ZURICH AUSTRALIAN INSURANCE LIMITED -v- METALS & MINERALS INSURANCE PTE LTD [2007] WASC 62 (16 March 2007)

Supreme Court of WA|2007-03-16|Before: Johnson J

1 JOHNSON J: Of the three matters before the Court, two actions were commenced by Writ of Summons issued out of this Court seeking various forms of relief. The third action is an action for damages for personal injuries which was commenced in the District Court and transferred to this Court for the purpose of determining the defendant's third party proceedings. The connection between these actions is best explained by setting out the background circumstances and the nature of the various actions.

2 Zurich Australian Insurance Limited ("Zurich") and Metals & Minerals Insurance Pte Ltd ("MMI") are both insurance companies. Speno Rail Maintenance Australia Pty Ltd ("Speno") is a company operating as rail grinding contractors. Hamersley Iron Pty Ltd ("Hamersley") carries on the business of mining, manufacture, transportation and loading of iron ore.

(a) That Speno arrange its public liability insurance to include Hamersley's interest as a principal; and

(b) That Speno be solely liable for and indemnify and hold harmless Hamersley against common law liability for personal injury to Speno's employees engaged in the contract works and arising from the performance of the works.

4 Speno and Zurich entered into a contract of insurance ("the Speno Policy") to provide Hamersley with the public liability insurance required under the Hamersley-Speno Contract. Although the position of one of the parties is that this particular contract of insurance is, in fact, a contract between Zurich, as insurer, and Hamersley, as insured, for simplicity of reference I have described it as the Speno Policy on the basis that Speno arranged the policy with Zurich. The description does not reflect a view on the nature of any party's involvement in the policy. The maximum liability of Zurich under the Speno Policy was $2 million.

5 Hamersley had entered into a contract of insurance with MMI ("the Hamersley Policy") which provided public liability insurance cover for Hamersley. Under the policy MMI agreed to indemnify Hamersley against, amongst other things, any liability to pay damages for personal injury occurring in connection with Hamersley's business. The maximum liability of MMI under the Hamersley Policy was $200,000.

6 Each of these contracts and policies were in force on 24 May 1995 when Nolan and Oatway were injured while employed by Speno and performing work carried out by Speno under the Hamersley-Speno Contract. The accident which caused the injuries to Nolan and Oatway were caused as a result of the negligence of Hamersley.

7 Nolan and Oatway instituted separate proceedings in the District Court against Hamersley alleging negligence and seeking damages for their injuries (respectively "the Nolan action" and "the Oatway action"). Hamersley admitted negligence and sought indemnity from Speno under the Hamersley-Speno Contract for its liability in respect of Nolan and Oatway's damages claims. Speno claimed against Zurich pursuant to the Speno Policy. Speno and Zurich were joined as the third and fourth parties respectively to the Nolan proceedings. At a later point, Hamersley also claimed directly against Zurich under the Speno Policy.

8 After trial and an appeal in the Nolan action, it was ordered that:

(a) Hamersley pay Nolan the sum of $1,110,186.35; and

(b) Speno and Zurich indemnify Hamersley in respect of that sum.

9 Of the issues raised on the appeal in the Nolan action, a number related to obligations of indemnity and contribution between Zurich and Speno and between Speno and Hamersley arising from the terms of the Speno Policy and the Hamersley-Speno Contract. Speno appealed against the order that it must indemnify Hamersley on the basis that the clause of the Hamersley-Speno Contract requiring Speno to ensure that all necessary insurances are taken out include Hamersley as co-insured, prevented the indemnity clause of the contract from applying where Hamersley is entitled to the benefit of the insurance arranged by Speno. That argument found no favour with the Full Court and the order that Speno indemnify Hamersley remained in effect: Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 per Ipp J at 312, per Malcolm CJ at 300 and Wheeler J at 325.

10 Another issue addressed on appeal was Zurich's liability to indemnify Speno. It was held that Zurich was not so liable because the policies issued to Speno did not indemnify it against that liability. Speno's argument that Zurich's denial of liability to indemnify Speno was a breach of Zurich's duty of good faith was rejected by the Full Court: per Malcolm CJ (at 306), per Ipp J (at 311, 313), per Wheeler J (at 328 - 329).

11 Zurich maintained that it was entitled to a contribution from Speno on the basis that Speno's liability to indemnify Hamersley under the Hamersley-Speno Contract was a co-ordinate liability to Zurich's obligation to indemnify Hamersley under the Speno Policy. The decision of the Full Court was that Zurich was not entitled to a contribution from Speno because the liability of Speno was not co-ordinate with that of Zurich: per Wheeler J (at 327), per Malcolm CJ (at 300) and per Ipp J (at 312). One aspect of the reasoning behind that conclusion was that Zurich's liability arose from a contract of insurance and Speno's did not: per Ipp J (at 312). It was held that the use of the word "indemnity" in the Hamersley-Speno Contract did not convert an ordinary contractual provision into an insurance policy or place the contractual provision on the same footing as an insurance policy: per Wheeler J (at 327).

12 As a result of judgments and agreed settlements in the Nolan and Oatway proceedings and as a result of the indemnity under the Speno Policy, Zurich paid $1,110,186.30 in damages to Nolan, $25,000.00 in damages to Oatway in settlement of his claim, interest and the legal costs of trial and appeal to a total of $1,259,969.07 ("the indemnified amounts").

13 Zurich then commenced proceedings in this court, action CIV 1679 of 2002 ("the Zurich action"), against MMI claiming a contribution from MMI on a rateable proportion for the indemnified amounts paid by Zurich, calculated either on the maximum potential liability method or the independent actual liability method. The basis of Zurich's claim is that, as MMI is liable to indemnify Hamersley for its liability to Nolan and Oatway under the Hamersley Policy, which is the same liability that Zurich has already indemnified Hamersley for, Hamersley is doubly insured for its liability to Nolan and Oatway, and Zurich is therefore entitled to a contribution.

