Issue (2): Has WSP Structures been indemnified by its professional indemnity insurer such that it has no loss to claim?
106 It is a matter for an insured who suffers a loss that is covered under two policies of insurance as to whether to pursue a claim to recover a loss under one policy or the other (noting that some policies may have express provisions that seek to deal with what is to occur if an insured has coverage for a particular risk under more than one policy). However, it may be accepted that where there are two insurers covering the same risk and the loss has been met by one insurer then, in answer to a claim by the insured against the other insurer, the insurer may plead the indemnity as a valid defence: Lambert Leasing Inc v QBE Insurance (Australia) Ltd [2016] NSWCA 254; (2016) 93 NSWLR 166 at [215] (Payne JA, Ward and Gleeson JJA agreeing). It is a separate question between insurers as to whether there is a right to seek contribution: at [216].
107 The issue presented by the present case concerns how far matters have to proceed in respect of the claim made under one policy before the insurer under another policy can plead an indemnity under the first policy as a defence. In particular, is there a point in time before actual discharge of the liability to indemnify by one insurer (by payment to or at the direction of the insured) at which the plea of indemnity will be a valid defence to any claim brought by the insured against the second insurer.
108 There was no dispute as to the relevant facts which may be shortly stated:
(1) in October 2021, WSP Structures' professional indemnity insurer confirmed cover subject to policy terms and conditions;
(2) in November 2021, those professional indemnity insurers confirmed coverage in respect of the liability of WSP Structures as to the claims made in each of the three proceedings in the Supreme Court;
(3) in July 2022, there was a communication from lawyers for the professional indemnity insurers inviting a claim for reimbursement for defence costs incurred by WSP Structures in the Supreme Court proceedings; and
(4) and in November 2022 the professional indemnity insurers paid the WSP Indemnity Insurer Payment agreed to be paid by WSP Structures as part of the settlement of the Supreme Court proceedings.
109 Further, in an email dated 28 September 2022 from lawyers acting for WSP Structures to lawyers acting for its professional indemnity insurers after the present proceedings were on foot, the consequences for WSP Structures of pursuing its claim in the present proceedings were addressed. In the email, statements to the following effect are made:
(1) 'WSP seeks [its indemnity insurers] provide the funds for the [WSP Payment] … If [its professional indemnity insurers] pay that amount, WSP will not be able to recover that amount from the Icon insurers'; and
(2) irrespective of the outcome of the present proceedings in this Court, 'WSP' has an entitlement to indemnity from its professional indemnity insurers.
110 The submission advanced by Chubb and Tokio Marine was to the effect that, in practical terms, WSP Structures has received a full indemnity from its professional indemnity insurers in respect of the liability to make the WSP Payment. That was said to be the case because (a) WSP Structures has made a claim under its professional indemnity insurance for the liability the subject of the claims in the Supreme Court proceedings; (b) indemnity under that policy had been confirmed in writing by the insurer; and (c) the WSP Indemnity Insurer Payment has been made by the professional indemnity insurer. In those circumstances, the only reason, so it was submitted, that the professional indemnity insurer has not also paid the WSP Payment is because WSP Structures has told its insurer to hold off making the payment. It was said that all that WSP Structures has to do is ask its professional indemnity insurer to make payment and it will do so because of the grant of indemnity, the fact that it had made the WSP Indemnity Insurance Payment and the fact that it is evident from the terms of the email of 28 September 2022 that WSP Structures seeks that indemnity.
111 Particular reliance was placed by Chubb and Tokio Marine upon the reasoning in The Mayor, Councillors and Citizens of the City of Footscray v The New Zealand Insurance Co Ltd (Unreported, VSC, 24 June 1992). The decision concerned an objection to answering an interrogatory. The question asked was whether any insurance company had indemnified or agreed to indemnify the plaintiff in respect of any liability that the plaintiff may have incurred arising out of proceedings referred to in its statement of claim. There were allegations in the statement of claim to the effect that the plaintiff was entitled to indemnity under the terms of a public liability policy issued by the defendant for the liability established by those proceedings. The defence included a claim that the plaintiff was entitled to indemnity in respect of any liability under a professional indemnity policy. Tadgell J described the way in which the issue had been joined as between the plaintiff and the defendant in the following terms:
Although the defence does not say so in explicit terms, the defendant appears to rely on the principle of double insurance and to contend that, to the extent that the plaintiff was entitled to indemnity under a professional indemnity policy, it cannot recover under the policy issued by the defendant. No issue of contribution between insurers arises upon the pleadings.
