Insurance - Public liability insurance - Alleged negligence of employer causing injury to plaintiff worker - Contribution notice issued to respondent as joint tortfeasor - Respondent also alleged to be in breach of contractual term to procure and maintain insurance policy on behalf of appellant and respondent - Whether fact appellant had taken out public liability insurance on own behalf precludes recovery of damages from respondent for breach of contract - Turns on own facts

Appellant (Second Defendant/First Third Party) : Mr G R Hancy

Respondent (Third Defendant/Second Third Party) : Mr S M Denman

Appellant (Second Defendant/First Third Party) : Srdarov Richards Burton

Respondent (Third Defendant/Second Third Party) : Jackson McDonald

Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333

Co-operative Bulk Handling Ltd v State Government Insurance Commission (1990) 3 WAR 145

Mason v Sainsbury (1782) 99 ER 538

Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408; (2000) 23 WAR 291

Sydney Turf Club v Crowley [1971] 1 NSWLR 724

Transport Accident Commission v CMT Construction of Metropolitan Tunnels [1988] HCA 46; (1988) 165 CLR 436

Zoccoli v McDarby [1999] WASCA 179

1 MURRAY J: I have read the reasons for decision to be published by Steytler J. I am in entire agreement with them and with the orders proposed. I have nothing to add.

2 STEYTLER J: On 13 February 1995 a workman was injured at a construction site in Subiaco known as "Subiaco Central". He tripped over a piece of uncapped reinforcing steel and injured his spine. He contended that the accident was caused by the negligence of his employer. He consequently commenced proceedings against his employer, claiming damages.

3 The appellant and the respondent have since been joined as defendants to the action. The appellant was the occupier of the "Subiaco Central" site and the main contractor for the purposes of the construction work being performed there. The plaintiff alleges that the appellant was negligent in failing to cap the reinforcing steel or to warn the plaintiff that it was uncapped. The respondent was one of the appellant's subcontractors. It was responsible for the installation of the reinforcing steel and the plaintiff alleges that it, too, was negligent.

4 The appellant has issued a contribution notice against the respondent. It pleads, in par 3 of its statement of claim against the respondent, that, if it is liable to the plaintiff in respect of his damages, then so, too, is the respondent. Importantly, for present purposes, it has gone on to allege, in pars 4 and 5 of its statement of claim, that it was a term of the subcontract between it and the respondent (to which it has referred as "the Norcon Subcontract") that the respondent would, at its own expense, "procure and maintain" an insurance policy ("the proposed policy"), in the joint names of the appellant and the respondent and others, "covering liability in respect of ... personal injury to any person ... where the injury arises out of or is caused by the execution of the subcontract works" (cl 8.04) and that the respondent was in breach of that term in that it failed to procure the proposed policy.

5 The respondent, in its defence to the appellant's statement of claim, denies that it is liable, jointly with the appellant, in respect of the damage suffered by the plaintiff. It has also put the appellant to the proof of its allegation as regards the respondent's obligation, under the terms of the subcontract, to procure the proposed policy. It then pleads, in par 5 of its defence, the following:

"5. Further or alternatively, if the second third party [the respondent] breached clause 8.04 of the Norcon

Subcontract as alleged or at all, which is not admitted, then:-

(a) at all material times the first third party [the appellant] had taken out its own public liability policy of insurance ('the Policy'), the further particulars of which the second third party is not presently aware;

(b) the first third party has made a claim, or is entitled to make a claim, pursuant to the Policy with respect to any liability that it has in these proceedings;

(c) further or alternatively to sub-paragraph (b) above, the first third party has been granted indemnity pursuant to, or is entitled to be granted indemnity pursuant to, the Policy;

(d) by reason of the matters pleaded above, there is no loss or liability in respect of which the first third party is entitled to claim indemnity pursuant to any other policy of insurance;

(e) the insurer or insurers on the Policy are not entitled to exercise a right of subrogation so as to claim pursuant to another policy of insurance on behalf of the first third party;

(f) the first third party has suffered no loss by reason of any breach by the second third party of clause 8.04 of the Norcon Subcontract."

