Section 45 Insurance Contracts Act rears its head in Queensland

Nicholas v Wesfarmers Curragh Pty Ltd & Ors [2010] QSC 447

The Supreme Court has recently handed down a decision that touched upon some of the section 45 Insurance Contracts Act (Act) issues dealt with by the High Court in the ‘Speno’ case (Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pty Ltd [2009] HCA 50), including the meaning of “entered into” a contract of insurance, agency relationships and contract formation.

Mr Nicholas had brought a personal injuries claim against his employer G&S Engineering and the operator of the mine he worked in, Wesfarmers Curragh Pty Ltd (Curragh). Curragh held liability insurance with QBE, and G&S Engineering held liability insurance with Brit. The court was asked to determine some preliminary insurance points in dispute between Curragh and Brit.

The definition of “insured” in the Brit policy included “principals”. Curragh sought indemnity from Brit on the basis that it was a principal. Brit refused the claim, arguing that the ‘other insurance’ condition in its policy limited its liability and reduced the cover to excess insurance only. The condition read:

Where allowable by law, this Policy is excess over 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 asserted that the QBE policy was “valid and collectable insurance” and that Brit’s liability was limited to providing excess coverage above Curragh’s insurance coverage with QBE. Curragh submitted Brit’s ‘other insurance’ condition was void under section 45(1) of the Act, which reads:

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.

Brit argued that the QBE policy was not “entered into” by Curragh, but by its parent company Wesfarmers for the benefit of Curragh (which was a wholly owned subsidiary of Wesfarmers). Brit also submitted that even if Wesfarmers had acted as Curragh’s agent, this would not be enough and that any contract of insurance must be entered into by the principal before section 45 would be triggered.

Curragh successfully contended that it had “entered into” the QBE contract with Wesfarmers acting as its agent.

There is no legal distinction between acting through an agent and acting on one’s own behalf as far as third parties are involved. The agent acts on behalf of the principal but the contract is formed directly between the principal and third party, with the same legal effects as though the principal had contracted directly with the third party.

The court rejected Brit’s submission that the contract of insurance must be entered into directly by the principal to attract the operation of section 45(1) of the Act. The court took the view that the applicability of section 45(1) should not depend on whether one chooses to act through an agent or on one’s own behalf when arranging insurance.

Having found that Curragh had “entered into” the QBE policy, the court declared Brit’s ‘other insurance’ clause void under section 45(1). Both the Brit and QBE policies therefore respond to the claim. In this double insurance situation, the doctrine of contribution will apply and the insurers will share in the costs of the claim.