Collyear v CGU Insurance Limited

[29]

…. 7 The policy with Lloyds relevantly identified the property insured as extending to "property belonging to the Insured or for Damage to which property the Insured is legally responsible or for which the Insured has assumed responsibility to insure …" (2 Blue 238, and cf 2 Blue 241). The policy relevantly gave the following indemnity: "In the event of any physical loss, destruction or damage … the Underwriters will … indemnify the Insured in accordance with the applicable basis of settlement" (2 Blue 240). The relevant basis of settlement was the cost of reinstatement (2 Blue 241). 8 The policy with Lloyds also had a term concerning interests of other parties, which was relevantly as follows: "The insurable interest only of those lessors … specifically noted in the records of the Insured shall be automatically included …" (2 Blue 243). It was common ground that this provision had the effect of including in the insurance the insurable interests of the Trustee. 9 The CGU policy taken out by the Council explicitly extended to the subject premises. This policy had terms concerning the property insured and concerning the interests of other parties which were relevantly similar to the terms in the Lloyds policy; but it was not suggested that by reason of those terms, the interest of Emibarb in the restaurant premises and the responsibility of Emibarb for those premises was covered by the CGU policy; and the case was conducted below and on appeal on the basis that it was not. The CGU policy also contained the following term, headed "Difference in Conditions": In the event that any of the Property insured hereunder is subject to a guarantee, warranty or maintenance agreement in respect of Damage, then this Policy will apply to the extent that such guarantee, warranty or maintenance agreement does not meet the extent of any loss which is or would be otherwise insured by this Policy. 10 On 11 January 2001, the Council, in accordance with clause 8.2.4, notified Emibarb that the Council required the damage that had been incurred to the premises to be repaired (2 Blue 305). 11 On 8 February 2001, the Council wrote to the agent for Lloyds to formally register the Council's interest in the building on the Lloyds policy of insurance for the same, and requested the agent to provide the Council with a claim form "which it will lodge with you for the purpose of ensuring the rectification of the fire damage to the kiosk building" (2 Blue 306). However, there was no evidence that the Council ever made a claim on the Lloyds policy, and it seems clear that it did not. 12 On 11 April 2001, solicitors acting for Lloyds wrote to Emibarb referring to "the claims made by Emibarb and Wollongong City Council as manager for the Stuart Park Reserve Trust in respect of the fire at the Lagoon Seafood Restaurant on 9 January 2001." The letter went on to report that, pending completion of investigations, underwriters were unable to grant indemnity; but that on a without prejudice basis, underwriters had no objection to an interim payment on account to Emibarb in the sum of $500,000. It appears that such a payment was then made. 13 On 24 May 2001, the solicitors for Lloyds wrote a letter to Emibarb in the following terms (2 Blue 345-46): 1. We refer to our two letters dated 11 April 2001 and are Instructed to inform you that, subject to the following conditions, Underwriters have agreed to grant indemnity to both Emibarb Pty Limited and the Stuart Park Reserve Trust in respect of the claims under the policy arising out of the fire at the Lagoon Seafood Restaurant on 9 January 2001: (a) the grant of indemnity is subject to the terms, conditions and limitations of, and exclusions to, the policy and is made on the facts and circumstances of which we are presently aware. As you know, we are yet to complete our inquiries into the circumstances surrounding the fire and, in particular, are yet to receive copies of the Police and Fire Brigade reports, as well as the Brief to the Coroner. Further, we are yet to complete our inquiries of the Wollongong City Council, which we will do. Underwriters reserve their right to review the grant should it subsequently become apparent that the terms and conditions of the policy have not been complied with or facts and circumstances come to light which may affect indemnity. We will let you know if and when that situation arises;

[56]

Submissions 18 Mr Watson SC for Lloyds submitted that the principles concerning contribution between insurers are as set out in the judgments of the High Court of Australia in Albion, particularly in the following passages. At 345-46, Barwick CJ, McTiernan and Menzies JJ said this: There is double insurance when an assured is insured against the same risk with two independent insurers. To insure doubly is lawful but the assured cannot recover more than the loss suffered and for which there is indemnity under each of the policies. The insured may claim indemnity from either insurer. However, as both insurers are liable, the doctrine of contribution between insurers has been evolved. It began in the second half of the eighteenth century with Lord Mansfield's decisions with respect to marine insurers and there is no doubt that it now applies generally to insurance which provides the insured with an indemnity. There is no reason why the doctrine should not apply to insurance against liability to third parties and there is every reason in principle that it should. The doctrine, however, only applies when each insurer insures against the same risk, although it is not necessary that the insurances should be identical. Thus one insurer may insure properties A and B against fire and the other insurer may only insure property A against fire. Again, one policy may be for a limited amount and the other may be for an unlimited amount. One policy may cover the risk of a whole voyage and the other may cover only part of the voyage. Differences of this sort may affect the amount of contribution recoverable but they do not bear upon the question whether or not each insurer has insured against the same risk so as to give rise to some contribution. 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.

[62]

(d) the co-insurer has not paid out any monies to meet its liability to the insured. 20 Mr Watson submitted that those practical tests were met in this case. 21 Mr Watson submitted that it was irrelevant that, if the Trustee had claimed from CGU and CGU had paid the Trustee's claim in full, CGU would have been entitled by subrogation to the Trustee's rights against Emibarb and thus been reimbursed in full. Questions of rights to subrogation are separate and should be kept distinct from claims for contribution on the basis of double insurance: see Commercial & General Insurance Co Limited v Government Insurance Office of New South Wales (1973) 129 CLR 374 at 380-84. 22 Mr Watson submitted that it was also irrelevant that Lloyds had provided indemnity against risk through payment on the claim of Emibarb, not on the claim of the Trustee. He referred to AMP Workers Compensation Services (NSW) Limited v QBE Insurance Limited [2001] NSWCA 267; (2001) 53 NSWLR 35. In that case an employer had a compulsory third party motor vehicle policy with QBE over a truck, and also a workers compensation policy with AMP. One employee Mr Graupner was driving another employee Mr Mitchell in the truck in the course of employment, and through Mr Graupner's negligence Mr Mitchell was injured. Mr Mitchell sued Mr Graupner only, not joining the employer, and QBE met this claim. QBE then claimed contribution from AMP. AMP resisted this claim on the basis that the claim against QBE was made by Mr Graupner and not the employer, so that this was not a case where a right to contribution on the basis of double insurance arose. This contention was rejected by the Court of Appeal. Handley JA (with whom Mason P and Beazley JA agreed) said this at [24]: [24] In this case the employer had double insurance and Mitchell could choose his defendants, but in principle this should make no difference. The insured's decision to claim against one insurer rather than the other or both was not allowed to unjustly enrich the other, but contribution could be enforced so that all would share the burden equally. Similarly the more or less arbitrary decision by Mitchell to sue the driver and not the employer or both jointly should not be permitted to impose the whole burden on QBE to the exoneration of AMP. Both should contribute equally and would have done so if Mitchell had sued the employer or both driver and employer. 23 Mr Watson submitted it was similarly irrelevant that it was Emibarb, not the Trustee, that claimed against Lloyds. 24 Mr Watson submitted that the primary judge erred by treating as disentitling the fact that it was not the Trustee who made the claim against Lloyds, and not the Trustee who was paid. As shown by AMP v QBE, this was not disentitling. There was a congruence between the loss for which Emibarb was indemnified and the loss covered by CGU's insurance such as to establish entitlement to contribution. 25 Mr Donaldson SC for CGU submitted that the primary judge was correct. The interest of Emibarb covered by the Lloyds' policy was distinct from the interest of the Trustee covered by both policies: cf AMEV Finance Limited v Mercantile Mutual Insurance (Workers Compensation) Limited (No. 2) [1988] 2 QdR 351. 26 Mr Donaldson also relied on a Notice of Contention, asserting that the primary judge's decision should be affirmed on the basis that the "Difference in Conditions" clause applied. Mr Donaldson submitted that clause 8.2.4 of the lease amounted to a "guarantee, warranty or maintenance agreement" within the Difference in Conditions clause; and that meant that the CGU policy only covered losses not met pursuant to clause 8.2.4. 27 Mr Watson submitted that clause 8.2.4 did not fall within the ordinary meaning of the words "guarantee, warranty or maintenance agreement"; and he submitted further that these words, being in an exclusion clause in an insurance policy, should not be given a broad meaning.