6 The appellant brought an application, before a Deputy Registrar of the District Court, to strike out par 5 of the respondent's defence. It contended that the fact that it had taken out its own public liability policy of insurance ("the policy"), in terms wide enough to cover the claim brought by the plaintiff against it, is irrelevant to its claim against the respondent. Consequently, it contended, par 5 of the defence did not disclose an arguable defence. The deputy Registrar upheld that contention and ordered that par 5 of the defence should be struck out.

7 The respondent appealed to a Judge of the District Court. It contended that par 5 should have been found to disclose an arguable defence because the appellant, having been granted indemnity under the policy, or being entitled to be granted indemnity under the policy, has not itself suffered any loss and could not, in those circumstances, also have obtained indemnity under the proposed policy, even if the respondent had taken out that policy. That being so, it argued, a failure to take out the proposed policy had no consequence.

8 The Judge below upheld the appeal. He considered that the respondent's contentions were arguable, particularly in circumstances in which there was, as yet, no evidence, inter alia, of the terms of the policy, of any negotiations or practice as between the parties or of the terms of any policy which might have been taken out by the respondent. He consequently ordered that par 5 of the respondent's defence should stand.

9 The appellant has, by leave, appealed to this Court. Its sole contention is that the Judge below erred in holding that par 5 of the respondent's defence to the appellant's claim disclosed an arguable defence.

10 As long ago as 1874 it was held, in Bradburn v The Great Western Railway Company [1854] EngR 538; (1874) LR 10 Exch 1, that, in an action for injuries caused by a defendant's negligence, a sum received by the plaintiff on an accident insurance policy could not be taken into account in reduction of damages. There, the jury had found a verdict for the plaintiff for [sterling]217. It appeared that the plaintiff had received a sum of [sterling]31 on account of the accident upon an insurance effected by him with the Accidental Insurance Company. The defendants contended that that sum ought to be deducted from the sum at which the jury assessed the damages. Bramwell B referred to the case of Dalby v India and London Life-Assurance Company [1854] EngR 920; (1854) 15 CB 365 in which it was decided that a person who pays premiums for the purpose of insuring himself, "pays on the footing that his right to be compensated when the event insured against happens is an equivalent for the premiums he has paid" and that "it is a quid pro quo, larger if he gets it, on the chance that he will never get it at all". He said (at 2) that the principle laid down in that case applied and showed that the plaintiff was entitled to retain the benefit which he had paid for in addition to the damages which he recovered on account of the defendants' negligence.

11 Pigott B, in that case, was of the same opinion (as was Amphlett B). He said (at 3):

"The plaintiff is entitled to recover the damages caused to him by the negligence of the defendants, and there is no reason or justice in setting off what the plaintiff has entitled himself to under a contract with third persons, by which he has bargained for the payment of a sum of money in the event of an accident happening to him. He does not receive that sum of money because of the accident, but because he has made a contract providing for the contingency; an accident must occur to entitle him to it, but it is not the accident, but his contract, which is the cause of his receiving it."

12 In Albacruz (Cargo Owners) v Albazero (Owners); The Albazero [1977] AC 774 Lord Diplock discussed (at 841 and following) a number of the exceptions to the general rule that, apart from nominal damages, a plaintiff can only recover in an action for breach of contract the actual loss he has himself sustained. These encompassed a situation in which a plaintiff, who had been compensated for loss, might nevertheless recover damages and hold them on account of the person who had in fact had to bear the ultimate economic loss. What was there said by Lord Diplock was referred to by Hope JA (with whom Kirby P and McHugh JA were in agreement) in R G & T J Anderson Pty Ltd v Chamberlain John Deere Pty Ltd (1988) 15 NSWLR 363 at 373. Hope JA, after considering what had been said by Lord Diplock, said (ibid):

"I would add that an obvious example of this situation arises where a plaintiff is insured. If he suffers the loss covered by the policy by the negligence of the defendant, the sum received by the plaintiff is not taken into account in reduction of damages. This was decided in Bradburn v Great Western Railway Co [1854] EngR 538; [1874] LR 10 Exch 1."

