John Collyear v CGU

Albion Insurance Company Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342 CASES CITED : American Surety Co of New York v Wrightson (1910) 103 L.T. 663 Government Insurance Office of New South Wales v Crowley (1975) 2 NSWLR 78

PARTIES : John Collyear acting on behalf of Euclidian Underwriting Ltd and Lloyds Syndicates 1173, 1229, 861, 1209, 588, 1242, 727, 114, 780, 994 and 190 (Plaintiff) CGU Insurance Limited (Defendant)

COUNSEL : G M Watson SC/A P Coleman (Plaintiff) S R Donaldson SC/R A Cavanagh (Defendant)

SOLICITORS : Hunt & Hunt (Plaintiff) Holman Webb Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50174/04 JOHN COLLYEAR ACTING ON BEHALF OF EUCLIDIAN UNDERWRITING LTD AND LLOYDS SYNDICATES 1173, 1229, 861, 1209, 588, 1242, 727, 114, 780, 994 and 190 v CGU INSURANCE LIMITED JUDGMENT

1 HIS HONOUR: Emibarb Pty Limited (Emibarb) conducted a restaurant and kiosk business known as "Lagoon Restaurant" from premises in Stuart Park, North Wollongong (the premises). The premises were destroyed by fire. Emibarb was insured under an industrial special risks policy underwritten by the plaintiffs (Euclidian). Euclidian ultimately agreed to indemnify Emibarb. It paid out to or at the direction of Emibarb substantial amounts of money including, it says, $2.3 million for the reinstatement of the premises. Euclidian claims that the lessor of the premises to Emibarb was itself entitled to be indemnified, in respect of the events just described, under an industrial special risks policy in favour of Wollongong City Council (the Council) underwritten by the defendant (CGU). In these proceedings, Euclidian claims from CGU contribution towards the amount paid by Euclidian for the reinstatement of the premises. Background 2 The first plaintiff is the lead underwriter of a syndicate at Lloyds known as the Euclidian Syndicate. On 15 January 1999, brokers known as Underwriting Solutions issued on behalf of Euclidian policy No. PR990088 (the Euclidian policy). That policy was renewed, on relevantly identical terms, in December 2000. It was current when the fire occurred. 3 On 23 August 1999, CGU issued policy No. 01R9905659 (the CGU policy). That policy was effective for three years from 30 August 1999, although it was subject to annual renewal. It was in fact renewed on about 28 August 2000. It too was current when the fire occurred. 4 Emibarb occupied and used the premises pursuant to a lease made on 21 March 1997. In its contentions in these proceedings, Euclidian alleged that it leased the premises from the Council pursuant to that lease (para C6). CGU admitted that contention (para 2 of its defence). At a late stage in the hearing, CGU sought and was granted leave to withdraw that admission. As the price of that grant of leave, Euclidian sought and was granted leave to file a reply alleging that the lessor to Emibarb was an entity known as "the Stuart Park (D580060) Reserve Trust" (the trustee), and that the trustee too was insured under the CGU policy. 5 The parties did not put before me any title search or other indication of the estate held by the trustee. I proceed on the assumptions (engendered by cl 3.3 of the lease, which makes it subject to the provisions of the Crown Lands Act 1989) that the trustee holds dedicated or reserved land pursuant to the provisions of Pt 5 of the Crown Lands Act, and that the Council has been appointed as manager of the Trust pursuant to s 95 of that Act. Thus, I conclude, the lessor to Emibarb was the trustee and not the Council. The issues 6 Against that background, the parties agreed that the real issues for decision were as follows: "Nb: Although the Euclidian interests acknowledge the issues raised in paragraphs 4 to 10 and 15 to 21 are arguments raised by CGU, it is not conceded that such considerations are relevant to the determination of a claim of the type made in this case.

1. Is the Wollongong City Council insured under the Euclidian policy by operation of Clause 1 of the Memoranda to Section 1 of the Euclidian policy?

2. Is the risk against which Wollongong City Council is insured under the Euclidian policy also insured under the CGU policy? 3. If the answer to the questions posed in 1 and 2 is yes, is anything more needed to establish the Euclidian interests' entitlement on the basis of double insurance?

4. What is the insurable interest of Wollongong City Council in the improvements which were destroyed at Stuart Park which is the subject of cover under the Euclidian Policy?