[63]

Double Insurance 28 In my opinion, the primary judge was correct on the question he decided, for the reasons he gave. 29 In my opinion, the Lloyds policy covered Emibarb's interest as lessee, and extended to Emibarb's liability under clause 8.2.4 to reinstate the premises. This follows from the wording to the effect that the property insured included property "for Damage to which property the Insured is legally responsible", and the provision that Lloyds would, in the event of damage to that property, indemnify Emibarb to the extent of the cost of reinstatement. 30 The Lloyds policy also covered the Trustee's interest as lessor and owner, and required Lloyds to indemnify the Trustee in the event of damage. However, since the obligation was no more than to "indemnify" the Trustee, this obligation would not result in any liability to pay money unless the Trustee suffered loss against which it was to be indemnified. 31 It is true that immediately after the fire, the Trustee had suffered a loss; but the Trustee (through the Council) required Emibarb to reinstate the premises pursuant to clause 8.2.4 and that was done. So by about July 2004, the Trustee's loss had been eliminated, not by any payment under the Lloyds' policy but by Emibarb's compliance with its obligation under clause 8.2.4. 32 Accordingly, in terms of the judgment of Barwick CJ, McTiernan and Menzies JJ in Albion, although each policy did cover the same risk to the Trustee, the Lloyds policy in addition covered a different risk to Emibarb, namely the risk that Emibarb would be required to reinstate the premises under clause 8.2.4; and the payment actually made by Lloyds was in respect of that different risk. In terms of the judgment of Kitto J in that case, although both policies did cover identical losses of identical insureds (the Trustee), the Trustee did not receive any indemnity against that loss from the insurer. 33 In terms of the test suggested in Australian Eagle Insurance, the Trustee was not paid under either policy. In terms of the test suggested in Drayton, Lloyds did not pay out any sum in respect of its liability to indemnify the Trustee. 34 The case of AMP v QBE is distinguishable. It is true that in that case the payment by QBE was in response to a claim made by an insured different from the insured under the AMP policy; but there was no payment made to that insured. The insurance was against liability to the injured person. No payment was made to either insured; and the payment that was made to the injured person discharged the (joint) liability of both insureds. Although the claim was made by the employee, the indemnity provided operated equally for the benefit of the employee and the employer. In that sense, it was the identical risk that was covered by both policies and discharged by the payment under one of them. 35 The view I am supporting that the interest of Emibarb, and the risk to Emibarb insured against, are different from the interest of the Trustee, and the risk to the Trustee insured against, is confirmed by North British and Mercantile Insurance Company v London, Liverpool and Globe Insurance Company [1876] 5 Ch 569. 36 Although the principles concerning subrogation are not directly applicable, it is in my opinion pertinent to note that if the Trustee had given notice under clause 8.2.4, Emibarb had totally failed to comply, the Trustee had not pursued Emibarb but had claimed under the CGU policy, and the Trustee had been paid in full under that policy, then CGU would have been subrogated to the Trustee's rights under 8.2.4 to claim damages from Emibarb. Prima facie then, Emibarb would have been entitled to an indemnity from Lloyds for the amount recovered from it by CGU. 37 For those reasons, in my opinion the appeal should be dismissed.