13 In Hussain v New Taplow Paper Mills Ltd [1988] 1 AC 514 at 527, Lord Bridge (with whom the other Law Lords were in agreement) said that, prima facie, "the only recoverable loss is the net loss" but that, to this prima facie rule, there are two well established exceptions, one of these being that, where a plaintiff recovers under an insurance policy for which he has paid the premiums, the insurance moneys are not deductible from damages payable by the tortfeasor.

14 It is consequently well established that where a plaintiff suffers loss as a result of a defendant's negligence, but is the beneficiary of an insurance policy covering that loss, the sum received by the plaintiff from the insurer is not taken into account in reduction of the damages. But what should be the situation where the plaintiff is entitled to recover damages from the defendant for breach of a contract to take out insurance on the plaintiff's behalf but has taken out its own insurance to cover the same event or events? That question was considered in Western Sydney Regional Organisation of Councils Group Apprentices v Statrona Pty Ltd, unreported; SCt of NSW; 29 August 1995. There Sheller JA, with whom Meagher JA was in agreement, after stating the principle to which I have earlier referred, said (at 9 and 10):

"There is no difference in principle where a plaintiff is entitled to recover damages for breach of a contract to effect liability insurance for its benefit. The plaintiff's entitlement under a different contract for indemnity on the contingency of its becoming legally liable to pay compensation to the worker does not reduce the damages recoverable for breach of contract. The plaintiff is not indemnified by the second contract of insurance for breach of the first contract but because it has made a contract for a contingency upon the happening of which it became entitled to indemnity. If ... [the plaintiff] claims against an insurer to be indemnified it must account to the insurer for any benefit which reduces the loss or liability insured against; Castellain v Preston [1883] 11 QBD 380 at 389 - 390, 393 - 394 and 402; British Traders' Insurance Co Ltd v Monson [1964] HCA 24; (1964) 111 CLR 86 at 94 and Transport Accident Commission v CMT Construction of Metropolitan Tunnels [1988] HCA 46; (1988) 165 CLR 436 at 441. For like reason it is immaterial that, had ... [the defendant] obtained the cover it contracted to obtain, that insurer might have been entitled to contribution from some other of ... [the plaintiff's] insurers."

15 In Besselink Bros Pty Ltd v Citra Constructions Pty Ltd, unreported; Federal Court of Australia; 31 October 1984, the court (Smithers, Northrop and Gallop JJ) was confronted with a situation similar to that which arose in this case. The appellant had been found to be liable to its employee who was injured in the course of his employment. The respondent had also been negligent and its negligence, too, had contributed to the employee's injury. Liability was apportioned as between the appellant and the respondent. The respondent also brought a claim against the appellant for damages for breach by the appellant of a contract between the respondent and the appellant which had contained a clause requiring the appellant, before commencing the work, to obtain insurance protecting the appellant, the respondent and a third party against claims, inter alia, by employees in respect of injuries sustained during the carrying out of the works. The appellant had failed to obtain that insurance. One of the contentions which was mounted by the appellant in answer to the respondent's claim against it was that the respondent had a right to indemnity from its own insurer in respect of its liability to the plaintiff and had consequently suffered no loss through the appellant's failure to obtain the insurance. The court held (at 4) that this submission was not sustainable and that, so far as the appellant was concerned, the fact that the respondent had effected a policy of the nature mentioned was "purely fortuitous" and "res inter alios acta", there having been no duty on the respondent to do that, or even to make a claim under that policy.

