Albion Insurance Co Ltd v Government Insurance Office

LOWER COURT District Court JURISDICTION : LOWER COURT DC2872/03 FILE NUMBER(S) : LOWER COURT Patten DCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40082/04

HANDLEY JA BEAZLEY JA TOBIAS JA

26 November 2004 MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LTD v QBE WORKERS COMPENSATION (NSW) LTD

The appellant insured Fresh Steamed Carpet Cleaner Pty Ltd against its liability as owner of a motor vehicle (pursuant to the Motor Accidents Act 1988 (NSW)) whilst the respondent insured it against workers compensation claims (pursuant to the Workers Compensation Act 1980 (NSW) ).

An employee of Fresh Steamed Carpet Cleaner Pty Ltd suffered injuries in a motor vehicle accident whilst in the course of his employment. Under the Workers Compensation Act 1987 , he was entitled to and received compensation from the respondent. The respondent commenced proceedings in the District Court to recover contribution from the appellant in respect of these payments claiming that the appellant had insured the employer against the same risk.

The appellant filed a motion for summary dismissal claiming that the double insurance principle could not apply because it had not insured the employer against its liability to pay compensation under the Workers Compensation Act .

The motion was dismissed in the District Court. The appellant appealed to this Court. HELD per Handley JA (Beazley and Tobias JJA agreeing):

(i) Where there is double insurance, the insured can claim under either policy but it is contrary to "general principles of justice" that his or her choice should leave one insurer with the whole burden; AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd (2001) 53 NSWLR 35 . [10]

(ii) The payments of workers compensation by the respondent not only discharged the employer's statutory liability to the worker under the Workers Compensation Act but, in accordance with s.151B(1)(b) of that Act, they also discharged the liability of the employer to pay damages to the worker. [6]

(iii) Any liability in damages that may have accrued at the time of the employee's accident had never matured into an actual liability or loss. Hence, neither insurer was under a liability for those damages. There was no inequality of burden, and so far as damages were concerned there was no burden at all. Therefore there was no basis for a claim for contribution. [13]

(iv) The payments for which contribution was sought were payments for workers compensation. However, the cover provided by the appellant clearly excluded payments under the Workers Compensation Act ; Motor Accidents Act 1988 , s.9(a) . [14]

(v) There is no double insurance unless each insurer is liable under its policy to indemnify the insured in whole or in part against the happening which has given rise to the insured's loss or liability; Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 . [20]

(vi) Where there is double insurance, as a result of choices made by an employee and their legal representatives, the liability which may have originally been covered by two policies may crystallise in the form of a settlement which places the whole burden on one of the insurers. This would not defeat the insurer's right to contribution. This however, does not affect the current situation where any liability which was originally covered by both policies was never crystallised and the liability that did crystallise was not covered by both policies. [22] ORDERS

2. Set aside the orders of Patten DCJ of 19 December 2003.

3. In lieu thereof order that the respondent's notice of motion of 8 October 2003 be dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40082/04