[66]

43 Under the terms of its lease the tenant had a conditional obligation to reinstate the premises if they were damaged or destroyed. They were destroyed by fire on 9 January 2001 and by giving written notice to the tenant the landlord made the obligation to reinstate unconditional. 44 The tenant had a fire policy with Lloyds, represented by the appellant, which covered it and the landlord for their respective rights and interests. The rights and interests of the tenant included its liability to reinstate the premises if required by the landlord. Section 1 of the policy dealing with "material loss or damage" relevantly defined the "property insured" as: "All real … property of every kind and description … belonging to the insured or for which the insured is responsible, or has assumed responsibility to insure prior to the occurrence of any damage …" (blue 2/241, 238). 45 The Lloyds' policy covered the tenant's liability, in the events that happened, to reinstate the premises. It also covered the interest of the landlord under cl 1 of the Memoranda to Section 1 which provided: "Interests Of Other Parties The insurable interest of only those lessors, financiers, trustees, mortgagees, owners and all other parties specifically noted in the records of the insured shall be automatically included without notification or specification; the nature and extent of such interest to be disclosed in the event of damage. (2/243). 46 The landlord also had the benefit of a CGU policy taken out by Wollongong Council which covered it against damage to or the destruction of the premises. It was common ground that the CGU policy did not insure the tenant's interest, or its obligation to reinstate. 47 The tenant claimed under the Lloyds' policy and received $3,750,000.00 in full settlement. Lloyds claimed contribution from CGU and have appealed from the judgment of McDougall J who dismissed their claim. 48 There is no dispute about the basic principle governing contribution in cases of double insurance. In Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342, 345-6 (Albion) Barwick CJ, McTiernan and Menzies JJ said: "The doctrine … only applies when each insurer insures against the same risk, although it is not necessary that the insurances should be identical … The element essential for contribution is that … 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." 49 In the same case Kitto J said at 352, with the concurrence of Windeyer J: "What attracts the right of contribution between insurers … is not any similarity between the relevant insurance contracts … but is simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained". 50 This is a case where the landlord was covered under both policies and there was, to that extent, double insurance, but the tenant was only covered under the Lloyds' policy. The question is whether the double insurance of the landlord attracts a claim for contribution for the settlement of the tenant's loss which was only covered by Lloyds. 51 Mr Watson SC for Lloyds submitted that the double insurance of the landlord was sufficient while Mr Donaldson SC for CGU submitted that the absence of double insurance for the tenant was fatal. 52 In the events that happened the double insurance of the landlord became irrelevant because it was indemnified by the reinstatement of the premises. It suffered no ultimate loss and could not maintain a claim under either policy. Mr Watson relied on the decision of this Court in AMP Workers' Compensation Services (NSW) Ltd v QBE Insurance Ltd (2001) 53 NSWLR 35 (AMP) for the proposition that the relevant date when double insurance must exist is the date of the casualty and subsequent events which throw the loss onto one insurer rather than the other are irrelevant. In that case the fact that the workers' compensation insurer ceased to be liable because of the election by the injured plaintiff to sue the driver and not the employer did not negative the existence of double insurance at the earlier and critical date. 53 The driver was only insured under the compulsory third party policy, but the employer was insured under both. As I said in that case: para [6]: "AMP did not dispute that the position would have been different if [the victim] had sued the employer and judgment had been entered against it for the same amount. In that event there would have been double insurance and QBE would have been entitled to contribution". 54 The negligent driver and the innocent employer were liable as joint tortfeasors: The Koursk [1924] P 140 CA, 155. The employer's vicarious liability remained until the plaintiff's judgment was satisfied by the third party insurer which discharged the employer's rights to indemnity under both policies. I concluded: para [25]: "The contribution principle is based on 'general principles of justice': Albion (at 351) per Kitto J. In my judgment there is no reason in precedent or principle why the right of contribution should be defeated by the existence of a second layer of choice available to another party. In a case such as the present it should not rest with either of the persons who had available choices to exercise those choices in a way which would leave the ultimate burden on one of the insurers without any right of contribution from the other." 