14 In its defence, MMI relies on a clause in the Hamersley Policy headed "Special Clause" which provides that, in the event of Hamersley being indemnified under insurance coverage effected on Hamersley's behalf by a third party such as a contractor, the insurance afforded by the Hamersley Policy is for excess insurance over the applicable limit of indemnity of the underlying insurance policy. Consequently, MMI denies that Hamersley is doubly insured and that Zurich is entitled to a contribution from MMI. Further, MMI pleads that the relief Zurich seeks is not available in equity because, as MMI can subrogate Hamersley's rights against Speno, Zurich's claim circumvents the effect of Zurich's agreement to waive its rights of subrogation against Speno.

15 MMI, exercising a right of subrogation, caused to be issued out of the District Court in action number 1583 of 1996 ("the Nolan action") a Writ of fieri facias ("fi.fa") to be executed against Speno. Shortly after, the defendant's third party proceedings in the Nolan action were referred to this Court. Speno's response to MMI was to issue a Chamber Summons to strike out the Writ of fi.fa or stay its execution until the hearing of the Zurich action.

16 MMI then commenced proceedings in this court, action CIV 2243 of 2003 ("the MMI Action"), seeking a declaration that it is entitled to recover from Speno in the event that Zurich becomes entitled to a payment from MMI by way of contribution in the Zurich action. Speno's response to MMI's claim, inter alia, is to assert that Hamersley has no remaining liability to Nolan in respect of which it can seek to be indemnified and consequently has no remaining right which can be the subject of execution against Speno and no remaining right to claim an indemnity against Speno under the Hamersley judgment. As a result, Speno maintains that there is no right against Speno to which MMI can be subrogated and it would therefore be an abuse of process for MMI to seek execution against Speno in the name of Hamersley.

17 I will deal with each of the individual actions in turn, although some issues requiring determination are common to more than one action. With respect to certain issues, the need to determine them is dependent on findings made in relation to other issues. However, because of the potential for appeals, I propose to determine every issue raised at the hearing.

18 In this action, Zurich seeks a declaration that Hamersley was doubly insured by Zurich and MMI, under the Speno and Hamersley policies respectively, in relation to the liability of Hamersley to Nolan and Oatway. Zurich further seeks payment from MMI by way of contribution calculated on the maximum potential liability method or, alternatively, on the independent actual liability method.

19 MMI's defence to the Zurich claim is that MMI acknowledged under a clause of the Hamersley Policy with the primary heading "Special Clause" and a secondary heading of "Underlying Insurance" ("the underlying insurance clause") that it was customary for Hamersley to effect, or for other parties (including contractors) to effect on Hamersley's behalf, insurance coverage specific to a particular project, agreement or risk that was not specifically effected to be insurance excess to the Hamersley Policy. This underlying insurance clause provides that, in the event of Hamersley being indemnified under insurance coverage effected on its behalf with respect to a particular project, in respect of a claim for which indemnity is available under the Hamersley Policy, the insurance afforded by the Hamersley Policy is excess insurance over the applicable limit of indemnity of the underlying insurance policy. If that proposition is accepted, then there is no double insurance and no right in Zurich to a contribution from MMI. In reply, Zurich pleads that the underlying insurance clause relied on by MMI is rendered void by s 45 of the Insurance Contracts Act 1984 (Cth) ("the IC Act") and cannot be relied upon.

20 MMI further pleads that the relief sought by Zurich is not available in equity because of the following matters:

Speno's liability under the judgment in the Nolan action is further to the indemnity clause in the Hamersley-Speno Contract;
The Speno Policy includes a clause under which Zurich waives any rights of subrogation it has against Speno and cannot subrogate Hamersley's rights against Speno under the judgment;
MMI is entitled to subrogate to Hamersley's rights against Speno under the judgment and enforce against Speno an indemnity equalling any contribution MMI is ordered to make to Zurich;
Zurich's claim against MMI therefore purports to circumvent the effect of Zurich's agreement to waive its rights of subrogation against Speno.

21 MMI maintains that, as a claim for contribution is a claim for equitable relief, as a result of these factors it would be inequitable for Zurich to make such a claim. This defence to Zurich's claim was referred to at the hearing as the "equitable bar to contribution" defence. In reply to this plea, Zurich denies that the Speno Policy contained a clause by which Zurich waived its rights of subrogation against Speno and further denies that there was any agreement to waive its rights of subrogation against Speno.

22 Finally, in its defence, MMI denies that any contribution to which Zurich may be entitled should be calculated on the maximum potential liability method of apportionment.

23 It is not disputed that when Nolan and Oatway were injured by Hamersley's negligence on 24 May 1995, Hamersley was insured against that risk by Zurich: see Speno Rail Maintenance Australia Pty Ltd (supra) per Malcolm CJ (at 306), per Ipp J (at 309), per Wheeler J (at 324). It is also the case that, under the Hamersley Policy, MMI agreed to indemnify Hamersley against, among other things, such sums as Hamersley became legally liable to pay arising out of personal injury in connection with Hamersley's business. The policy related only to personal injury occurring between certain dates but the injury to Nolan occurred within those dates so that particular qualification presented no bar. Therefore, Zurich contends that the respective insurance policies of Zurich and MMI insure the same risk and hence their liabilities are co-ordinate, which is the basis in equity for contribution. MMI submits, as noted above, that, by virtue of the underlying insurance clause in the Hamersley Policy, the Hamersley Policy operates as an excess policy over the limit of indemnity under the Speno Policy and hence the liabilities are not co-ordinate.

24 The decision of the High Court in Albion Insurance Co Ltd v Government Insurance Office of NSW [1969] HCA 55; (1969) 121 CLR 342 is referred to by Zurich as authority for the proposition that where there are co-ordinate liabilities there is a right to contribution. The oft cited statement of principle of the majority in Albion Insurance Co Ltd (supra) is in these terms (per Barwick CJ, McTiernan and Menzies JJ (at 345)):

"There is double insurance when an assured is insured against the same risk with two independent insurers. To insure doubly is lawful but the assured cannot recover more than the loss suffered and for which there is indemnity under each of the policies. The insured may claim indemnity from either insurer. However, as both insurers are liable, the doctrine of contribution between insurers has been evolved ... The doctrine, however, only applies when each insurer insures against the same risk, although it is not necessary that the insurances should be identical."

25 In the same case, Kitto J noted that the same point in regard to accident insurance is made by saying that each policy must insure the same person against the very loss that in the event he has sustained, or the very liability that in the event he has incurred: (at 350).

26 In the present case, it is not the general principle which is in dispute. As the majority observed in Albion Insurance Co Ltd (supra) (at 347):

"It seems to us that it is not the principle but the application of the principle which has given rise to the problem that now falls for decision."

27 MMI correctly observes that, absent an obligation in both MMI and Zurich to indemnify Hamersley in respect of its liability to Nolan and Oatway, there can be no entitlement to contribution: see Speno Rail Maintenance Australia Pty Ltd (supra) (at 325) per Wheeler J. MMI maintains that it has no obligation to indemnify Hamersley against its liability to Nolan and Oatway because of the operation of the underlying insurance clause in the Hamersley Policy which is in these terms:

"Underlying Insurance

Underwriters acknowledge that it is customary for the Insured to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk.

In the event of the Insured being indemnified under such other Insurance effected by or on behalf of the Insured (not being an Insurance specifically effected as Insurance excess of this Policy) in respect of a Claim for which Indemnity is available under this Policy, such other Insurance hereinafter referred to as Underlying Insurance, the Insurance afforded by this Policy shall be Excess Insurance over the applicable Limit of Indemnity of the Underlying Insurance, but subject always to the terms and conditions of this Policy.

In the event of cancellation of the Underlying Insurance or reduction or exhaustion of the Limits of Indemnity thereunder, this Policy shall:

(i) in the event of reduction pay the excess of the reduced underlying limit

(ii) in the event of cancellation or exhaustion continue in force as underlying insurance

but subject always to the terms and Conditions of this Policy."

28 MMI's position is that the combined effect of Hamersley's entitlement to an indemnity under the Speno Policy and the underlying insurance clause is that the Hamersley Policy operates as an excess policy over the limit of indemnity under the Speno Policy. Consequently, the respective liabilities of Zurich and MMI are not co-ordinate but sequential as Hamersley would not have been entitled to indemnity under the Hamersley Policy until the limit of Zurich's liability of $2 million had been reached. As the indemnified amounts are less than $2 million, Zurich is not entitled to contribution from MMI.

29 The decision of the Court of Appeal of New South Wales in Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd (1983) 3 NSWLR 59 is referred to in support of MMI's interpretation of the effect of the underlying insurance clause. In that case, the leading judgment was written by Priestley JA, with whom Hutley AP agreed, as did Mahoney JA who provided additional reasons. The facts were that the owner of a house damaged by fire was insured under a householder's policy with the respondent ("Mutual"), pursuant to which Mutual paid the owner $47,700 in respect of the fire damage. The owner also had a home insurance policy with the plaintiff ("Eagle") in respect of the same building. Mutual sought a contribution from Eagle of one half of the amount paid to the owner on the basis that Eagle was a co-insurer with respect to the same risk. The central question before the Court was whether Eagle could properly be so described in circumstances where the Eagle policy, which indemnified the owner to a limit of $25,000, included under the heading "General Exclusions" the following clause:

any loss of damage or liability which is insured by or but for the existence of this policy would be insured by any other policy or policies except in respect of any excess beyond the amount which would have been payable under such other policy or policies had this insurance not been effected."

30 Priestley JA considered and applied the decision of the New Zealand Court of Appeal in State Fire Insurance General Manager v Liverpool and London and Globe Insurance Co Ltd [1952] NZLR 5 (at 29) where Hutchison and Cooke JJ, who wrote a joint judgment, construed the "excess" clause according to its terms, rather than in accordance with what was described as difficult to reconcile principles set out in a number of English cases, most of which dealt with the situation where both policies contained an "excess" clause. Hutchison and Cooke JJ read the clause as showing that the insurer was not indemnifying the person against the same risk as the primary insurer. They held that the policy with the "excess" clause placed no obligation on the insurer to indemnify the insured until the insured's own insurer had first been called upon for the indemnity provided by its policy and then claimed contribution. At that point, the insured's own insurer must take the "excess" clause as it finds it.

31 Priestley JA concluded that the Eagle policy, according to its terms, provided indemnity against damage due to fire to a limit of $25,000 until the owner obtained the other insurance policy at which point the "excess" clause operated to exclude any indemnity to the owner except to the extent of any excess as defined by that clause: (at 65). His Honour further considered that similar considerations applied to the Eagle policy as those acted upon by Hutchison and Cooke JJ in State Fire Insurance General Manager (supra) which provided a guide to, and a basis for, reaching a conclusion opposite to that reached in the English cases: (at 71). The decision of the Court was that Mutual was not entitled to contribution as Eagle was not indemnifying the owner against the same risk: (at 71 - 72).

32 Atkin LJ in Re Calf & Sun Insurance Office [1920] 2 KB 366 at 382 protested that one case of construction of an insurance policy should not be treated as an authority in another unless the language and the circumstances are substantially identical. However, in my view, the terms of the relevant portion of the underlying insurance clause in the Hamersley Policy are sufficiently similarly worded to the "excess" clause in State Fire Insurance General Manager (supra) to entitle this Court to reach the same conclusion as to its effect. In any event, I believe that the natural meaning of the wording of the underlying insurance clause in the Hamersley Policy leads to the same result.

33 In fact, it is common ground between the parties that in order for an entitlement to contribution to arise, their liabilities must be co-ordinate. Neither party cavils with the fundamental propositions in Albion Insurance Co Ltd (supra) (at 345 - 346; 352) and in the decision of the Full Court in Speno Rail Maintenance Australia Pty Ltd (supra) and also in numerous other decisions on this issue.

34 It is also common ground that if the Hamersley Policy is made into an excess policy by the underlying insurance clause, then the two liabilities will not be co-ordinate, they will be sequential with Zurich being liable for the first $2 million.

35 The dispute arises from the fact that the decision in Australian Eagle Insurance Co Ltd (supra) was made prior to the passing of the IC Act, which includes s 45, which is in these terms:

"45 'Other insurance' provisions

(1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.

(2) Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract."

36 Zurich denies that the Hamersley Policy is a true excess of loss policy. It is said that the clause is too general: it speaks in futuro; it lacks definition; and it fails to avoid the mischief s 45 is designed to prevent. According to Zurich, for the Hamersley Policy to be a true policy of that type, MMI must bring the policy within s 45(2) of the IC Act which Zurich asserts MMI is unable to do. Therefore, Zurich's position, as pleaded, is that the underlying insurance clause in the Hamersley Policy is void by virtue of the operation of s 45(1) of the IC Act and, as such, cannot be relied upon by MMI.

37 The merit in Zurich's contentions is dependent on categorising the Hamersley Policy as a true excess of liability policy which in turn depends on whether the underlying insurance clause offends s 45(1) and, if it does, whether it is "saved" by s 45(2).

38 Counsel for Zurich submits that the meaning and purpose of s 45 is plain. I am not convinced that is so. For example, the expression "the insured has entered into some other contract of insurance" immediately raises consideration of the ways in which an insured can come to be covered by another insurance contract and whether it can be said that in all such cases that the insured "entered into" the other contract of insurance. Fortunately, in the event that the Court did not, without more, share Zurich's view that the meaning of s 45 is clear on its terms, counsel for Zurich invited the Court to consider the history behind this particular enactment, including the position in the insurance industry prior to the enactment which is said to have prompted the inclusion of s 45 in the IC Act. In that regard, the Court was invited to consider the available extrinsic material which is said to address these issues and assist in the ascertainment of the meaning of the section. Section 15AB(2)(e) of the Acts Interpretation Act 1901 (Cth), which is the authority to refer to extrinsic material, provides that extrinsic material includes explanatory memoranda relating to the Bill containing the provision, or any other relevant document, that was provided to the members of either House of Parliament by the Minister. The latter material would include the content of the Australian Law Reform Commission ("ALRC") Report on Insurance Contracts (No 20, 1982) ("the ALRC Report"), which is expressly referred to in the Explanatory Memorandum relevant to the IC Act. In the circumstances of this matter, I note that s 15AB requires regard to be had to the desirability of persons being able to rely on the ordinary meaning conveyed by the text of a provision taking into account its context in the Act and the purpose or object underlying the Act: s 15AB(3)(a). That part of the section is consistent with the proposition put on behalf of Zurich that the meaning of s 45 is plain. It also addresses the competing submissions about whether or not it is appropriate to rely, in interpreting s 45, on decisions that define terms found in other provisions which are also found in s 45(1) of the IC Act.

39 Zurich contends that the underlying exclusion clause on which MMI relies to defeat Zurich's claim for contribution is of the same type as those which caused considerable problems prior to the enactment of s 45. It is said that "other insurance clauses" were a device commonly used by insurers to attempt to avoid liability under the policy whilst retaining the premium: see ALRC Report at [279]. Examples of other such devices were the "no other insurance" clause which excluded cover in the event that the insured obtained other insurance covering the same loss, and "rateable contribution clauses" restricting cover to a rateable proportion in the event of insurance under another policy. Another type of clause mentioned by Zurich was the "notice clause" which excluded cover if the insurer was not given notice of another policy covering the same loss. One of the potentially adverse consequences of clauses of this type is that, in the event of insolvency of the other insurer, the insured is only partially insured or not insured at all.

40 Chapter 11 of the ALRC Report which is headed "Other Insurance and Contribution", addresses the various problems which may arise where overlapping or co-extensive insurance policies are taken out. The ALRC states that entering into overlapping or co-extensive policies with different insurers is a common occurrence which may occur accidentally or intentionally. It is said that, where overlapping or co-extensive insurance is taken out intentionally, the reason may be to protect against the risk of insolvency of the first insurer or, in some cases, to make a profit out of insurance by ensuring that there is double insurance covering the same loss: at [279]. In circumstances where the doctrine of contribution was developed to prohibit an insured from obtaining or retaining a double benefit, it seems to me that overcoming the potential for double insurance by way of an "excess" clause is a solution, the adverse effects of which almost wholly outweigh the adverse effects of an insured insuring himself against the same risk twice. I appreciate that in some situations the fact of double insurance may be unknown but I believe my point remains valid and, in any event, there are other less potentially onerous methods of overcoming the risk of there being double recovery.

41 The ALRC concluded that there was no substantial justification for any of the various types of "other insurance" clause (at [289]) and identified the criticisms which can be levelled at such clauses, each of them significant, in my view. The first criticism was that this type of clause converts a policy into an excess policy without appropriate reduction in the premium. Another criticism is that, if the other insurance is insufficient to cover the loss, the insured has to make claims against both insurers.

42 The ALRC also noted the potential for the application of "other insurance" clauses to be further complicated by the existence of similar or contrasting provisions in the second policy: (at [281]). Reference is made in the ALRC Report to the English authorities referred to but not followed by the New South Wales Court of Appeal in Australian Eagle Insurance Co Ltd (supra). The English authorities are described by the ALRC as "difficult to follow and impossible to reconcile": (at [282]). The ALRC considered the New Zealand authority of State Fire Insurance General Manager (supra), noting that the approach in that case was consistent with principle although inconsistent with the decision in one of the English cases, Austin v Zurich General Accident and Liability Insurance Company Ltd [1945] KB 250. However, the ALRC acknowledged that in State Fire Insurance General Manager (supra) the Court was not faced with the problem of reconciling two indemnity clauses which might, on a particular construction, result in the absurdity that cover was provided under neither.

43 Finally, reference was made in the ALRC Report (at [286]) to the then most recent decision in National Employers Mutual General Insurance Association Ltd v Haydon [1979] 2 Lloyd's Rep 235 where a professional indemnity policy contained an extension covering claims made after the policy expired, provided that notice was given during the currency of the policy of the occurrence giving rise to the claim. The policy also contained an "excess" clause. After the policy expired, the insured effected cover with another insurer which provided retroactive cover but excluded liability arising from an occurrence notified under, and therefore covered by, prior insurance. The first insurer paid on the claim but sought contribution from the second insurer. The trial Judge held that both clauses were ineffective and that each insurer was liable to contribute to the loss. On appeal, the decision was reversed: National Employers Mutual General Insurance Association Ltd v Haydon [1980] 2 Lloyd's Rep 149. The ALRC considered that the problem with the state of the authorities was compounded by the fact that some relevant provisions had yet to be accorded judicial scrutiny: (at [287]).

44 It is not surprising, in view of what the ALRC describes as the "confusion of the authorities", that the recommendation made was for legislative intervention. The ALRC's recommendation identified the adverse effect of "other insurance" clauses on the interests of the insured and noted that such clauses have little independent value for insurers that could not be achieved in ways which did not disadvantage the insured. Not surprisingly then, the recommendation made was that 'other insurance' clauses should be rendered ineffective. The ALRC expressed its views in the following terms (at [289]):

"The Commission is concerned with the effect of 'other insurance' clauses on the interests of the insured. Insureds are detrimentally affected by uncertainty over the effects of individual provisions and combinations of different provisions. More important is the fact that some 'other insurance' clauses have the effect of limiting the insurer's liability to its insured. In such a case, the insured's protection may be compromised or lost. While they affect the interests of insureds in this manner, 'other insurance' clauses have little independent value for insurers. To the extent that they are intended as protection against fraud, they are ineffective. At most, such a clause might operate as a disincentive to claiming the same loss twice under different polices. The same effect could be achieved by a clear warning to the insured that he is entitled to claim, under the policy concerned and under any other insurance, no more than his actual loss. To the extent that 'other insurance' clauses are designed to ensure that an insurer becomes aware of the existence of other insurance so that it may claim contribution in the event of a loss, the same aim could be achieved by asking appropriate questions in the proposal and claim forms. A request in the proposal form for details of other insurance would also give the insurer the opportunity of assessing any significant degree of over-insurance and deciding whether to accept the proposal. There is no substantial justification for any of the various types of 'other insurance' clause. As they may cause the insured's reasonable expectation to be defeated, all forms of 'other insurance' provisions should be rendered ineffective. If more than one insurance is in effect in respect of the same risk, the insured should be entitled to recover the whole of his loss from any one of the insurers, which should then be entitled to obtain contribution from the others."

45 The ALRC emphasised that its recommendations would have no effect on layered policies in the field of co-insurance. It also identified two exceptions to the recommendation. The first exception was in relation to the true excess liability policy covering an insured's liability over and above that covered by another insurance which is specifically identified in the excess policy. The second exception was restrictions on the scope of the cover afforded by a policy in order to exclude liability which is also covered by an insurance made compulsory under statute: (at [290]).

46 Based on the content of the ALRC report, Zurich contends that s 45 seeks to achieve an entirely different purpose than other sections of the Act. It seeks to strike down clauses which historically gave rise to problems such as where a situation of double insurance might be created accidentally. However, it is submitted that s 45 would only achieve that purpose if it covered all situations in which the insured comes to be covered by a policy of insurance, including where a policy is taken out by another, naming Hamersley as principal. To read s 45 in any other way would be to defeat the purpose of the provision.

47 Further Zurich submits that s 45 is intended to be beneficial to insureds and to achieve justice as between insurers: that is, the purpose of the section is to avoid the ill that allows insurance companies to avoid liability simply because there are two policies in place covering the same loss, irrespective of the circumstances by which that came about.

48 That the ALRC's recommendations were accepted, at least in relation to the exceptions, is apparent from the Explanatory Memorandum to the Insurance Contracts Bill which referred to the intended effect of the clause in these terms:

"148. Where two or more contracts of insurance provide cover in respect of the same loss insurers will be able to claim contribution from one another in respect of the loss (ALRC para 289). It is appropriate that an insurer should be able to exclude liability which is also covered by compulsory insurance eg workers' compensation or third party insurance. It is also appropriate that he can exclude liability where the policy is a genuine excess policy (ALRC para 290)."

49 I accept that the ALRC considered that all forms of "other insurance" clause which have the effect of limiting or removing the insurer's liability to the insured should be "rendered ineffective" and made that recommendation. It is similarly clear that the ALRC considered that only those clauses that fall within the two stated exceptions from that recommendation should be exempt from the general prohibition.