16 Finally, in Hacai Pty Ltd v Rigil Kent Pty Ltd, unreported; FCt SCt of WA; Library No 960450; 16 August 1996, a judgment was awarded against the appellant for damages for negligence. The appellant had brought a claim against the respondents for indemnity or contribution. One of the defences raised by the respondents was to the effect that, pursuant to a clause of a contract in existence between the appellant and the respondents, the appellant was required to effect and keep in effect, in the joint names of the appellant and the respondents, a public risk insurance policy which would have insured them against a claim of the kind which had been brought by the plaintiff. The failure to comply with this, and another, version of the agreement was said to have occasioned loss and damage to the respondents, being the amount of their liability to the appellant, and they sought to set this loss and damage off against the appellant's claim. However, the appellant contended that no loss had been suffered by the respondents as a consequence of their incapacity to claim under the policy to be effected in their joint names by the appellant because the respondents were able to make a claim under a public liability policy which they had themselves taken out. Murray J (with whom Malcolm CJ and Owen J were in agreement) said (at 9 and 10):

"In essence, the proposition argued is that the loss which the respondents claim to be able to set-off against the appellant's claim for a contribution is the loss of insurance cover in respect of that claim which should have been provided at the expense of the appellant for the benefit of the respondents. The appellant argues that the respondents, however, may be seen to have suffered no such loss if they have precisely the same type of insurance cover, albeit obtained at their own expense.

In my view the loss which the respondents claim to set-off against the claim for a contribution is properly expressed as the incapacity to cover or defray the obligation to pay a contribution by making a claim upon the relevant insurance policy. It is that quality of the loss which no doubt supports the conclusion that a set-off is available. The true question, I think, is whether the respondents may continue to assert loss or damage arising out of an incapacity to make a claim under a policy of insurance to be effected by the appellant in the joint names of the appellant and the respondents in circumstances where they might make a claim on a policy effected by them at their own expense in their own names, so as to meet an order that they make a contribution to the judgment for damages given in favour of ... [the plaintiff] against the appellant.

To put the question in that way, in my opinion, provides the answer that the claimed set-off is still available. The intention of the parties appears to have been that the insurance against any such claim for damages as that made by ... [the plaintiff], which might be brought directly or by way of a claim for contribution against either the appellant or the respondents, was to be effected at the expense of the appellant. It seems clear to me that the respondents have lost the capacity to meet the appellant's claim for a contribution by making a claim upon such a policy of insurance. The fact that they might otherwise defray the expense of meeting the appellant's claim seems to me to be irrelevant."

17 In my opinion, these cases provide an insuperable stumbling block to a defence of the kind sought to be mounted by the respondent in par 5 of its defence to the appellant's claim against it. The fact is that the appellant has lost the benefit of the proposed policy and it is irrelevant that it might, by resort to the policy which it has taken out, recover or avoid any expense which would otherwise have followed from the loss of the benefit of the proposed policy. Counsel for the respondent sought to distinguish the cases to which I have referred upon the basis that, here, there is a plea, in the alternative, that the appellant has already been granted an indemnity under the policy taken out by it. However, if the fact of an existing grant of indemnity is a sufficient distinction, it could not apply in this case. The issues raised by the plaintiff against the appellant, and those between the appellant and the respondent, have yet to be tried. That being so, the appellant could not have been indemnified in respect of the plaintiff's claim itself (in the sense of having its liability to the plaintiff already paid by the insurer), even if it has (as counsel for the respondent suggests it might have) been indemnified to date, in respect of its costs of defending that claim. Also, while counsel for the respondent suggested that there

might already have been an indemnity, in the sense of a promise by the appellant's insurer to meet any award in favour of the plaintiff against the appellant, it seems to me that any such "indemnity", if it could properly be called such for present purposes, is no different from the promise contained within the policy itself and consequently provides no valid distinction.

18 It follows, in my opinion, that the appeal should be allowed, that the decision of the court below should be set aside and that there should, in lieu thereof, be a decision to the effect that par 5 of the second third party's defence should be struck out.

19 TEMPLEMAN J: I have also read in draft the reasons to be published by Steytler J. I am in complete agreement with those reasons and there is nothing I wish to add.