Two recent Queensland cases have added clarification to the decision of the High Court in Zurich v Metals & Minerals (Speno Rail) (2009) 240 CLR 391 regarding the operation of Section 45(1) of the Insurance Contracts Act 1984 - “other insurance” provisions.
They show that care needs to be taken in applying the commercial interpretation of the High Court decision uncritically.
Section 45(1) of the Insurance Contracts Act 1984 provides –
45(1) where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.
In the Speno Rail case the insured took out its own professional indemnity cover but was also a named insured under the principal’s contract of insurance for the project. The High Court held that Section 45(1) had no application as the insured had not “entered into some other contract of insurance” when it was merely a named insured. Consequently at least part of the subject claim was the subject of double insurance and apportionment of indemnity between insurers.
On 30 November 2010 His Honour Justice McMeekin of the Supreme Court in Rockhampton handed down his decision in the case of Nicholas v Wesfarmers Curragh Pty Ltd & Ors  QSC 447. The Plaintiff commenced proceedings against the operator of the mine Wesfarmers Curragh (Curragh) and his employer engineering company, G & S Engineering (G & S), for damages for personal injuries suffered while working at the Curragh North Mine near Blackwater, Central Queensland.
G & S had cover with Brit extending to “principals and owners”. Curragh had its own policy of liability insurance with QBE 386 but claimed to be entitled to indemnity as a principal under the Brit policy. Brit relied on its “other insurance” clause to deny indemnity. That clause provided -
“5. Other insurance
Where allowable by law, this policy is excess cover and above any other valid and collectable 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.”
Brit argued first that the Curragh policy with QBE 386 was not “entered into” by Curra within the meaning of Section 45 so that Section 45 had no effect. The court dismissed this argument on agency principles.
As to Brit’s second argument His Honour acknowledged that the High Court in Speno Rail had suggested that Section 45 applied only where the insured was a party to both relevant contracts of insurance but concluded “albeit with some considerable hesitation” that the provision, being a remedial one intended to benefit insureds, they should be given “the fullest relief which the fair meaning of its language will allow”. He said that Brit’s interpretation of the section required it to be read as follows:-
“Where a provision included in a contract of general insurance (entered into by the insured) has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance …”
His Honour concluded that the “other insurance” clause in the Brit insurance policy was void by reason of the operation of Section 45 thereby giving rise to double insurance.
AMIL v CGU
On 27 July the Queensland Court of Appeal handed down its decision in Australasian Medical Insurance Ltd & Anor v CGU Insurance Ltd  QCA 189 which also dealt briefly with Section 45(1) of the Insurance Contracts Act 1984. That decision turned on the factual finding that the parties had not intended the CGU policy to cover the medical practitioners at Queensland Medical Laboratories (QML), the subject of the claim, who were intended to be covered by their own medical malpractice insurance. The court refused an appeal from AMIL for contribution from CGU holding that Section 45(1) had no application where the insureds in the respective policies were different persons.
These two (2) recent Queensland cases demonstrate that care needs to be taken in applying the conventional understanding of the operation of Section 45 of the ICA uncritically.
View the cases here: