QBE Insurance Australia Limited v Allianz Australia Insurance Limited

1. Within 14 days, the parties submit an agreed draft order reflecting the reasons herein, or failing agreement separate draft orders with submissions of no more than two pages. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ALLSOP CJ: 1 This proceeding, begun in the Insurance List, concerns the working out of the respective responsibilities of the applicant (QBE) and the respondent (Allianz) as insurers of entities involved in a dispute arising from building works at Double Bay in Sydney in 2010. 2 In 2010, a developer QIG Property Development Pty Limited retained a head contractor Southern Cross Constructions (ACT) Pty Limited (SX) to undertake the building work. The work required excavation. Pile & Bucket Pty Limited (P&B) was retained by SX as a subcontractor to do excavation work. 3 The owners of the adjacent property complained of damage to their building caused by work on the site by QIG, SX, P&B and other persons. Proceedings were taken in the Supreme Court in 2013. In October 2018, after damages of over $4 million had been decided upon by a referee, P&B settled with the plaintiffs for $676,854.14 in damages plus $150,000.00 for costs. In early 2019, the proceedings in the Supreme Court were heard on the question of liability against SX (by now in liquidation), Allianz as its insurer and a party involved in the excavation. In April the claims against SX and Allianz were dismissed. 4 In the proceedings there were no cross-claims between SX and P&B. Each was sought to be made liable for its respective proportionate liability. 5 QBE was the broadform liability insurer of P&B and paid the amount of $826,854.14 to the plaintiffs under the settlement. QBE also expended its own funds in costs of over $700,000.00 in defending the Supreme Court proceedings in P&B's name. 6 There was no issue about Allianz being obliged to indemnify SX, subject to a question of the level of a relevant deductible. The issues between QBE and Allianz arise from a dispute as to whether Allianz was also the insurer of P&B, and if it was, any rights of contribution by QBE against Allianz for the damages, costs and defence costs. 7 By a joint statement dated 26 June 2019 the parties agreed certain facts and posed three issues for determination: 1. Whether the Allianz policy would have afforded indemnity to P&B in the circumstances of the claims being pursued against P&B in the Supreme Court so as to give rise to the application of dual insurance/contribution. 2. Whether P&B would have had a liability to the Owners Corporation and/or unit holders in all the circumstances and/or whether the settlement under the Deed was reasonable in all the circumstances (if that be the test for the purposes of a claim for contribution). 3. Whether, irrespective of the other issues, QBE has any entitlement to contribution in respect of legal costs incurred by QBE defending the Proceedings on behalf of P&B. 8 In a further joint statement, the parties agreed that two issues be heard separately; although there was some disagreement as to the form of the second question. The two questions were as follows: (a) whether P&B was an 'Insured' within the meaning of the respondent's policy, so as to entitle the applicant to claim equitable contribution as a matter of principle; and (b) whether any entitlement to contribution would extend to the costs incurred by the Applicant in the defence of the proceedings against P&B in all the circumstances [the respondent proposes the addition of the underlined words]. 9 The applicant also sought that a third question be decided namely: [W]hether the respondent's policy covered Insureds against the risk of liability for the settlement of third-party claims and whether the applicant is entitled to rely on a reasonable settlement of such a claim in its claim for equitable contribution. The respondent opposed this course. 10 Eventually, the parties agreed on two issues being decided by a preliminary hearing, namely: (a) whether P&B was an 'Insured' within the meaning of a policy issued by Allianz, so as to entitle QBE to claim equitable contribution as a matter of principle; and (b) whether any entitlement to contribution would extend to the costs incurred by QBE in the defence of the proceedings against P&B in all the circumstances. 11 With these questions resolved, the parties anticipate likely resolution of all issues. 12 The above outline does not throw up all the issues between the parties. One of those issues involved the putative application of s 54 of the Insurance Contracts Act 1984 (Cth) and how that engaged Allianz's liability on various other hypotheses. There was therefore a matter (being the whole of the controversy) arising under a law of the Parliament for the purposes of s 39B(1A)(c) of the Judiciary Act 1903 (Cth). 