55 The claim for contribution was upheld because payment by one of the insurers on risk discharged the liability of the other to the same insured. Emphasis was placed on what would otherwise be the arbitrary result of the election by the injured plaintiff to sue only one of the joint tortfeasors and thus throw the whole loss onto one insurer. 56 This Court referred to Commercial and General Insurance Co Limited v Government Insurance Office (NSW) (1973) 129 CLR 374 (CGI) where the judgment in favour of the injured plaintiff had been satisfied by the workers' compensation insurer who sought indemnity or contribution from the third party insurer. Indemnity was claimed because the workers' compensation insurer, in the exercise of its rights of subrogation, could sue the negligent driver on the principle in Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555 and recover the amount it had paid under the judgment. The negligent driver was only insured under the third party policy and it was argued that in this way the whole loss would ultimately be borne by that insurer. Neither counsel drew our attention to the reasons of the High Court for rejecting the claim for indemnity and the cases it considered in that context. 57 The High Court rejected the claim to indemnity relevantly because the right to claim against the third party insurer for indemnity rested with the driver, and not with the workers' compensation insurer either directly or by subrogation (at 381). The only right it had against the other insurer was for contribution, and for this purpose rights available by subrogation against others were irrelevant (at 380). The Court said (at 380): "The doctrine is not concerned with working out the rights of insurers and third parties. It is concerned with distributing the indemnity to which the insured is entitled under policies of insurance with two insurers." 58 The Court overruled Dawson v Bankers and Traders Insurance Co Ltd [1957] VR 491 where Sholl J held that the innocent employer's right to be indemnified by his negligent employee entitled the workers' compensation insurer to throw the whole loss onto the third party insurer. Sholl J said (at 492): "… there is no equity in one insurer to throw on another insurer any part of a loss which, on a full working out of all parties' rights, would be wholly borne by the former." 59 He followed North British & Mercantile Insurance Co v London, Liverpool & Globe Insurance Co (1877) 5 Ch D 569 CA (North British) but the High Court said in CGI (at 382) that although in that case the owner and wharfinger had each insured the goods for their full value against fire there was no double insurance. Each policy covered a different insured and neither covered the person insured under the other. The High Court said (at 382-3): "What was decided was that the grantors of the policy to the owner were not liable to contribute to the loss for which the wharfinger was primarily liable, but against which he was insured under the wharfinger's policy, so that the grantors of that policy were ultimately liable. It was accepted that, had the owners elected to sue under their policy, their insurer would have had a right by subrogation to sue the wharfinger in order to recover what they paid and that, in those circumstances, there being no double insurance, there was no right of contribution by the insurers of the wharfinger against the insurers of the owner. This authority does not bear upon the problems which arise when there is double insurance." 60 The Court concluded (at 384) that the workers' compensation insurer's rights of subrogation were irrelevant because: "…it is only in proceedings between the parties concerned, viz the employer, the employee and the third party insurer, that the questions which have arisen can properly be determined. In the working out of rights and obligations of insurers among themselves, it ought not to be assumed that there will be independent proceedings by some person not subject to the control of the insurer interested in the taking of such proceedings." 61 The independent proceedings referred to were a claim by the negligent driver for indemnity against the third party insurer. 62 Here there was double insurance of the landlord but not of the tenant. The tenant who made and enforced a claim under its Lloyds' policy did not make an election because it had no other insurance cover. 63 The landlord which had double insurance did not elect to throw the loss onto one of the insurers. It ultimately suffered no loss and could not claim against either. Thus in my judgment the fundamental basis of the contribution doctrine is not satisfied.

