Double Insurance



Double Insurance

Section 45(1) of the Insurance Contracts Act 1984 (Cth) provides:

This section renders void so-called “other insurance” provisions of general insurance contracts which limit or exclude the liability of the insurer to indemnify the insured against loss because the insured has entered into another contract of insurance in relation to the same risk.

The recent High Court’s decision in Zurich Australia Insurance Ltd v Metals & Minerals Insurance Pte Ltd & Ors [2009] HCA 50 considered whether section 45 applies to provisions which purport to exclude or limit liability where the insured is not a party to the other contract of insurance but is named in it as an insured person.

Zurich Australia Insurance Ltd (“Zurich”) was the insurer of Speno, who was contracted by Hamersley to provide rail grinding services. Speno was required to indemnify Hamersley against liability in the event of injury to Speno’s employees as a result of the negligence of Hamersley. Although not party to Speno’s insurance, Hamersley was included as a named insured under the policy. In addition, Hamersley obtained its own insurance with Metals & Minerals Insurance Pte Ltd (“MMI”). That policy contained an “other insurance” clause as a result of which the MMI policy operated as excess insurance to any other insurance taken out to insure against the same risk. When two Speno’s employees suffered injury, Zurich was required to indemnify Hamersley. Zurich sought a contribution from MMI, arguing that the “other insurance” clause was void under section 45 of the Insurance Contracts Act 1984 (Cth).

The High Court unanimously held that section 45 does not render an “other insurance” clause void where a person benefiting from the contract of insurance is not a party to that contract. Although Hamersley had benefit under the Zurich insurance policy, Speno, and not Hamersley, entered that contract of insurance with Zurich, so, in this instance, the wording of section 45 “the insured has entered into some other contract of insurance” was awarded its ordinary meaning.  As a result, the “other insurance” clause in the MMI policy had the effect of limiting MMI’s liability to excess insurance.

The Court also held that the section does not render void an entire “other insurance” clause of an insurance contract if that clause also includes other provisions to which section 45 does not apply.

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