50 The evidence of the Explanatory Memorandum indicates that the latter aspect of the ALRC's recommendation was accepted. It is difficult to envisage a circumstance where, following an ALRC report, the recommended exceptions to a prohibition are adopted but the prohibition itself is not. At the very least, one would expect the Explanatory Memorandum to explain why the recommendation of a complete prohibition on clauses of this type was not adopted. Consequently, one can reasonably expect s 45(1) to have been intended to have the effect recommended by the ALRC and the provision should be construed with that intention in mind. Of course, it is then necessary to consider whether the way in which the clause was drafted did indeed achieve that aim and whether the clause is capable of being construed as creating a prohibition on all "other insurance" provisions.

51 Counsel for Zurich referred the Court to two cases which are said to assist in the construction of s 45. The first such case is Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd v Zurich Australian Insurance Ltd, unreported; DCt of Qld; 1 May 1992 per Robin DCJ. Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) is one of the few cases directly dealing with an underlying insurance clause, the effect of s 45 and the consequence of a conflict between such a clause and s 45. For that reason, I propose to consider the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) in some detail.

52 In Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra), the second plaintiff, Carlingford, by an insurance policy described as the CIC policy, agreed to indemnify AW Edwards Pty Ltd and its subsidiaries, one of which was the first plaintiff, Austress. Austress, as contractor, entered an agreement with Remm Pty Ltd to supply and install rock anchors in connection with the construction of the Myer Centre. The defendant, Zurich, issued a policy of insurance in respect of the construction of the Myer Centre ("the Zurich Policy"). Austress, in execution of the sub-contract work, caused damage to a sewer main owned by the Brisbane City Council and Remm undertook certain rectification works in relation to the sewer main and incurred costs.

53 Austress became legally liable to the Council in respect of the damage and, under the sub-contract, Austress became legally obliged to indemnify Remm for the costs of the rectification work. Austress made a claim under the CIC policy for indemnity in respect of its liability to Remm and the Council. Carlingford paid a total of $136,528.31 (the amount of damage less the deductible) to Remm and the Council in settlement of their respective claims. No contribution was paid by Zurich whose policy showed the insured to include Remm but no other interested party and created liability only for an amount in excess of $100,000.

54 The CIC policy included Claims Provision 3, which provided that Carlingford would not be liable in respect of the occurrence except for any excess beyond the amount payable under another policy of indemnity or insurance "in favour of or effected by or on behalf of the Insured applicable to the occurrence" which was claimed by Carlingford to result in Zurich being liable for the amount in excess of $100,000. Zurich contended that Claims Provision 3 was rendered void by s 45 of the IC Act.

55 In his reasons for decision, Robin DCJ noted (at 5) that the parties seemed to be ad idem that the policy came within the regime of the Act and, therefore, s 45 caught Claims Provision 3 in so far as it sought to limit the Carlingford's liability by reference to "indemnity or insurance ... effected by or on behalf of the Insured".

56 After referring to the terms of s 45, Robin DCJ noted (at 6) his acceptance of the submission made on behalf of Zurich that s 45(2) must be construed as requiring the reference to "other insurance" to be specific, as opposed to a description in general words capable of extending to the other insurance, if the provision is to survive being struck down by s 45(1). He added (at 6):

"It seems to be the underlying notion is that the insured and the insurer have tailored their own bargain to take account of the impact of other contracts."

Robin DCJ concluded that s 45(2) did not apply in the circumstances of the case.

57 As Carlingford disputed that s 45(1) applied to its policy, Robin DCJ then considered the proper construction of that subsection and identified the question for resolution as being whether the provision, which he considered to have the effect of limiting Carlingford's liability, did so "by reason that the insured has entered into some other contract of insurance". His Honour refuted (at 6 - 7) the proposition that this expression extended to every situation in which insurance may exist of which the insured may obtain the benefit, although having nothing to do with (and perhaps having no knowledge of) it being effected. In doing so he rejected the underlying proposition that an insured who benefits from, but is not named in, a policy can be said to have "entered into some other contract of insurance" having regard to various provisions of the IC Act which seek to eliminate any concept of lack of privity between insurer and named insured precluding or limiting the benefit to the insured of a policy entered into. The provisions relied upon were s 48, s 56 and s 76. Robin DCJ referred to s 11(9) of the IC Act which is in the following terms (at 8):

" ... A reference in this Act to the entering into of a contract of insurance includes a reference to -

(a) the making of an agreement by the parties to a contract of insurance to renew, extend or vary that contract; or

(b) the reinstating of a previous contract of insurance"

and concluded that "[a]nything brought in under that 'inclusive' definition must ... exhibit privity". Consequently, Robin DCJ formed the view (at 8) that he could not conclude that s 45(1) struck down Carlingford's clause on the basis that Austress had "entered into" the Zurich policy. As his Honour observed (at 8):

"It would have been a simple matter for the draftsman to adopt language referring to other insurance, by whomsoever effected. It is not lightly to be assumed that merely because a policy of insurance may inure to the benefit of a person, it was effected by or 'entered into' on behalf of that person: Stretch v State Insurance General Manager (1984) 3 ANZIC 60-577, at 78,467-6B."