13 The underlying building contract between QIG and SX was a "Fixed Lump Sum Construct Contract" dated 25 March 2010 for nearly $7 million. The works envisaged were the demolition of existing dwellings and the construction of a new residential building containing seven apartments, parking facilities and other amenities. 14 Clause 17 of AS 4000-1997 (as amended and as incorporated into the contract between QIG and SX - the QIG/SX Contract) provided for "public liability insurance" in cl 17 which provided for two alternatives: first, that the contractor (SX) take out insurance; or, secondly, that the principal (QIG) take out the insurance. The parties chose the first of these two alternatives: SX was to take out the public liability insurance. Clause 17 thus relevantly (in Alternative 1) provided as follows: Before commencing WUC, the Contractor shall effect and maintain for the duration of the Contract, a public liability policy. The policy shall: a) be in the joint names of the parties; b) cover the: i) respective rights and interests; and ii) liabilities to third parties, of the parties, the Superintendent and subcontractors from time to time, whenever engaged in WUC; c) cover the parties' respective liability to each other for loss or damage to property (other than property required to be insured by clause 16) and the death of or injury to any person (other than liability which the law requires to be covered under a workers compensation insurance policy); d) be endorsed to cover the use of any construction plant not covered under a comprehensive or third party motor vehicle insurance policy; e) provide insurance cover for an amount in respect of any one occurrence of not less than the sum in Item 21(b); and f) be with an insurer and otherwise in terms both approved in writing by the Principal (which approvals shall not be unreasonably withheld) 15 The abbreviation "WUC" meant work under contract; the word "Contractor" meant SX. 16 The policy was required to be in the names of QIG and SX (see a)); to cover the rights and interests of QIG, SX, the Superintendent and any subcontractor when engaged in work under the contract in respect of liabilities to third parties (see b)); and the cover was to include the parties' liability to each other for loss or damage to property with the exception of certain property, including SX's responsibility for the work under contract (see c)). 17 The applicant submits, correctly, that this was an unequivocal promise on the part of SX to QIG to procure insurance to cover the interests of subcontractors (including, relevantly here, P&B) "whenever engaged in work under contract", that is while undertaking the subcontract. 18 The subcontract between SX and P&B (the SX/P&B Subcontract) which was entered into in July 2010 also contained a clause (also numbered 17) about public liability insurance. Clause 17 of the SX/P&B Subcontract also contained two alternatives: first, that the "Main Contractor" (SX) take out insurance; or, secondly, that the "Subcontractor" (P&B) take out the public liability insurance. The parties expressly chose the first of these two alternatives: SX was to take out the insurance. The two alternatives in cl 17 provided as follows: Alternative 1: Main Contractor to insure Before the date of acceptance of tender, the Main Contractor shall ensure that there is in force in relation to WUS, a public liability policy in the terms of the policy or proposed policy included in the documents on which the Subcontractor tendered or, if not so included, a copy of which was provided to the Subcontractor following receipt by the Main Contractor of a written request from the Subcontractor for a copy of the policy. The policy or proposed policy shall nominate or state the name of the insurer. The Main Contractor shall ensure that the policy is maintained while ever the Subcontractor has an interest in WUS and that all premiums are paid thereon. Alternative 2: Subcontractor to insure Before commencing WUS, the Subcontractor shall effect and maintain for the duration of the Subcontract, a public liability policy. The policy shall: (a) be in the joint names of the Principal, the Main Contractor and the Subcontractor; (b) cover the: (i) respective rights and interests; and (ii) liabilities to third parties; of the parties, the Principal, Principal's Representative, Subcontract Superintendent Main Contractor's Project Manager, and secondary subcontractors from time to time, whenever engaged in WUS; (c) cover the parties' respective liability to each other for loss or damage to property (other than property required to be insured by clause 16) and the death of or injury to any person (other than liability which the law requires to be covered under a workers compensation insurance policy); (d) be endorsed to cover the use of any construction plant not covered under a comprehensive or third party motor vehicle insurance policy; (e) provide insurance cover for an amount in respect of any one occurrence of not less than the sum in Item 24(b); and (f) be with an insurer and otherwise in terms both approved in writing by the Main Contractor (which approvals shall not be unreasonably withheld). 19 The abbreviation "WUS" meant works under subcontract. 20 There was no evidence that any wording was included in the tender material or that there was any request for the policy. By the time of this subcontract between SX and P&B, SX had arranged the Allianz policy. There was no suggestion in evidence or in argument that SX breached any obligation in Alternative 1 of cl 17 of the SX/P&B Subcontract. 21 The Allianz policy was taken out by 25 June 2010 which is the date of the "Closing Instructions" document for renewal on 30 June 2010 for the period to 30 June 2011. SX had started work on the site in April 2010. Allianz was its contract works insurer at that time. The renewal was put in place on 25 June 2010. P&B became a subcontractor to SX in July 2010. 22 The "insuring clause" of the Allianz policy was in the following terms: We will indemnify the Named Insured for all amounts which the Named Insured becomes legally liable to pay as compensation for Personal Injury and/or Property Damage occurring within the Territorial Limits as a result of an Occurrence in connection with the Named Insured's Business described in the Schedule, up to the Limit of Liability. We will also indemnify the Insured for all amounts which the Insured becomes legally liable to pay as compensation for Personal Injury and/or Property Damage occurring within the Territorial Limits as a result of an Occurrence in connection with the Insured Contracts described in the Schedule, up to the Limit of Liability. 23 The relevant schedule provided for $20 million of public liability cover. 24 SX was the "Named Insured"; P&B was not a "Named Insured". The question in issue is whether P&B was "the Insured" for the purposes of the second paragraph of the insuring clause. 25 There was also a "Defence Costs" provision underneath the insuring clause, which was relevantly as follows: We will, in addition to the indemnity described above, pay: 1. all charges, expenses and legal costs incurred by Us and/or by the Insured with Our prior written consent in the investigation, reporting, settlement or defence of any claim for compensation in respect of which the Insured are entitled to indemnity under this Policy or if sustained would be so entitled; … 26 The phrase "the Insured" was defined relevantly as follows: "the Insured" means: 1. the Named Insured; … 3. all sub-contractors to the entities noted in paragraphs 1. and 2. above (including their sub-contractors of any tier), but only whilst acting in the scope of their duties as sub-contractors in relation to the Insured Contract and only to the extent this insurance (or part of it) is required for such interest under the Insured Contract; 27 There was no issue about whether P&B was acting within the scope of its duties as subcontractor in relation to the Insured Contract for the purpose of para 3. The only issue was "the extent to which this insurance [the Allianz policy] is required for such interest under the Insured Contract" for the purpose of para 3. 28 The phrase "Insured Contract" was relevantly defined as follows: "Insured Contract" means the contract or agreement entered into by the Named Insured which gives rise to the Contract Works and includes any sub-contract or sub-agreement in connection with the contract or agreement, which; 1. does not have an estimated final contract value (including the sub contracts or sub agreements) that exceeds the Contracts Works Sum Insured at its commencement; 2. is of a contract type within the Allowable Categories; and 3. which does not have an Insured Construction Period greater than the Maximum Construction Period at its commencement. … For the purposes of any Sum Insured / Limit of Liability under this Policy, the Named Insured's contract or agreement and the sub-contracts or sub-agreements referred to above are treated as one Insured Contract. 29 The phrase "Contract Works" was defined as meaning, in effect, the whole of the works described in the Insured Contract. So, the Insured Contract was the QIG/SX Contract including any sub-contract or sub-agreement (relevantly here the SX/P&B Subcontract) as qualified by 1, 2 and 3. 30 Also, for the purposes of sums insured and limits of liability the QIG/SX Contract and its subcontracts (relevantly here the SX/P&B Subcontract) were to be treated as one Insured Contract. 