Enter into a contract of insurance: s 45 of the Insurance Contracts Act

 

Lambert Leasing Inc. v QBE Insurance (Australia) Ltd [2016] NSWCA 254

Full text of decision

Whether s 45 requires the insured to have “entered into” both contracts of insurance

  1. Resolution of this issue requires a close consideration of the decision of the High Court in Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; [2009] HCA 50.
  2. Section 45 of the Insurance Contracts Act provides:

“Other insurance” provisions

(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 State or Territory, the provision is void.

(2)  Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract.

  1. The primary judge decided (at [71]) that he was bound by Zurich to hold that s 45 requires that the “insured” referred to in s 45(1) must be a party to both the first and second mentioned contracts of insurance in that section:

In my view I am bound by Zurich to hold that the reference to insured in s 45 means the party who contracted with the insurer on whom the claim is made and who is also a party to the second policy.

  1. The issue in Zurich was whether s 45 applied to a provision which purported to exclude or limit liability where the insured was not a party to the other contract of insurance but was named in that policy as an insured person.
  2. The matter had a disrupted history en route to the High Court and the present issue was only agitated in the High Court after leave was granted to add a ground of appeal as follows (at [10]):

The Appeal should be upheld on the ground that section 45(1) of the Insurance Contracts Act 1984 operates such that the phrase ‘the insured has entered into some other contract of insurance’ applies to the situation where a person has the benefit of a contract of insurance even though not a party to that contract of insurance himself or herself.

  1. In Zurich the relevant issue was whether, as the appellant in that case submitted, s 45 should be construed as if it read (at [26]):

Where a provision … has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured [including a person entitled under s 48] has entered into [an arrangement giving it cover under] some other contract of insurance … the provision is void.

  1. The reference to “a person entitled under s 48” is a reference to a third party beneficiary under a contract of general insurance.
  2. The High Court said of the appellant’s submission, at [26]:

That submission should not be accepted. The text of the provisions of the Act with which s 45 must be read points inexorably to the conclusion that s 45 is only concerned with “other insurance” provisions affecting double insurance where the insured is a party to the relevant contracts of insurance. It does not allow room for a construction which would include a non-party insured among the ranks of those who have “entered into” the relevant contract. The inclusion of persons not parties to the relevant contract would be inconsistent with the ordinary or any plausibly extended meaning of “entered into” in relation to contracts. In so saying, it must be acknowledged that the purpose of s 45 as appears from the ALRC Report and the relevant Explanatory Memorandum is not so confined as to indicate such a construction. There is no distinction made in the Report or the Explanatory Memorandum between “other insurance” provisions purporting to affect double insurance which includes non-party insurance, and double insurance where the insured is a party to the relevant contract. The most that can be said is that the Report seems to have proceeded upon the assumption that the problem of “other insurance” clauses arose in cases in which the insured was a party to both contracts. However, notwithstanding the generality of the mischief to which s 45 was directed, the words “entered into” are not capable of encompassing a non-party insured.

  1. The High Court plainly found that the submission made by the appellant in Zurich should be rejected.
  2. The judgment of French CJ, Gummow and Crennan JJ necessarily involved a rejection by the High Court of both sets of italicised words in paragraph [125] above, which the appellant in Zurich had submitted was the way s 45 should be construed. Further, their Honours held at [26] that s 45 is onlyconcerned with “other insurance” provisions affecting double insurance where “the insured is a party to the relevant contracts of insurance” [italics added], noting the plural.
  3. The reasons of their Honours Hayne and Heydon JJ expressly agreed with this part of the reasons of the decision of French CJ and Gummow and Crennan JJ. They said (at [38]-[39]):

The limitation on MMI’s liability provided by the Underlying Insurance Terms could apply in two different circumstances.  First, the limitation could apply where Hamersley itself effected insurance coverage specific to a particular project, agreement or risk.  Secondly, it could apply where another party effected insurance coverage on behalf of Hamersley.  In respect of the claim now in question, the second operation of the Underlying Insurance Terms applied.

The second operation of the Underlying Insurance Terms was not a limitation of MMI’s liability for the reason identified in s 45(1) of the Act. It was not a limitation “by reason that [Hamersley] has entered into some other contract of insurance”. Hamersley had not entered any contract of insurance with Zurich. Speno, not Hamersley, had made the Zurich contract. And as the joint reasons explain, nothing in other provisions of the Act, or in the history of the Act, provides any footing for reading the relevant expression in s 45(1) – “the insured has entered into some other contract of insurance” – otherwise than in accordance with its ordinary meaning.

  1. Accordingly, the authority of the High Court for the proposition that the “insured” must have “entered into” each of “the relevant contracts of insurance” is clear. That finding is part of the ratio of Zurich and binding on this Court. Even if dicta, this Court would be bound to follow it as it is plainly “seriously considered”: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at 151 [134] and 159 [158].
  2. No doubt, as the appellants submitted in this case, this means that the word “insured” appearing in s 45 has a different and more limited meaning to the word “insured” appearing in s 76 of the same Act. In s 76 the word “insured” includes a third party beneficiary entitled to make a claim under s 48.
  3. The High Court in Zurich explained that this conclusion was driven by the express reference in s 45 to the requirement that the insured be the person who has “entered into” the other contract of insurance. So much is clear from the passage in Zurich at [25]:

Section 56(1), dealing with fraudulent claims, distinguishes between such claims made “under a contract of insurance” and claims made “under this Act … by a person who is not the insured under a contract of insurance”. Section 76, which is to be read with s 45, confers an entitlement upon an insured to proceed against two or more insurers who “are liable under separate contracts of general insurance to the same insured in respect of the same loss”. The condition of entitlement is the liability of the insurer, which may arise as a matter of contract or pursuant to s 48.

  1. The primary judge correctly held that he was bound by the High Court to conclude that s 45 of the Insurance Contracts Act rendered void “other insurance” provisions only in contracts where both relevant contracts were “entered into” by the relevant insured.

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