Lambert Leasing, Inc. (Lambert) and Saab Aircraft Leasing, Inc. (Saab) sold an aircraft to Mackellar Mining Equipment Pty Ltd and Dramatic Investments Pty Ltd (the Partnership). The purchase agreement required the Partnership to indemnify Lambert and Saab and maintain an insurance policy which covered such an indemnity. The Partnership took out a policy with QBE, which named the lessee of the aircraft as the “insured”, and Lambert and Saab as “additional insureds” (the QBE Policy).
The aircraft crashed in Queensland and all on board died. The relatives of the deceased sought compensation and commenced proceedings in the United States of America against Lambert and Saab (the US Proceedings).
A policy with Global named SAAB AB and its subsidiaries (which included Lambert and Saab) as the “insured” (the Global Policy). Lambert and Saab made a claim on the Global Policy, seeking indemnity for the costs and liabilities incurred from the US Proceedings. Global indemnified Lambert and Saab’s claim (the Global Indemnity). Lambert and Saab also made a claim on the QBE Policy for the same loss. Lambert, Saab and Global entered into a deed which re-characterised the Global Indemnity as a limited recourse loan (the Deed). QBE did not indemnify Lambert and Saab, rather it reserved its rights with respect to indemnity until Lambert and Saab disclosed all relevant documents. Relevantly, both the Global and QBE Policies (collectively, the Policies) contained “other insurance” clauses.
Lambert and Saab commenced proceedings against QBE in the Supreme Court of New South Wales, claiming they were entitled to indemnity under the QBE Policy (the NSW Proceedings).
The Decision at Trial
The NSW Proceedings were dismissed. The trial judge found that s 45 ICA did not render the “other insurance” clause in the QBE Policy void; and Global had already indemnified any loss incurred by Lambert and Saab.
The Issues on Appeal
Lambert and Saab argued that the trial judge erred in finding that s 45 ICA required them to have “entered into” both Policies and that they did not satisfy such a requirement. Other issues for determination were whether the “other insurance” clauses contained in the Policies cancelled each other out and whether Global had already indemnified Lambert and Saab’s claim.
The Decision on Appeal
The Court of Appeal noted that in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391 (Zurich), the High Court found that “other insurance” clauses will only be void by s 45 ICA in circumstances where both contracts have been “entered into” by the relevant “insured” and the “relevant insured” is the named insured party, not a non-party insured.
Therefore, when determining whether Lambert and Saab had “entered into” both Policies, the Court of Appeal considered whether they were the named “insureds” under the Policies and whether they were involved in the negotiations of the Policies’ terms or paid the premium.
The Court of Appeal identified that the QBE Policy named the lessee of the aircraft as the “insured” and Lambert and Saab as “additional insureds”, resulting in Lambert and Saab being third party beneficiaries of the QBE Policy; the Global Policy named SAAB AB and its subsidiaries as the “insured” which inferred that Lambert and Saab, as SAAB AB’s subsidiaries, “held an insurable interest but were not contracting parties under the Global Policy”; and Lambert and Saab were not involved in the negotiation of the Policies’ terms and did not pay any part of the premium.
The Court of Appeal found the trial judge did not err in finding that s 45 ICA did not render the “other insurance” clause in the QBE Policy void because the Supreme Court and the Court of Appeal were bound by the findings in Zurich which therefore required Lambert and Saab to have “entered into” both Policies; and SAAB AB and the lessee of the aircraft were the named insureds under the Policies and were the entities which “entered into” the Policies.
The Court of Appeal also found that, where “other insurance” clauses were not void by s 45 ICA, the two “other insurance” clauses cancel each other out. In this case, both Global and QBE were liable and Lambert and Saab were entitled to elect which insurer indemnified their claim. The Court of Appeal found that the Deed resulted in Global indemnifying Lambert and Saab’s claim, resulting in Lambert and Saab not being entitled to seek indemnity under the QBE Policy. In such circumstances, Global was entitled to make a claim for contribution against QBE.
Implications For You
This decision reinforces the narrow scope of s 45 ICA and the High Court’s findings in Zurich, which only renders an “other insurance” clause void if the named insured has “entered into” both insurance policies. Given the increasingly narrow interpretation of s 45 ICA now being applied by the Courts, “other insurance” clauses may become more prominent in the market.