31 The applicant submitted that whether or not the Allianz insurance policy was required "for such interest under the Insured Contract" was answered by looking to the QIG/SX Contract, cl 17 ([14] above), which was, it was submitted, pellucid. 32 The respondent submitted that the phrase "Insured Contract" for the purposes of para 3 of the definition of "the Insured" in the Allianz policy meant the SX/P&B Subcontract, which did not, it was submitted, create a responsibility on SX to take out cover for the interests of P&B in Alternative 1 in cl 17 of the SX/P&B Subcontract. 33 The alternative position of the applicant was that if the "Insured Contract" was a reference to the SX/P&B Subcontract (and not the QIG/SX Contract) that subcontract, in substance, did require SX to insure P&B's interests. 34 In essence, the applicant submitted that if either the QIG/SX Contract or the SX/P&B Subcontract had a requirement for SX to insure its subcontractors' (so, P&B's) interests, that sufficed for the purposes of para 3 of the definition of "the Insured". 35 The applicant submitted that whatever the effect of bringing in ("and includes") any sub-contract or sub-agreement into the definition of "Insured Contract", the phrase must include the contract or agreement entered into by SX which gives rise to the contract works - that is the QIG/SX Contract, which contains the obligation in cl 17 (see [14] above). 36 This must be so, it was submitted by the applicant, not merely from the words of the definitions of "the Insured" and "Insured Contract" in the Allianz policy, but also from the recognition that SX's clear responsibility to take out insurance for the interests and liabilities of subcontractors was in the commercial interests of QIG, and these interests were not to be cut down from, or read out of, the very policy designed to satisfy that responsibility of SX, by the terms of a subcontract (to which QIG was not a party) between SX and P&B - even if (as was not in fact the case) SX in that subcontract required P&B to take insurance. 37 The respondent accepted that both the QIG/SX Contract and the SX/P&B Subcontract fell within the definition of "Insured Contract". Its essential submission was that it was necessary to have regard to both, in combination. The Allianz policy limits coverage to subcontracts to circumstances where the requirement to insure subcontractors' interests is under the Insured Contract as opposed to an Insured Contract. When one looked to the SX/P&B Subcontract one saw, it was submitted, that the subcontractor was to insure itself. So, the Insured Contract did not require this insurance (the Allianz policy) for the subcontractor's interests for the purpose of para 3 of the definition of "the Insured". 38 Turning to the SX/P&B Subcontract and cl 17 thereunder (see [18] above), the respondent submitted that Alternative 1 in cl 17 only required SX to ensure that a public liability policy was in force in relation to the works under the SX/P&B Subcontract; it did not require coverage to extend to P&B. It was submitted that this lack of obligation was made clear by the comparison with Alternative 2 in cl 17 which made clear that the policy had to cover both SX and P&B as well as the principal (QIG) and further subcontractors. Had Alternative 1 had the same purpose, it was submitted, it would have provided likewise. This was reinforced, it was submitted, by a later provision of the subcontract (cl 39.7(a)(ii)) removing the failure to obtain insurance by SX as a substantial breach of the subcontract. 39 The respondent posited a "conflict" between cl 17 of the QIG/SX Contract and cl 17 of the SX/P&B Subcontract, and submitted that the SX/P&B Subcontract must "prevail", because it was the specific provision with the subcontractor, whereas cl 17 in the QIG/SX Contract was a general provision in relation to subcontractors. 40 The respondent also emphasised the "Closing Instructions" document in the Allianz policy which contained special terms and conditions that made it clear, it was submitted, that subcontractors such as P&B would insure themselves. By way of "special condition" the following was provided: All projects over $40,000,000 contract value to be advised to Allianz prior to going on risk and differing terms (if any) from the Annual to be agreed; Certificate of Currency's to be supplied on individual projects as required; Contractors & Sub-contractors to hold valid liability insurance of no less than $5,000,000 acceptable to Transwest Insurance Brokers and/or Allianz Australia Insurance Limited. 