HANDLEY JA BEAZLEY JA TOBIAS JA

26 November 2004 MERCANTILE MUTUAL INSURANCE (AUSTRALIA) LTD v QBE WORKERS COMPENSATION (NSW) LTD Judgment 1 HANDLEY JA: This summons for leave to appeal from an interlocutory judgment of Patten DCJ raises a novel question of contribution between an employer's workers compensation insurer and its motor vehicle third party insurer. At the close of the oral argument the Court granted leave to appeal, directed the filing of a notice of appeal, and reserved its decision. 2 On or about 8 March 1993 Mr Thew (the worker), an employee of Fresh Steamed Carpet Cleaner Pty Ltd (the employer) suffered injuries in the course of his employment which are said to have arisen from the use or operation of a motor vehicle of the employer. The worker was entitled to compensation under the Workers Compensation Act 1987 (the 1987 Act) and received $303,847.30 including a payment of $134,895.34 in commutation of his future entitlements to weekly compensation pursuant to s 51 of the Act. These amounts were paid by the respondent, its workers compensation insurer. 3 The workers compensation policy also covered the employer against its liability to the worker for damages under the common law extension (1987 Act s 155(1)). The appellant insured the employer against its liability as the owner of the motor vehicle in respect of injury to the worker caused by the fault of the owner or driver of the vehicle in its use or operation (Motor Accidents Act 1988 (the 1988 Act) s 9). 4 The workers compensation insurer commenced proceedings in the District Court to recover contribution from the appellant in respect of its compensation payments claiming that the appellant had insured the employer against the same risk. The statement of claim alleged that the worker suffered his injuries in circumstances which entitled him to damages from his employer. Where an accident falls within both the 1987 and 1988 Acts s 151E(2) of the former provides that damages will be assessed under the latter. 5 The statement of claim alleged "dual insurance" under the two policies in respect of the employer's liability to the worker in damages and contribution was claimed accordingly. It did not allege that the worker had claimed damages against his employer and any such claim is now statute barred. The respondent nevertheless claims to be entitled to contribution because the accident created a liability in the employer to the worker in damages for which it was indemnified under both policies. 6 The payments of workers compensation by the respondent not only discharged the employer's statutory liability to the worker under the 1987 Act, but in accordance with s 151B(1)(b) of the 1987 Act they would also discharge, pro tanto, any liability of the employer to pay damages to the worker. The dual character of the payments was said to attract the principles of double insurance. 7 The appellant filed a motion for summary dismissal claiming that the double insurance principle could not apply because it had not insured the employer against its liability to pay compensation under the 1987 Act. The appellant admitted, for the purposes of its motion, that the facts alleged in the statement of claim were correct. This Court therefore must assume that the accident occurred in circumstances which made the employer liable to the worker in damages as his employer, and as owner of the motor vehicle. On that assumption the existence of double insurance and any right in the respondent to contribution are questions of law. 8 Patten DCJ was not persuaded that the principles of double insurance did not apply and dismissed the motion, largely in reliance on AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd (2001) 53 NSWLR 35 (the AMP case). The employer had double insurance there because its motor vehicle third party and workers compensation policies both responded to the worker's claim for damages, although the injured worker elected to sue only the driver and not the employer. The motor vehicle insurer paid the claim but the workers compensation insurer refused to contribute because it had not insured the driver. The employer who was insured had not been sued and had no claim under the workers compensation policy. 9 This Court upheld the claim for contribution on two grounds. We held that the question of double insurance had to be determined at the date of the casualty, and that "the right of contribution should [not] be defeated by the existence of a second layer of choice available to another party" (53 NSWLR at 40 [para 25]). 10 Where there is double insurance the insured can claim under either policy but it is contrary to "general principles of justice" that his choice should leave one insurer with the whole burden. This was the first layer of choice, and the second, considered in the AMP case, was where an injured party could sue one defendant or another or both and by doing so could leave one insurer with the whole burden. 11 That case, unlike the present, did not involve a choice between different rights. The injured worker recovered damages and the liability or loss which at the date of the casualty had been the subject of double insurance, did not remain potential only. The AMP case simply extended the contribution principle established since the time of Lord Mansfield where the insured had a choice, to a case where someone else had a choice which also could be exercised to leave one insurer with the whole burden. 12 In that case the liability that accrued at the time of the casualty matured into an actual liability or loss. Damages became payable and were paid by the motor vehicle insurer. In the present case any liability in damages that may have accrued on 8 March 1993 has never matured into an actual liability or loss. Damages never became payable and will never be paid. 13 In the events that have happened any liability in damages that arose at the time of the casualty has become entirely theoretical. Although this is the result of the choice of the worker that choice has not operated to place the whole burden of the liability for damages on one of the insurers. The result of his choice is that there is no liability for those damages on either insurer. There is no inequality of burden, and so far as damages are concerned there is no burden at all. The basis for a claim for contribution is lacking. 