In GBRH Holdings Pty Ltd v Helicopter Services Cairns Pty Ltd  QCA 198, the construction of an agreement dictated which party would receive insurance proceeds despite the attempt of a party to argue for apportionment based on notions of fairness.
This case serves as a reminder that careful consideration should be given when drafting insurance clauses in agreements. In particular, they should set out the parties’ expectations in the event of a loss if there will be competing interests.
Helicopter Services Cairns Pty Ltd (the Owner) was the owner of a helicopter destroyed by accident on 1 June 2011. At the time of the accident, GBRH (the Operator) used the helicopter under a hire-purchase agreement. This agreement included the grant of put and call options whereby the Operator could purchase the helicopter or the Owner could sell the helicopter to the Operator for the purchase price by exercising an option prior to expiry. The agreement also allowed for the Owner to sell the helicopter to a third party for an amount not less than the purchase price and not materially less than the reasonable market value. The agreement made clear that the title to the helicopter did not pass to the Operator until a put or call option was exercised.
In accordance with this agreement, the Operator had taken out insurance to cover the risks arising from the operation of the helicopter. The policy was a composite policy insuring the respective rights and interests of the Operator, the Owner and the Commonwealth Bank who had a registered mortgage over the helicopter. The agreed value of the helicopter under the policy was $650,000. At the time the helicopter was destroyed, neither the put nor call options had been exercised. The insurer paid out the full insured value of the helicopter - after paying the amount owing under the mortgage, $247,706 was paid into the solicitor’s trust account pending determination of the parties’ competing claim to the proceeds.
At first instance, the Operator argued that it had secured insurance against the risk of loss of the entitlements it had in relation to the helicopter and was therefore entitled to part of the net proceeds under the policy. The Operator contended that even if it did not have a legal or equitable interest in the helicopter, it could avail itself by reason of s 17 of the Insurance Contracts Act 1984 (Cth) which operates to permit an insured to recover under an insurance policy if the damage to the insured subject matter causes pecuniary or economic loss even where the insured does not have an equitable or legal interest in the subject matter at the relevant time.
The Operator’s argument was rejected – the Operator was not entitled to indemnity in respect of the loss of the helicopter itself where it was not the owner of the helicopter. The Operator argued on appeal that the trial judge had erred in treating the policy as only insuring the property of the Owner of the helicopter as the policy also insured the interest of the Operator and therefore, reference should have been made to the operation of s 17. The Operator asserted that the loss suffered was both the use of the helicopter and the right to acquire the helicopter for a price less than its insured value.
Decision on appeal
The Supreme Court upheld the decision noting that the Operator was required under the terms of the agreement to effect insurance for the risk of loss or damage to the helicopter during its operation by itself in favour of the Owner (in addition to insuring against that risk for its own benefit). The Court acknowledged that whilst the Operator did have an insurable interest, through operation of the agreement, the Operator had contracted in favour of the Owner for the disposition of the net proceeds under the policy for the loss of the helicopter.
The agreement excluded any accrual to the Operator of any interest prior to the exercise of either option. Further, the agreement did not provide the Operator with any practical financial advantage or for any apportionment measuring the respective losses of the parties nor did it include that the Operator would receive any proceeds from an insurance payout in preference to the Owner.
The application of s 17 did not operate to assist the Operator; the rights and responsibilities were determined pursuant to the agreement and accordingly, the Owner was entitled to recover the whole of the proceeds under the insurance policy.