41 The "Closing Instructions" document also contained a clause dealing with deductibles by reference to subcontractors' (such as P&B's) insurances as follows: Claims arising from the negligence of Sub Contractors whose current insurance covers have not satisfied the review by Transwest Insurance or been accepted by Allianz Australia Insurance Limited $250,000 42 The respondent also referred to the terms of the SX/P&B Subcontract and the "subcontract preliminaries" in Annexure E of the contract documents which provided that prior to the work under the subcontract commencing, the subcontractor (P&B) must provide the Main Contractor (SX) with: PRIOR TO THE COMMENCEMENT OF THE WORKS UNDER SUBCONTRACT ("WUS") … 1.1.5 Certificates of Currency for all insurances the Subcontractor is required to effect under this Subcontract including but not limited to public liability and workers compensation insurance 43 Further, the respondent submitted that P&B did take out insurance - with the applicant, QBE. 44 Thus, the respondent submitted that there was no relevant obligation on SX to insure P&B for the purposes of the Allianz policy; and P&B was required to insure (which it did) for liability insurance; and that it would be uncommercial to have two parties so obliged. 45 There are difficulties with the respondent's submissions. First, the Named Insured's contract (the QIG/SX Contract) and the subcontracts (such as the SX/P&B Subcontract) are only viewed as one for specific and limited purposes: "Sum Insured / Limit of Liability". The reading of them as one for such limited purposes is both understandable and conformable with Allianz assuming liability by reference to both classes of contract. 46 Secondly, the QIG/SX Contract answers the description of "Insured Contract". The definition is of "Insured Contract" (not "the" or "a" Insured Contract). The phrase "Insured Contract" means the contract entered into by SX - the QIG/SX Contract - and includes any subcontract in connection with that contract. The natural meaning of these words read with para 3 of the definition of "the Insured" means a subcontractor to SX, if its interest ("such interest") is required to be covered under the QIG/SX Contract (for QIG's evident commercial interests), is an Insured. That is why "Insured Contract" includes a subcontract in relation thereto. There is no conflict posited at all. P&B is an insured, as SX is required by the QIG/SX Contract to insure it; and nothing in Alternative 1 in cl 17 of the SX/P&B Subcontract is to the contrary. 47 The SX/P&B Subcontract does not cut down or "conflict" with the QIG/SX Contract. Alternative 1 in cl 17 of the SX/P&B Subcontract does not conflict with Alternative 1 in cl 17 of the QIG/SX Contract. Alternative 2 in the SX/P&B Subcontract was not chosen (even if, which is doubtful, that would have raised a "conflict"). 48 The provisions in the "Closing Instructions" document in the Allianz policy do not take the matter any further. That Allianz required SX's subcontractors to have valid liability insurance (as P&B did with the QBE policy) does not affect P&B's lack of requirement under the SX/P&B Subcontract to do so: Alternative 1, not Alternative 2, was chosen in cl 17 of the SX/P&B Subcontract. 49 Clause 1.1.5 in the subcontract preliminaries should be read as: impliedly, if required by the contract terms. 50 The argument ultimately reduces to the proposition that the requirement for valid liability insurance of no less than $5 million by subcontractors satisfactory to the identified broker or Allianz in the special insurer's terms or conditions means that the definition of "the Insured" can never extend to any subcontractor for liability insurance because the subcontractors are required to hold valid liability insurance for themselves. This is commercially and textually wrong. Textually, the definition of "the Insured" rests upon the requirement for this insurance (the Allianz policy) to cover the interest of the subcontractor, which requirement is found in the Insured Contract, being one not involving Allianz, but SX, its head contractor (QIG), and including subcontracts with subcontractors, such as P&B. That Allianz requires the subcontractors to have a policy does not affect whether a contracting party to SX (relevantly QIG) requires SX to insure its (SX's) subcontractors' liabilities to third parties, as in cl 17 Alternative 1 in the QIG/SX Contract. 51 Commercially, the requirement of Allianz that subcontractors have a policy gave Allianz the comfort of co-insurance for any such subcontractor and an insurer (as here with QBE) which would respond directly to the subcontractor as an insurer chosen by the subcontractor. 52 The provisions of the special insurer's terms and conditions in the Closing Instructions document are not indicative, on their face, of removal of subcontractors from the definition of "the Insured", but rather are indicative of a requirement that subcontractors' insurances have a certain quality and a certain substance: that valid liability insurance be held for no less than $5 million (the Allianz cover being $20 million) on terms acceptable to Allianz or an identified broker on behalf of Allianz, and a deductible of $250,000.00 if such insurance was not preapproved. These are provisions protective of Allianz on the hypothesis that cover is granted to subcontractors by the Allianz policy; they are not provisions expressed or apparently designed to remove the Allianz cover from a subcontractor for which the Named Insured (SX) had otherwise (in the Insured Contract, the QIG/SX Contract) promised to effect and maintain cover. 