14 The payments for which contribution is sought were and remain payments for workers compensation. Section 9(a) of the 1988 Act defines the cover under the motor vehicle policy as insuring "against liability in respect of the death of or injury to a person caused by the fault of the owner or driver". The limits on the cover are clear and they are emphasised by s 16(a), which substantially re-enacted s 10(2)(a) of the Motor Vehicles (Third Party Insurance) Act 1942 and provides: "A third-party policy shall not extend to insure the owner or driver of a motor vehicle against: (a) a liability to pay compensation under the Workers Compensation Act 1987 … to a worker employed by the owner or driver …" 15 Mr Campbell SC relied on Australian Iron & Steel Pty Ltd v Government Insurance Office of NSW [1978] 2 NSWLR 59 to displace the effect of this exclusion. A worker employed by the steel company was injured in the course of his employment in a motor vehicle accident in circumstances which created a liability on the employer to pay damages to the worker. The employer was self insured under the Workers Compensation Act 1926 but its motor vehicle third party policy was with the GIO. 16 The employer paid $1809.55 compensation to the worker who brought proceedings for damages which he settled for $5000 clear of compensation payments. The judgment was paid by the insurer. When the employer claimed to be indemnified for its payments of compensation the insurer denied liability in reliance on s 10(2)(a) of the 1942 Act [para 14]. 17 Glass JA, who gave the principal judgment, held that the rights of the parties had to be tested on the hypothesis that the worker's action was tried to judgment. In that event his damages would have been assessed without regard to any compensation already paid which would be deducted before judgment was entered. Counsel for the insurer argued that because of the settlement the compensation payments were never part of the worker's damages but Glass JA disagreed. At 63-4 he said: "… I consider the proper analysis is that the payments had a dual character. They were, it is true, referable to an independent head of liability. But they were also stamped with another character viz that they were payments on account of damages for which credit would have to be given if damages were later recovered … The compensation and damages due to him … appear as two interrelated sums and not as two sums independently calculable by reference to separate considerations. Whenever damages are later recovered , compensation previously received can be proved in reduction of liability under a statutory plea of payment … The sums which were paid by way of compensation … were not recoverable under the third party indemnity. If the worker had failed to recover damages, the payments would have been made … in discharge of a liability to pay compensation in respect of which the employer was a self insurer …" (emphasis supplied) 18 It will be apparent that Glass JA held that payments of compensation only had this dual character "if damages were later recovered". In the present case this did not happen and the payments were made by the respondent in discharge of a liability to pay compensation and not otherwise. This liability was not insured by the appellant under its motor vehicle policy. 19 The point is clearer under the 1987 Act because s 151B(1)(b) provides: "(1) If a person recovers damages in respect of an injury from the employer liable to pay compensation under this Act: (a) … (b) the amount of any compensation already paid in respect of the injury concerned is to be deducted from the damages …" 20 There is nothing in Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 which requires this Court to hold that a right of contribution has arisen in this case. There the worker brought common law proceedings and recovered $16,143.84 for damages and costs which were paid by the workers compensation insurer. In their joint judgment Barwick CJ, McTiernan and Menzies JJ said at 346: "The element essential for contribution is that, whatever else may be covered by either of the policies, each must cover the risk which has given rise to the claim. There is no double insurance unless each insurer is liable under his policy to indemnify the insured in whole or in part against the happening which has given rise to the insured's loss or liability." 21 Kitto J said at 350: "… each policy must insure the same person against the very loss that in the event he has sustained, or the very liability that in the event he has incurred." 22 There is also nothing in the AMP case (2001) 53 NSWLR 35 which requires this Court to hold that a right of contribution has arisen in this case. There a liability in damages accrued at the time of the casualty which was covered by both policies. The injured worker brought an action to enforce his right to damages and recovered $450,000 inclusive of costs which was paid by the motor vehicle insurer. As a result of choices made by the worker and his legal representatives the liability which originally had been covered by both policies was crystallised by a settlement which placed the whole burden on one of the insurers, but we held that this did not defeat the latter's right to contribution. Nothing was said which governs the present use where any liability which was originally covered by both policies was never crystallised and the liability that did was not covered by both policies. The appeal therefore succeeds and the following orders should be made:

2. Set aside the orders of Patten DCJ of 19 December 2003.

3. In lieu thereof order that the respondent's notice of motion of 8 October 2003 be dismissed with costs. 23 BEAZLEY JA: I agree with Handley JA. 24 TOBIAS JA: I agree with Handley JA. **********

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