5. In order to attract an entitlement to contribution towards the advance payment to Emibarb of $500,000 referred to in recitals F and G of Deed of Release (PX1 page 328) and the further payment of $3,250,000 referred to in recital L (the "Payments"), is it necessary for the plaintiff to demonstrate that the Payments discharged a co-ordinate liability of the Euclidian interests and CGU to indemnify Wollongong City Council under the policies?

6. Was there any such liability in circumstances where: a. Emibarb was obliged under the terms of the lease to reinstate the premises and performed that obligation; and b. Wollongong City Council did not incur the cost of reinstating the premises? What was the quantum of that liability? 7. Does the Difference In Conditions provision in the CGU policy (page 77 of PX1) operate to place outside the scope of cover under the policy any losses arising from damage which Emibarb was obliged to repair under clause 8.2.4 of the lease? 8. Is Euclidian entitled to contribution towards the Payments on the basis that CGU has been relieved of the financial burden of indemnifying Wollongong City Council through Emibarb's performance of its obligations under the lease, where Emibarb's claim to be indemnified in relation to the cost of doing so was the subject of the settlement and payment recorded in the documents at pages 324 to 330 of Exhibit PX1? 9. In the event that Emibarb defaulted in the performance of its obligation to reinstate the premises, and the cost of reinstatement was met by CGU in response to a claim by Wollongong City Council under the CGU policy, would CGU have been subrogated to the Wollongong City Council's rights against Emibarb? 10. If so: a. can the liabilities of CGU and the Euclidian interests be regarded as co-ordinate in the relevant sense; and b. is it equitable, or is it a proper exercise of discretion to order that CGU contribute to the cost of the Payments? 11. Are the Euclidian interests entitled to contribution from CGU on the basis of the double insurance of Wollongong City Council?

Stuart Park Reserve Trust 12. Is the Stuart Park Reserve Trust insured under the Euclidian policy by operation of Clause 1 of the Memoranda to Section 1 of the Euclidian policy? 13. Is the risk against which the Stuart Park Reserve Trust is insured under the Euclidian policy also insured under the CGU policy? 14. If the answer to the questions posed in 12 and 13 is yes, is anything more needed to establish Euclidian interests' entitlement to contribution on the basis of double insurance? 15. What is the insurable interest of the Stuart Park Reserve Trust in the improvements which were destroyed at Stuart Park which is the subject of cover under the Euclidian Policy? 16. In order to attract an entitlement to contribution towards the advance payment to Emibarb of $500,000 referred to in recitals F and G of Deed of Release (PX1 page 328) and the further payment of $3,250,000 referred to in recital L (the "Payments"), is it necessary for the plaintiff to demonstrate that the Payments discharged a co-ordinate liability of the Euclidian interests and CGU to indemnify the Stuart Park Reserve Trust under the policies? 17. Was there any such liability in circumstances where: a. Emibarb was obliged under the terms of the lease to reinstate the premises and performed that obligation; and b. the Stuart Park Reserve Trust did not incur the cost of reinstating the premises? What was the quantum of that liability? 18. Does the Difference In Conditions provision in the CGU policy (page 77 of PX1) operate to place outside the scope of cover under the policy any losses arising from damage which Emibarb was obliged to repair under clause 8.2.4 of the lease? 19. Is Euclidian entitled to contribution towards the Payments on the basis that CGU has been relieved of the financial burden of indemnifying the Stuart Park Reserve Trust through Emibarb's performance of its obligations under the lease, where Emibarb's claim to be indemnified in relation to the cost of doing so was the subject of the settlement and payment recorded in the documents at pages 324 to 330 of Exhibit PX1? 20. In the event that Emibarb defaulted in the performance of its obligation to reinstate the premises, and the cost of reinstatement was met by CGU in response to a claim by the Stuart Park Reserve Trust under the CGU policy, would CGU have been subrogated to the Stuart Park Reserve Trust's rights against Emibarb? 21. If so: a. can the liabilities of CGU and the Euclidian interests be regarded as co-ordinate in the relevant sense; and b. is it equitable, or is it a proper exercise of discretion to order that CGU contribute to the cost of the Payments? 22. Are the Euclidian interests entitled to contribution from CGU on the basis of the double insurance of the Stuart Park Reserve Trust?