53 The submissions of the respondent should be rejected. P&B was included in the definition of "the Insured" in the Allianz policy. The first question should be answered in the affirmative. 54 The answer to the first issue means that P&B, as well as SX, was an Insured under the Allianz policy. There was no other issue posited by the parties to detract from the conclusion that QBE as the liability insurer of P&B which had indemnified P&B for the liability arising from the settlement with the plaintiffs in the Supreme Court proceedings was, in principle, entitled to contribution from Allianz as a co-ordinate liability insurer of P&B. 55 The second issue (see [10] above) is whether any entitlement to contribution would extend to the costs incurred by QBE in defence of the Supreme Court proceedings brought against P&B. 56 The QBE policy covered P&B from 21 May 2010 to 21 May 2011. Its limit was $10 million. QBE was obliged to defend, and did defend, P&B in the proceedings. The coverage was contained in cll 2.1 and 2.2, relevantly as follows: In consideration of the payment to Us of the amounts payable for this insurance, We will indemnify You in accordance with this Policy. 2.1 Liability We will pay: 2.1.1 all sums which You become legally liable to pay by way of compensation; 2.1.2 all costs awarded against You; in respect of Personal Injury or Property Damage happening during the Period of Insurance and caused by an Occurrence within the Territorial Limits in connection with Your Business. 2.2 Defence of claims With respect to the indemnity provided by this Policy We will: 2.2.1 defend in Your name and on Your behalf any claim or legal action against You seeking damages on account of Personal Injury or Property Damage even if the action is groundless, false or fraudulent, and We will investigate, negotiate and settle any claim or legal action as We see fit; 2.2.2 pay all legal costs and expenses incurred by Us and all interest accruing after entry of judgment until We have paid, tendered or deposited in court such part of the judgment as does not exceed the Limit of Liability; … 57 It is to be noted that the money spent by QBE in defence costs was required by cll 2.2.1 and 2.2.2 to be spent by QBE in fulfilment of its obligation to defend P&B. 58 The "Defence Costs" provision in the Allianz policy appeared just below the "insuring clause" and is set out at [25] above. 59 Allianz submitted that QBE conducted the defence, appointed its own lawyers and spent its own money. P&B had no liability for any of this and there was no indemnification by QBE of its insured, P&B. Therefore, it was said that there could be no right of contribution. 60 Whether or not that is a good answer is to be decided as a matter of principle by reference to the constituent elements of the doctrine of contribution as between co-insurers. As made clear in Albion Insurance Co Limited v Government Insurance Office of New South Wales [1969] HCA 55; 121 CLR 342 at 345-347 the doctrine applies to liability insurers when each insurer insures against the same risk: when there is a co-ordinate liability. It is not necessary for the terms of the insurances to be the same, or even of the same kind as long as the risk covered was the same. The Court rejected the approach of Myers J in Government Insurance Office of New South Wales v Royal Exchange Assurance of London (1965) 82 WN (Pt 1) (NSW) 468 which the trial judge (Street J) had applied by way of comity, wherein the terms of two policies (a common law and workers compensation policy and a motor vehicle policy) were carefully examined and the conclusion reached that they covered different classes of risk. This approach analysed the nature of the risk by the words expressing the indemnity, not by the practical effect, in the circumstances, of the two expressed indemnities. The plurality (Barwick CJ, McTiernan and Menzies JJ) said at 121 CLR 346: It seems to us that each policy did cover the very risk against which the policy holder did seek indemnity from one of the insurers. The matter can, we think, be decided simply enough by inquiring 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. It clearly would, and it would simply because the policy holder had by the payment made been indemnified against the risk insured against. He had received all that he was entitled to receive under both policies so the payment by one insurer would discharge both. Thus, payment by one is made for the benefit of both, and, contribution is equity. By the payment of one insurer the other insurer is relieved under its policy. See also Kitto J at 121 CLR 352 (with whom Windeyer J agreed). 