112 The plaintiff's chief ground of objection to answering the interrogatory was that it did not relate to any question between the parties. As to that objection, Tadgell J reasoned (para 3):
I think the objection cannot be sustained in that form. Upon the pleadings, any indemnity that the plaintiff has received, or which it is entitled to receive, under any other policy of insurance in respect of its liability referred to in para 12 of the statement of claim would (or at least could) pro tanto provide a defence to its claim: Sydney Turf Club v. Crowley (1972) 126 CLR 420, at 424, per Barwick, C.J. Interrogatory 54 is in my opinion fairly to be understood to ask whether the plaintiff has received or is entitled to receive any such indemnity. Insofar as the interrogatory asks whether the plaintiff has received any such indemnity the plaintiff should answer it by saying either that it has received indemnity in a stated sum under a specified policy or that it has received none. Insofar as the interrogatory asks whether the plaintiff is entitled to receive such indemnity the plaintiff is entitled to respond to the effect that the interrogatory seeks an opinion on a matter of law; but the plaintiff should also, I think, properly refer to any relevant professional indemnity policy that it has disclosed on discovery and invite the defendant to draw its own conclusions as to the plaintiff's entitlement thereunder.
113 In the passage referred to in Sydney Turf Club v Crowley (1972) 126 CLR 420 at 424, Barwick CJ referred to 'the well established principle that in a case where there are two promises of indemnity in respect of the same liability the promisee can only recover once and not twice. Being paid pursuant to one such promise, he cannot recover on the other'. Reference was made to McGillivray on Insurance Law, 5th ed (1961). Importantly, the court was there concerned with an instance where the liability under one policy had been paid out.
114 Returning to the decision in the City of Footscray case, it was contended for the defendant that the interrogatory also required the plaintiff to say on oath whether the plaintiff had reached any agreement with the professional indemnity insurer as to indemnity in respect of the plaintiff's liability to third parties. That aspect of the interrogatory was found to be 'too wide to be admissible and need not be answered' (at para 4).
115 It must also be observed that the defence advanced in the City of Footscray case sought to invoke a rateable contribution clause the scope of which depended not upon whether there had been payment by another insurer but whether the plaintiff was entitled to indemnity under any policy of insurance for which the defendant had contracted to afford indemnity (see paras 4-5). Therefore, the interrogatory had relevance for that purpose.
116 In the above circumstances, I do not understand the reasoning in the City of Footscray case to support the conclusion that the availability of indemnity or the 'grant of indemnity' or even an agreement to indemnify reached by way of compromise of a claim (as distinct from an actual payment pursuant to the indemnity) may provide a basis for a defence to a claim against a second insurer. It was not concerned with that question. Further, to the extent that the interrogatory was allowed on the basis that it was relevant to ask whether the plaintiff was 'entitled to indemnity' it was an issue in the proceedings by reason of the dispute as to the application of the rateable contribution clause. Therefore, it does not assist for present purposes.
117 Chubb and Tokio Marine also placed reliance upon the following reasoning in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [298] (Allsop P, Beazley and Campbell JJA agreeing), after referring to established authority stated:
The basal principles contained in these cases include the proposition that where several insurers have severally insured a risk, the insured can only receive one indemnity for its loss. Upon the receipt of that full indemnity from one insurer, the others are discharged against the insured. They remain, however, liable to contribute to the insurer that has paid. They are discharged because the insured can have no claim, because it has received full reparation for its loss.
118 In my view, the reference to 'receipt of that full indemnity from one insurer' must mean actual payment by the insured to or at the direction of the insured. It is the actual receipt of full reparation that gives rise to the discharge of the second insurer from any claim by the insured. Earlier in the reasons of Allsop P in Baulderstone, reference was made to the different ways in which the terminology 'grant of indemnity' may be used: at [290]-[292]. Importantly, as there explained, a grant of indemnity may operate as an admission of liability based upon known facts and on the basis that the grant was in terms of the policy or as an agreement to compromise a disputed claim. There is no suggestion in the present case that WSP Structures had reached an enforceable agreement that required payment to WSP Structures by its professional indemnity insurers of an amount to indemnify it for the WSP Payment. Rather, the present case was an instance where the grant of indemnity was an admission of a kind that gave an insurer a capacity 'to seek to alter their position should the known facts materially change': Baulderstone at [292]. In any event, even if there had been such an agreement, indemnity would not be received until that agreement was performed. It is the receipt of the indemnity from one insurer that means there is nothing for the second insurer to indemnify. Until then, the insured may pursue both insurers until indemnity is received. So much is confirmed by s 76(1) of the Insurance Contracts Act 1984 (Cth) which provides:
(1) When 2 or more insurers are liable under separate contracts of general insurance to the same insured in respect of the same loss, the insured is, subject to subsection (2), entitled immediately to recover from any one or more of those insurers such amount as will, or such amounts as will in the aggregate, indemnify the insured fully in respect of the loss.
