'Other Insurance': High Court Affirms Narrow Application Of s.45 Of The Insurance Contracts Act 1984 (Cth)

The High Court of Australia (HCA) has handed down its much anticipated decision in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2009] HCA 50, dismissing the appeal and applying a strict interpretation of Section 45 of the Insurance Contracts Act 1984 (Cth) (s.45).

s.45 regulates the enforceability of what are known as 'other insurance' provisions and in Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd1 the Full Court of the Supreme Court of Western Australia concluded that s.45(1) was confined in its operation to a policy the insured "...has entered into" in a narrow sense.

The HCA agreed, thus allowing Metals & Minerals Insurance Pte Ltd (MMI) to rely upon an 'other insurance' provision (such a provision provides that an insurer is not liable to indemnify the insured if the insured is entitled to indemnity under another policy of insurance) to resist a claim for contribution from Zurich Australian Insurance Ltd (Zurich).

Background

Hamersley contracted Speno Rail Maintenance Australia Pty Ltd (Speno) to perform work for it (Works Contract) and during this process an employee of Speno, Mr Nolan, was injured. Mr Nolan subsequently filed a suit against Hamersley in the District Court of Western Australia and was awarded $1,259,969.00 in damages for his injury. Under clause 38 of the Works Contract, Speno effected an insurance policy with Zurich that provided indemnity to Hamersley under a principal's extension. Hamersley made a claim for indemnity in respect of its liability to pay damages to Mr Nolan. Zurich accepted the claim and discharged Hamersley's liability. Hamersley was also entitled to indemnity under a policy it held with MMI and Zurich sought contribution from MMI. MMI sought to resist Zurich's claim for contribution by relying upon an 'other insurance' provision in the MMI Policy. MMI submitted that it was not obliged to indemnify Hamersley because it had been indemnified under the Zurich policy. In reply, Zurich submitted that MMI was not entitled to rely on the other insurance provision because it contravened s.45(1) and was rendered void. s.45(1) provides: (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...