[67]

64 I referred to this in AMP v QBE at paras [22-3]: "The contribution principle applies where a creditor or other claimant has claims against more than one obligor for satisfaction of the same claim which he is free to enforce at his discretion. If the obligee does enforce his claim against one of the obligors, the others will be released. The release of others by the payment made by one was seen as inequitable, or in today's language it was seen as an unjust enrichment of the others at the expense of the one. The result was the right of contribution. Lord Eldon LC stated the underlying principle in Craythorne v Swinburne (1807) 14 Ves 160 at 165, 171; 33 ER 482 at 484, 486: "…whether they are bound by several instruments, or not, whether the fact is or is not known, whether the number is more or less, the principle of Equity operates in both cases; upon the maximum that equality is Equity: the creditor, who can call upon all, shall not be at liberty to fix one with payment of the whole debt; and upon the principle, requiring him to do justice, if he will not, the Court will do it for him … The doctrine of contribution … stands upon this; that all sureties are equally liable to the creditor; and it does not rest with him to determine upon whom the burthen shall be thrown exclusively; that equality is equity; and, if he will not make them contribute equally, this Court will finally by arrangement secure that object." These principles … were affirmed and applied in Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562 at 571-572. The principles apply to co-insurers as much as to co-sureties; see Albion at 351 per Kitto J." 65 North British (1876) 5 Ch D 569 CA established that separate policies in favour of different insured over the same property do not create double insurance where the interests covered are different. An insurance over the landlord's interest does not cover the same risk as an insurance over the tenant's interest even when the tenant is liable to reinstate. 66 The Lloyds' policy was not a joint policy covering both landlord and tenant. It was a composite policy which insured each for its separate rights and interests: Central Bank of India Ltd v Guardian Assurance Co Ltd (1936) 54 Ll LR 247, 260; General Accident Fire and Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388 CA, 404-5; Lombard Australia Ltd v NRMA Insurance Ltd (1968) 72 SR (NSW) 45 CA. There was a single tripartite contract although each insured had separate rights: Deaves v CML Fire and General Insurance Co Ltd (1979) 143 CLR 24, 40-1 (Deaves). 67 In the North British case at first instance (1876) 5 Ch D 569, 577 Jessel MR said: "The word 'property', as used in several of the conditions, means not the actual chattel, but the interest of the assured therein. What is the meaning of the words 'covering the same property' in the 9th condition? [A rateable proportion clause.] They cannot mean the actual chattel. The most absurd consequences would follow if you read those words in that sense. I am satisfied that this condition was put in to apply to cases where it is the same property that is the subject-matter of the insurance, and the interests are the same. It never could have been meant to apply, for example, to the cases of a tenant for life and remainderman, or a first mortgagee and second mortgagee, both insuring the same goods." 68 This is settled law. In Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533, 563-4 O'Connor J quoted this passage and continued: "Mortgagor and mortgagee may each have an insurable interest in the same building, just as a remainderman, a tenant for life, or a tenant for years may have. Each may take out a separate and independent insurance on his own interest. In each case the 'property insured' is the particular interest of the insured in the building covered by the policy". See also Portavon Cinema Co Ltd v Price and Century Insurance Co Ltd [1939] 4 All ER 601, 604; Deaves (1979) 143 CLR 24, 40. 69 In this case there was no double insurance for the reasons encapsulated in Albion (1969) 121 CLR 342, 350 by Kitto J: "… 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." 70 Although both policies insured the landlord against the loss it initially sustained, in the end it sustained none, and the CGU policy did not insure the tenant against the loss it sustained and the liability it incurred. In my judgment there was no relevant double insurance, the tenant made no election, and Lloyds are not entitled to contribution from CGU. The appeal should be dismissed with costs. **********

Collyear v CGU Insurance Limited - [2008] NSWCA 92 - NSWCA 2008 case summary — Zoe

At a glance

Court

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Source

Judgment (69 paragraphs)

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Legislation Cited (1)

Cases Cited (8)

Cited By (1)