(2) Nothing in subsection (1) entitles an insured:
(a) to recover from an insurer an amount that exceeds the sum insured under the contract between the insured and that insurer; or
(b) to recover an amount that exceeds, or amounts that in the aggregate exceed, the amount of the loss.
(3) Nothing in this section prejudices the rights of an insurer or insurers from whom the insured recovers an amount or amounts in accordance with this section to contribution from any other insurer liable in respect of the same loss.
119 Significantly for present purposes, the statutory language is expressed in terms of actual recovery of the loss, not in terms of any recognition or admission of liability or separate agreement to indemnify.
120 Further, until actual payment, there is always a financial risk (possibly only a remote risk) associated with whether the grant of indemnity by the professional indemnity insurance may result in payment. Although there was no suggestion of any such risk in the present case, as a matter of principle there are difficulties with the notion that a 'grant of indemnity' by one insurer that has yet to result in payment may, of itself, be sufficient to give rise to a valid defence to a claim under the second policy. It would mean that in circumstances where a party has not in fact been indemnified by another insurer, that party could nevertheless be deprived of a claim against the second insurer. The insured, being entitled to indemnity from the second insurer would lose that right to indemnity in circumstances where indemnity had not been received from the other insurer.
121 For those reasons, it is the actual discharge by another insurer of the loss the subject of the claim that gives rise to the availability of the valid defence on the part of the second insurer to the effect that indemnity has been afforded to the insured. Unless and until there has been payment to the insured or at the direction of the insured there has been no indemnity in fact and no basis for a defence by the second insurer that indemnity has been given.
122 To the extent that the submission advanced by Liberty as to the legal costs relied upon the same contentions it should be rejected for the same reasons because it is common ground that the legal costs have not been paid by WSP Structure's professional indemnity insurer. To the extent that the submission by Liberty was expressed in terms that there had been an election by WSP Structures to recover those costs from its professional indemnity insurers, it should be rejected for the reasons that follow.
123 As to the factual matters relied upon to support the submission, it is not contentious that (a) the professional indemnity insurers have communicated to those acting for WSP Structures that they are satisfied that the policy responds to the claims made against WSP Structures in the Supreme Court; (b) they have done so noting the provision that concerns payment of costs and expenses; and (c) the professional indemnity insurance policy provides coverage for legal costs and expenses. In addition, to the extent that it is relevant, I find that the evidence demonstrates a willingness on the part of the professional indemnity insurers to meet the legal costs of WSP Structures if called upon to do so.
124 As has been noted, it is also the case WSP Structures has sought and obtained confirmation from its professional indemnity insurers that there is coverage under the policy for liabilities arising from the claims made in the Supreme Court (the subject of the overall settlement). Liberty also relies upon the fact that it has received the benefit of the WSP Indemnity Insurer Payment and did so after being aware of the existence of the Liberty policy.
125 In the above circumstances, Liberty claims that WSP Structures has made an election between its rights under its policy of professional indemnity insurance and the Liberty policy. It claims that the rights against the two insurers are relevantly inconsistent for the purposes of the doctrine of election. I do not accept that proposition.
126 The doctrine of election does not operate as a matter of intention. 'It is an effect which the law annexes to conduct which would be justifiable only if an election had been made one way or the other': Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 55 (Kitto J, Taylor and Menzies JJ agreeing). It is the existence of inconsistent rights that gives rise to the application of the doctrine: Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at [58].
127 There is no inconsistency in pursuing rights under two policies of insurance covering the same risk. This position is confirmed by the terms of s 76(1) of the Insurance Contracts Act which, as has been noted, allows for recovery from one or more insurers of such amount as will, in the aggregate, fully indemnify the insured. Inconsistency only arises when it comes to receiving the benefit of the indemnity under one policy and continuing to maintain that there is an obligation to indemnify for the same loss under a second policy. For reasons that have been given, the appropriate analysis at that point is not an application of the doctrine of election but rather the existence of a valid defence on the part of the second insurer because there is no longer a loss to indemnify.
128 For reasons that have been given, performance of the indemnity under one policy will mean that the holder of the other policy will have a valid defence to any further claim (noting the possibility of the insurer who has performed the indemnity seeking contribution). However, obtaining a grant of indemnity from one insurer does not involve making an election between inconsistent rights. It involves pursuing one of two coordinate rights which may be pursued by an insured up until it is has been indemnified.