58 With respect to Robin DCJ's reliance on s 11(9) of the IC Act, I do not share his Honour's view that the section indicates that the expression "the entering into of a contract of insurance" is necessarily limited in meaning to entering into a contract of insurance by the parties to that contract. In my view, s 11(9) simply broadens the concept of an insurance contract to include agreements to extend or vary the contract in the case of life insurance contracts and to extend the meaning of any other contract of insurance to making an agreement to renew, extend or vary the contract. The meaning of a contract of insurance is also extended to include the reinstatement of any previous contract of insurance. To include reference to the parties to such contracts is only to state the obvious: that the only persons entitled to renew, vary, agree to renew, extend or reinstate a contract are the parties to that contract. I do not accept the proposition that s 11(9) in any way addresses whether the expression "the insured has entered into some other contract of insurance" may include a contract entered into by another which indemnifies the insured and applies the contract to him as if a separate policy had been issued to him as an insured under the policy.

59 Further, with respect to Robin DCJ, neither do I share the view that Stretch v State Insurance General Manager (1984) 3 ANZ Ins Cas 60-577, at 78,467-6B, is authority for the proposition that it cannot be assumed that merely because a person may benefit from an insurance policy, it was effected by or 'entered into' on behalf of that person. In that case, the vendors of a property, subject to a contract to sell, insured the property. The purchasers had also insured the property by obtaining a cover note which was expressed to insure both the vendors and the purchaser against fire. The vendors were advised that the purchaser had taken out a cover note but were not advised that they were named as an insured in the cover note. The property was severely damaged by fire at a time when the contract of sale had become unconditional but settlement had not taken place. The vendors' insurers sought to rely on a condition in the policy which said that if, at the time of any loss, there was any other insurance covering such loss, the insurer would not be liable for more than its rateable proportion. The Court held that a true case of double insurance requires, inter alia, both policies to have been effected by or on behalf of the same insured or with his authority. As the vendors had not authorised the cover note or been made aware that it was named in it, there was no double insurance and there could be no reliance on the "other insurance" clause: per Eichelbaum J at 78,468(L)

60 In my view, the decision in Stretch (supra) is authority only for the proposition that, where another insurance policy is taken out by a third party to the benefit of or in the name of the insured under the primary policy, authorisation by the insured of the other insurance policy is a pre-requisite for there to be double insurance. I do not believe the decision adds anything to the issue of whether a policy was "entered into" by a person if it was arranged by a third party to the benefit of the person, other than, if it is to be relied upon as the basis of a contribution, the policy arranged by the third party must have been authorised by the person.

61 However, it does not follow from the fact that I take a different view of two of the matters relied upon by Robin DCJ in reaching his conclusion on this issue, that I believe his ultimate decision to be flawed as a result. Other factors were also taken into account, some of which are dealt with later in these reasons.

62 Robin DCJ considered (at 9) that Carlingford's actions were exactly what the Act envisaged in that Carlingford paid out Austress in full (subject to its "deductible") so that Austress' maximum expectations had been fulfilled and then sought contribution from Zurich, as permitted by s 76(3), or an equivalent recovery by a process of subrogation.

63 Robin DCJ expressed his conclusion in the following terms (at 9):

"In the end, I have concluded that s 45 operates by reference to the language of the limitation of the insurer's liability and what its effects may be as a matter of interpretation or logic, rather than by reference to whether the prescribed effect stands to arise in the particular circumstances of an individual claim."

64 The next question considered by Robin DCJ (at 5 - 6) was whether the presence of the descriptive phrase "Insurance ... effected by or on behalf of the Insured" in the Claims Provision suffices to render the provision entirely void so that the insurer gains no protection from the words which would limit its liability where any other "indemnity or insurance in favour of ... the Insured" applies. This question is of particular relevance in this case as the "underlying insurance clause" in the Hamersley Policy extends to policies entered into "on behalf of" Hamersley. Robin DCJ's answer to that question was this (at 9):

"What s 45(1) renders void is 'the provision' which has the defined 'effect'. I cannot detect there any legislative intention that the provision be saved so far as it may have other effects. It follows that the provision is void, so that the insurer may not take advantage of any 'effect' among others it may have which is not caught by s 45(1). Somewhat ironically, the way in which the insured might have saved the situation may have been to replace the words 'or effected by or on behalf of' by '(not being a Policy effected by or on behalf of)'. The provision being void, the second plaintiff was liable to indemnify the first plaintiff in full, subject to its 'deductible'."

65 According to Robin DCJ (at 9), the striking down effected by s 45(1) was absolute and complete and was not limited to what is necessary to implement the policy of the Act in the circumstances of a particular claim.

66 Counsel for Zurich concedes that not all aspects of the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) support Zurich's contentions. Certainly, Zurich's construction of s 54(1) is at odds with Robin DCJ's comments (at 8) that it would have been a simple matter to achieve the result that all "underlying insurance" clauses other than those required by law and those which specify the other insurance are prohibited and hence it could not be established that such a result was intended. Zurich maintains its position that s 45 would only achieve its purpose if it covered all situations in which the insured comes to be covered by a policy of insurance, including where a policy is taken out by another, namely Hamersley as principal.

67 However, Zurich does rely on some of the conclusions drawn by Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). Counsel for Zurich notes that the point being advanced in that case, and also in this case by MMI, is that Hamersley did not enter into the Speno Policy, Speno did. Zurich maintains that, as s 45(2) does not apply, MMI's "underlying insurance clause" is void because, although it refers to other insurance effected on behalf of the Insured, it also includes insurance effected by the Insured. One is arguably included in the definition but the other is definitely included in it and hence MMI's clause is void.

68 Zurich maintains that, when you look at the ALRC Report and consider what is sought to be achieved by prohibiting underlying insurance clauses, nothing could be plainer than that all of these kinds of provisions were to be avoided, including those that created an excess policy where the insured benefited from a policy taken out or entered into by another. I accept that to be the case, particularly because an insured may be unaware of such a policy. Zurich emphasised that the Court is entitled to have regard to what the ALRC says because of s 15AA of the Acts Interpretation Act 1901 (Cth). Section 15AA is headed "Regard to be had to purpose or object of Act" and states:

"1. In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object."