The amount of contribution [NB: Resolution of this issue is deferred] 23. In the event that the Euclidian interests are entitled to contribution from CGU, how should that contribution be quantified?" Relevant terms of the lease 7 Clause 8 of the lease dealt with insurance and damage. By cl 8.1.2, Emibarb was required to keep current "an insurance policy noting the interest of the landlord as trustee and the Minister as owner of the property covering … damage or destruction from any cause to or of all improvements comprised or erected on the property." 8 Clause 8.2 dealt with the consequences of damage to (including destruction of) the property. By cl 8.2.4, in the event of damage or destruction, Emibarb was required to repair that damage or destruction within a reasonable time if the trustee requested it in writing to do so. Relevant provisions of the Euclidian policy 9 It was common ground that Euclidian was obliged to indemnify Emibarb under the policy, and that the payment for or towards the cost of reinstatement was a payment that Euclidian was obliged to make. Accordingly, it is not necessary to set out the insuring clause. 10 The memoranda to section 1 of the policy (section 1 is the relevant section, dealing with "Material Loss or Damage") contained the following provision: "Interests Of Other Parties 1. The insurable interest of only those lessors, financiers, trustees, mortgagors, 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 event of damage. … " Relevant provisions of the CGU policy 11 In principle, and assuming for the moment that the Council had an insurable interest in the premises or that the trustee was entitled to indemnity under the CGU policy, the description of the premises fell within the insuring clause of the CGU policy, and within the definition of "the indemnity" in section 1 of that policy (which dealt with material loss or damage). Accordingly, it is not necessary to set out those provisions. 12 Again, the policy made provision for the interests of other parties. It was in terms that are either identical to or in no material way distinguishable from the equivalent provision in the Euclidian policy quoted in para [10] above. 13 Mr S R Donaldson SC, who appeared with Mr R A Cavanagh of counsel for CGU, conceded that the trustee, either in its own right as trustee or as lessor (or sub lessor) named in the lease, was "specifically noted in the records of the" Council for the purposes of that clause. 14 One of the endorsements to the CGU policy dealt with the "basis of settlement". There was a specified basis of settlement for "any Property Insured where values have been assigned". It was Euclidian's case that the "Kiosk/Restaurant" occupying either the whole or part of the premises at Stuart Park was property insured with an assigned value, and that the assigned value was $900,000. I am not sure that this is correct. The schedule to which Mr G M Watson SC (who appeared with Mr A P Coleman of counsel for Euclidian) referred provides a "Reinstatement with New Value" of $800,000, additional amounts of $5,000 and $40,000 for extra cost of reinstatement and removal of debris, and a "Limit of Liability" of $900,000. 15 The endorsements to the CGU policy also included what the parties called a "DIC" clause. That reads as follows: " DIFFERENCE IN CONDITIONS In the event of 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." 16 Mr Donaldson referred to some documents that, he said, showed that CGU had charged a lower rate for property (including the premises) that was subject to the DIC clause. He submitted that this reflected CGU's perception of a lower exposure where others had some obligation to make good losses that would otherwise be the subject of indemnity under the policy. Mr Watson did not accept this. He submitted that the lower rate was equally referable to the possibility of the benefit of contribution on the basis of double insurance. Contribution between insurers: the relevant principles 17 The principles are of some antiquity. They are easy to express, but in many cases difficult to apply. Entitlement to contribution 18 In Albion Insurance Company Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342, Barwick CJ, McTiernan and Menzies JJ said at 345 that double insurance exists "when an assured is insured against the same risk with two independent insurers". Their Honours said at 346 that where each insurer covers a risk that gives rise to the claim, then each must contribute to the satisfaction of that claim. 19 Their Honours said at 346 that the test of double insurance was simple. It asks "whether payment by one insurer of the policy holder's claim for indemnity would provide the other insurer with a defence to a like claim against it." If payment by one insurer would indemnify the policy holder against the risk, so that "[h]e had received all that he was entitled to receive under both policies" then that payment made by one insurer would discharge them both. Thus, their Honours said, "payment by one is made for the benefit of both, and, contribution is equity." 20 In the same case, Kitto J (with whom Windeyer J agreed) said at 352 that "[w]hat attracts the right of contribution between insurers … is not any similarity between the relevant insurance contracts as regards their general nature or purpose or the extent of the rights and obligations they create, but … simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained". 21 There was some dispute between the parties as to whether (as Mr Watson put it) the doctrine was specific to the law of insurance, or whether (as Mr Donaldson put it) the doctrine was an application of the equitable obligation of parties under a co-ordinate liability for the one loss to contribute rateably to the satisfaction of that loss. Kitto J in Albion made it plain (at 350) that "[t]he general doctrine of contribution … forms part of the common law" although, as his Honour had said earlier on the same page, it was analogous to the equitable obligation of those under a co-ordinate liability to share the burden pro rata; and both doctrines, according to his Honour, had "natural justice" as their basis. Basis of assessment of contribution 22 Where the obligation to contribute arises it is, as I have said, an obligation to contribute rateably to the loss. The practical expression of that obligation has varied from case to case. It was considered by Helsham J in Government Insurance Office of New South Wales v Crowley (1975) 2 NSWLR 78. His Honour said at 83 that the Court considering the question of contribution was entitled "to take into consideration all matters which go towards ensuring that there is a just result." 23 The dispute in Crowley related to the Sydney Turf Club's liability to an employee injured in the course of his duties. That liability (including for the employee's costs) was quantified at $43,768. The Club was entitled to be indemnified by two policies. One of those policies covered many risks, including the Club's statutory and common law liabilities to its employees; there was an overall limit of liability of $2 million at the relevant time. The other was a specific policy under the provision of the Workers' Compensation Act 1926, covering the Club's liability to its employees under that Act and at common law, with a limit of liability of $40,000. 24 Helsham J rejected the proposition that contribution should be prorated by reference to each insurer's proportion of the aggregate level of cover. He said at 84-85 "that justice would best be served" by prorating liability according to the actual liability of the two insurers for the particular claim. For the workers' compensation insurer, the amount of that liability was the policy limit: $40,000. For the other insurer, the amount was the full amount of the claim including costs, $43,768. That approach created an aggregate cover of $83,768, by reference to which each insurer's contribution was prorated. His Honour found support for this approach in the judgment of Hamilton J in American Surety Co of New York v Wrightson (1910) 103 L.T. 663. In that case, his Lordship treated the non specific policy as being a specific policy insuring against the event to the extent of the loss, aggregated the "pool" of insurance available on that basis, and prorated the two insurers' contributions accordingly. 25 Helsham J accepted (at 83-84) that "in a case where the amount of the cover bears some direct relationship to the amount of the loss", an approach of taking "the aggregate of the cover and then [fixing] the rateable contribution by reference to it" might be appropriate. However, his Honour said at 84, that approach would not be fair in the present case: "Neither insurance policy … related solely to the amount suffered; each indemnified against a wide range of events, with each amount of cover fixed no doubt by reference to what was being indemnified against, and both covering almost fortuitously, as it were, and indeed contrary to the assertions of both insurers, the particular loss that occurred. In no way would the respective amounts of the insurance cover present any basis for adjusting in any fair manner what proportion each should bear of the loss." Approach to the agreed issues 26 For the reasons that I have indicated in para [5] above, I think that the better view of the deed of lease is that it is the trustee that is the lessor. On that basis, I think, it is appropriate to consider the competing submissions on that basis. 27 In my view, for reasons to which I next turn, the claim for contribution must fail. I therefore do not propose to address the individual issues. The claim for contribution fails 28 Euclidian would be entitled to contribution if:

(1) Both Euclidian and CGU insured the trustee for relevantly the same risk; and

(2) That risk materialised and caused loss to the trustee;

(3) Euclidian indemnified the trustee in respect of the loss so sustained; and

(4) Euclidian thereby discharged the liability that otherwise CGU too would have had to indemnify the trustee for the same loss. 29 The trustee made no claim on Euclidian. Euclidian paid no amount to the trustee. In terms of the test explained by the majority in Albion at 346 (see para [19] above), there was no payment by Euclidian to the doubly insured policy holder, the trustee. 30 The claim that Euclidian paid was a claim made by Emibarb. The payment made by Euclidian discharged, or more accurately permitted Emibarb to discharge, Emibarb's liability to the trustee under cl 8.2.4 of the lease. Emibarb had no entitlement to be indemnified by CGU in respect of that liability. 31 The effect of Emibarb's performance of its obligations under cl 8.2.4 was that the trustee had sustained no loss for which it would be entitled to be indemnified by CGU. CGU's defence to any claim made by the trustee would be that the trustee had suffered no loss because Emibarb had reinstated the property, not that the trustee had been indemnified by the loss by a payment made to it under the Euclidian policy. Conclusion and orders 32 Euclidian's claim for contribution fails. I make the following orders:

(2) Subject to order (3), order the plaintiff to pay the defendant's costs.

(3) Grant leave to either party to apply to discharge or vary order (2); any such application to be made by notice to the other party and my associate within 14 days; any such notice to specify the order sought in lieu of order (2) and, in brief, the grounds upon which it is sought.

(4) Order that the exhibits remain with the papers for 28 days and that they be thereafter retained or disposed of in accordance with the Rules.

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