You make a deal which requires you to indemnify the other party, so you take out insurance. Now there are two insurance policies to cover one loss – or are there? Which insurer pays – and can it get the other one to pay up too? The High Court has once again looked at double insurance, and shed some more light on this complex issue, although its answers won’t please all insurers (HIH Claims Support Ltd v Insurance Australia Ltd  HCA 31).
Oh no, my insurer has gone broke
Mr Steele’s scaffolding business was sub-contracted to erect a scaffold as part of the 1998 Australian Grand Prix. One of his scaffolds collapsed, and as a result one of the "jumbotron" video screens operated by Screenco Pty Limited was damaged.
The Australian Grand Prix Corporation had insured itself, its contractors and its sub-contractors (including Mr Steele) with another policy issued by SGIC General Insurance Limited, which is now owned by Insurance Australia.
As any prudent business person would, Mr Steele had taken out his own general liability insurance policy. Unfortunately, it was issued by a company in the HIH Group.
Screenco sued Mr Steele and won. Mr Steele had already put in a claim to HIH and received $80,000 for his legal costs, but by the time the case was actually heard, HIH had collapsed, so he was on the hook for the actual damages and the other side’s costs.
The Federal Government established a scheme to sort out the HIH mess. As one of HIH’s policyholders (and hence an unsecured creditor), Mr Steele was able to assign his rights as a policyholder to HIH Claims Support Ltd; in return he got 90 percent of the judgment sum and other parties’ costs that he’d been ordered to pay. Exit Mr Steele, no doubt a wiser, sadder man.
HIH Claims Support Ltd then turned to SGIC, for equitable contribution of half of the amount it had just paid out.
Why the High Court said HIH Claims Support Ltd had to carry the entire payment
HIH Claims Support Ltd is not an insurer, so section 45 of the Insurance Contracts Act or “other insurance” clauses don’t come into play here. The decision here turned entirely on whether HIH Claims Support Ltd and Insurance Australia had co-ordinate liabilities.
The crux of HIH Claims Support Ltd’s argument was that the HIH policy and the SGIC policy involved co-ordinate liabilities. While it hadn’t issued the HIH policy, it had discharged a burden which was in substance the same burden. That should be enough.
For the High Court, however, it wasn’t. HIH Claims Support Ltd did not step into the shoes of HIH and become exposed to all the claims under policies issued by HIH and to contribution claims from co-insurers of HIH. Instead, it stepped into Mr Steele’s shoes because he had assigned his rights to it, which meant that HIH Claims Support Ltd became an assignee creditor which could lodge a proof of debt in HIH's liquidation.
It was not in substance in the same position as HIH. Its obligations to Mr Steele were not "of the same nature and to the same extent" as Insurance Australia’s obligation in its capacity as co-insurer of HIH in respect of Mr Steele’s liability, and they had no common interest or common burden because:
- if SGIC had paid out under its insurance policy before Mr Steele assigned his rights, MrSteele would not then have been able to assign his rights, and no issue of double indemnification would have arisen;
- since HIH Claims Support Ltd undertook no enforceable obligations under the Scheme until a payment or the first in a series of payments was made, Insurance Australia would never have had an opportunity to bring a claim for contribution against it; and
- Mr Steele only got paid under the scheme once he had assigned his rights to HIH Claims Support Ltd, covering events which had already occurred. HIH Claims Support Ltd’s risk was therefore not the same as SGIC’s, entered into before anything had occurred. HIH Claims Support Ltd’s contract to indemnify Mr Steele and SGIC’s policy were not the one insurance. The obligations here are qualitatively different.
What does this mean for you?
The decision itself should not be a significant cause for concern on the part of insureds or insurers. It turns on the strict application of principles of equitable contribution based upon co-ordinate liabilities.
It represents a return to basics by the High Court and is to be contrasted with the so-called "extended contribution principle" on the determination of when liabilities are co-ordinate, for the purposes of establishing double insurance, in cases such as AMP Workers Compensation (NSW) Ltd v QBE Insurance Ltd  NSWCA 267 and Zurich Australian Insurance Ltd v GIO General Ltd  NSWCCA 47.
The High Court’s strict line on contribution means that it will be harder for insurers to call on insurance policies issued by others unless there is a common burden, and not just a common interest.