61 The judgment of Kitto J at 121 CLR 348 also makes clear that the claim was for damages and the costs of defending. 62 That the costs incurred by one insurer in defending an action, in which the damages awarded were covered by its policy and another policy, can be the subject of contribution can be seen in Government Insurance Office of New South Wales v QBE Insurance Ltd (1985) 2 NSWLR 543 at 544 and HIH Casualty & General Insurance Limited (In Liquidation) v Insurance Australia Limited [2005] VSC 342; (2006) 14 ANZ Ins Cas 61-685 and on appeal - Insurance Australia Limited v HIH Casualty & General Insurance Limited (In Liquidation) [2007] VSCA 223; 18 VR 528. 63 As a matter of principle, there is no basis for the proposition that the direct expenditure of money on costs by the insurer (as opposed to a reimbursement by the insurer of expenditure of money on costs by the insured) is otherwise than properly viewed as a subject of contribution. The insured is held harmless against the consequences of its liability to the third party by the payment of liabilities by way of indemnity (cl 2.1) and by the insurer (QBE) defending the proceedings at its own cost (cl 2.2). These two intimately connected aspects of the cover relieve the other insurer (Allianz) from indemnifying under the insuring clause and from paying or indemnifying under the Defence Costs clause (paying: "all charges, expenses and legal costs incurred by Us and / or by the Insured with Our prior written consent"). 64 The character of a provision for an insurer directly paying defence costs and of a provision providing for an insurer indemnifying an insured which has paid its own defence costs is the same: both are directed at the same risk - the costs of defence. 65 The costs of QBE were directed to insuring an important part of the risk P&B faced in defending liability claims against it: the costs of that defence. QBE paying those costs without seeking P&B to do so first (as the policy required it so to act) relieved Allianz from paying the costs itself or reimbursing P&B for its payment of costs. 66 The nature of contribution is a substantive principle based on natural justice and equity. It is a form of prevention of unjust enrichment. That it applies to policies of indemnification of the insured does not require that the insured first pay sums of legal defence. The question of defence of insureds in liability policies can be approached in different ways in different policies: see Australasian Correctional Services Pty Limited v AIG Australia Limited [2018] FCA 2043. It would be contrary to principle to allow contribution to an insurer which reimbursed defence costs first paid by an insured, but to deny it to the insurer which undertook a clearer and more beneficial (to the insured) duty to pay those costs in furtherance of its obligation to defend, when both are ways of holding an insured harmless from the consequences of its liability or asserted liability to a third party. The costs spent directly by the insurer in fulfilment of an unqualified and undifferentiated duty to defend may, in any given case, be directed to issues that may lead to liability for which there is no cover: see the discussion in Australasian Correctional Services at [33]-[43]. This consideration may affect the working out of the proper amount of contribution. 67 Before QBE expended costs, both it and Allianz were liable to indemnify P&B and to pay defence costs. Both provisions as to defence costs were intimately connected with the grant of indemnity for liability to third parties. QBE did both: it indemnified P&B and paid defence costs in fulfilment of its duty to defend. In doing so it relieved Allianz from its obligation to do both on behalf of P&B. In a principle informed and shaped by "natural justice, exemplified by equality, … the search for a common obligation 'should not be defeated by too technical an approach'": HIH Claims Support Limited v Insurance Australia Limited [2011] HCA 31; 244 CLR 72 at 88 [39] (Gummow A-CJ, Hayne, Crennan and Kiefel JJ) citing Mahoney v McManus [1981] HCA 54; 180 CLR 370 at 378 (Gibbs CJ). The question is whether the obligation (the response to the risk) can be characterised as of the same nature and to the same extent: HIH Claims 244 CLR at 88 [39]. Here the two policies held the same insured harmless by indemnification as to liability and providing for defence costs. The QBE policy did the latter by undertaking a duty to defend and by payment of its own defence costs in fulfilling the duty to defend. The Allianz policy did the latter by agreeing to pay its costs and/or the costs incurred by the insured relevantly approved. The provisions as to defence costs in both policies covered the same risk: the payment by the insured of defence costs if no insurance covering them was in place. 