequently vested in Insurance Australia Limited (“IAL”).

HCSL had paid a part of Steele’s liabilities under a judgment against him.  HCSL then sought contribution from IAL.  Further details of the facts can be found here

Proceedings below

At first instance, Hollingworth J held that the liability of HCSL was not coordinate with IAL’s indemnity obligation and thus HCSL had no entitlement to contribution from IAL.  The Court of Appeal dismissed the appeal.  It agreed that HCSL and IAL’s liabilities were not coordinate but for different reasons to Hollingworth J.  HCSL appealed to the High Court.

High Court

The High Court was unanimous in dismissing the appeal and holding that the obligations of HCSL and IAL were not coordinate liabilities.  Therefore HCSL’s claim for contribution from IAL failed.

Gummow ACJ, Hayne, Crennan and Kiefel JJ found that HCSL and IAL’s obligations were not "of the same nature and to the same extent" because:

  1. There was no common interest or common burden between the HCSL and IAL obligations.  If IAL had paid Steele under its insurance policy before HCSL had formed a contract between it and Steele, Steele would not have been eligible for assistance under the Scheme.  Steele and HCSL would never have entered into contractual obligations with each other and the possibility of double indemnification in respect of Steele's loss would not have arisen. 
  2. Since HCSL undertook no enforceable obligations under the Scheme until a payment was made, IAL would never have had an opportunity to bring a claim for contribution against HCSL.
  3. The risk undertaken by HCSL could not be described as the same risk undertaken by IAL.  The offer of assistance by HCSL was conditional upon Steele's assignments of his rights under the HIH policy, covering events which had already occurred.  It could not be said that HCSL’s contract to indemnify Steele, made after the HIH Group's insolvency, and coming into existence upon payment in respect of Steele, and IAL’s contract of insurance covering Steele were the "one insurance".  

The High Court held that a "community of interest" between obligors was not a sufficient condition for the operation of an equity to contribute in circumstances where the obligations in question were qualitatively different, as they were in this case.

Heydon J also found that HCSL failed in its claim for contribution but gave separate reasons.

We will provide further analysis of this case and issues arising out of the doctrine of contribution in our next Insurance and Reinsurance Update.