68 There is no basis to consider that either Commercial and General Insurance Company Limited v Government Insurance Office of New South Wales [1973] HCA 51; 129 CLR 374 or Government Insurance Office of New South Wales v Crowley [1975] 2 NSWLR 78 contradict these conclusions. 69 The referee's report in Vero Insurance Limited v QBE Insurance (Australia) Limited [2011] NSWSC 593; 16 ANZ Ins Cas 61-912 may be seen to contradict the above conclusions by requiring, for the doctrine of contribution to apply, a strict indemnity for costs as already paid by the insured or for which the insured is liable. The referee in that case considered that payments made by an insurer to its own solicitors in circumstances of a duty to defend could not enliven the doctrine of contribution because the "payments … did not operate to discharge a liability to the insured and cannot be regarded as operating to discharge a coordinate liability." See Vero [2011] NSWSC 593 at [58]. I respectfully disagree. 70 It is often expressed that a requirement for the operation of the doctrine of contribution between co-insurers is that the policies be ones of indemnification: Albion Insurance 121 CLR at 346, Barwick CJ, McTiernan and Menzies JJ saying: There is no double insurance unless each insurer is liable under his policy to indemnify the insured …. against the happening which has given rise to the insured's loss or liability. and at 352, Kitto J, with whom Windeyer J agreed, saying: What attracts the right of contribution between insurers, then, 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 is simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained; for that is the situation in which "the insured is to receive but one satisfaction" (to use Lord Mansfield's expression) and accordingly all the insurances are "regarded as truly one insurance": Sickness and Accident Assurance Association Ltd. v. General Accident Assurance Corporation Ltd. 71 This requirement for indemnification of a common insured by the insurers marks out the field of application of the doctrine of contribution in insurance to policies of indemnity. That is because in those cases all the insurances are regarded as one to indemnify (once) the insured: see Kitto J in Albion Insurance citing Lord Mansfield in Sickness and Accident Assurance Association Ltd. Some policies of insurance are not in the nature of indemnity insurance. Terms of such insurance may provide for payment, on the occurrence of an event, of a certain sum of money, whether or not the insured has suffered a loss or a loss in that amount. Life and accident policies are examples. Two sickness and accident insurers each responsible for payment of $1,000 per week to an insured if the insured suffers a given illness, must pay individually without any right of contribution because there is no co-ordinate liability to indemnify only one loss. 72 Here the duty to defend and the Defence Costs provision in the QBE policy are together part of a policy of indemnity. They should not be hived off as non-indemnificatory provisions for which contribution is not available. They together provide a form of indemnity or protection or holding harmless against costs, but may not, in the answering of other questions, such as policy limits or deductibles, be treated in the same fashion as the indemnity for loss: see Australasian Correctional Services. The insured here was entitled to its defence costs in defending the claim. QBE, by defending and paying those costs, relieved Allianz from its obligation to do just that for the insured. There is no reason in justice or equity why the appropriate proportion of those costs should not be shared justly between the insurers, at least those costs referable to defending the claim for which both insurers were liable to indemnify the insured.

Conclusion 73 I will give the parties the opportunity to consider these reasons and to reformulate, if necessary, the questions to be answered. However I would ask and answer the two questions as follows: (a) Was P&B an Insured under the Allianz policy? Answer: Yes. (b) Does the principle of contribution apply to make Allianz liable for its relevant proportion of the costs and expenses paid by QBE in its defence of P&B in the Supreme Court proceedings? Answer: Yes. 74 I will stand the matter over to a date to be fixed for the making of orders answering the questions. The parties shall have liberty to approach my chambers to arrange such date. I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.