69 Applying that principle it is useful to also consider the preamble to the IC Act which is in these terms:

"An Act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly, and for related purposes."

70 In East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400, Gleeson CJ, in delivering the leading judgment of the NSW Court of Appeal, and in addressing the application of s 54 of the IC Act, concluded that the language should not be read narrowly: (at 403). Gleeson J relied on the terms of the long title to the IC Act in making the following obiter observation on the construction of s 54 (at 403 - 404):

"In my view, by choosing words of generality and avoiding reference to the particular type of contractual provision that might produce the result that the insurer may refuse to pay a claim, the legislature has evinced an intention to avoid the result that the operation of s 54 depends on matters of form ...

The Act, in its long title, is described as an act to reform and modernise the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds, and other members of the public and so that the provisions included in such contracts, and the practices of the insurers in relation to such contracts, operate fairly. It would hardly be consistent with the purposes thus described to construe the language of s 54 in such a way as to make its operation depend upon the choice that is made between various available drafting techniques."

71 In Kelly v New Zealand Insurance Company Ltd (1996) 9 ANZ Insurance Cases 61-317 at 76,517, Owen J, with whom Kennedy and Steytler JJ agreed) agreed with the tenor of the dicta of Gleeson CJ in East End Real Estate Pty Ltd (supra). Owen J observed that s 54 was a remedial provision which should be given a liberal interpretation. He accepted that the courts must review an impugned insurance transaction according to substance rather than form. However, Owen J noted that each case must be judged on its own facts: (at 76,517).

72 I consider the reference in East End Real Estate Pty Ltd (supra) to a fair balance between the interests of the insurers, insureds and other members of the public is consistent with a result which may not fully overcome the ills identified by the ALRC but, nevertheless, strikes a fair balance between competing interests.

73 Zurich maintains that the clear purpose of s 45 is to remove these types of provisions by removing the benefit of them other than in the situations envisaged in s 45(2). It is said that, in order for the section to work and not be emasculated, the term "insured" has to be given the construction contended by Zurich, that is, the reference to the "Insured" is a reference to the Insured under the policy. If read in that way then s 45 operates to achieve the reform that was plainly intended.

74 Underlying Zurich's interpretation of s 45(1) is a reliance on the definition of "insured" and "insurer" in s 11 which is stated to include "a proposed insured" and "a proposed insurer", respectively. As s 11 commences with the words "In this Act, unless the contrary intention appears", Zurich maintains that the definition applies as no contrary intention is evident in the wording of s 45. However, it must be noted that a contrary intention may appear from the fact that the particular definition does not "fit" within the section in that it is inconsistent with the balance of the provision or may change the meaning of the provision to something which was clearly not intended by the legislature. Here, of course, Zurich maintains that the inclusion of the words in the definition operates to achieve that intention.

75 Zurich also emphasises that the IC Act made wide-ranging changes to the law of insurance in a number of areas: s 21 with non-disclosure; s 13 by implying a term into contracts of insurance whereas previously it had operated as a principle of law; s 76 with respect to contribution between insurers; s 48, third party beneficiary right to recover. It is said that a whole range of disparate and different ills were addressed by the IC Act and it is necessary to look at each of the provisions and the purpose of the provisions in order to understand what Parliament meant by using that particular word in a particular context.

76 It is for all these reasons that Zurich maintains that s 45(1) operates to make void any "excess" clause, whether the other contract of insurance was entered into by the insured or whether the insured has the benefit of a contract between a third party and another insurer. On that basis, the underlying insurance clause in the Hamersley Policy is said to be void. Even if the primary proposition is not accepted, Zurich maintains that the Hamersley Policy is void because it is the provision which is void, not that part of it which offends s 45(1).

77 In Zurich's argument, it is only if MMI can bring itself within s 45(2) that it avoids the consequences. The contract described in s 45(2) is said by Zurich to be a true "excess of liability" policy, the test for which is whether the contract carrying with it the primary liability is "specified" in the "excess of liability" policy. However, as there is no specificity in the MMI underlying insurance clause's reference to "such other Insurance effected by or on behalf of the Insured in respect of a Claim for which Indemnity is available under this Policy" Zurich suggests that MMI is not entitled to the advantage of s 45(2).

78 Zurich contends that the Hamersley Policy contains a clear example of what is meant by "specified" in s 45(2). The Court was taken to the Hamersley Policy and to "Insuring Agreement A - Combined Public and Products Liability", in particular to the "Exclusions" which include the following paragraph:

"Notwithstanding this Exclusion (1) this Insuring Agreement (A) shall indemnify the Insured in accordance with the terms, conditions and endorsements of the Overseas Employers' Liability Insurance issued by American Home Assurance Company Policy Number MG69898 Limit of Indemnity A$5,000,000 (the Underlying Insurance) with which this Policy shall run concurrently;

PROVIDED THAT

Underwriters shall be liable only for sums in excess of the Limit of Indemnity provided by the Underlying Insurance."

79 This is an example of the level of specification said by Zurich to be necessary for an underlying insurance clause to fall within s 45(2). I accept that the level of specificity in this paragraph would satisfy s 45(2). However, I do not accept that an underlying insurance clause which did not specify the other insurance to that degree would not come within s 45(2).

80 It is in this context that the second authority on which Zurich primarily relies is to be considered. Zurich referred the Court to the decision in HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd & Anor [2000] NSWCA 281; (2000) 11 ANZ Insurance Cases 61-477 as part of the answer to that question. In that case, Pluim Constructions Pty Ltd ("Constructions") carried out building work at the Mingara Recreation Club. Associated companies of Constructions, including Pluim Commercial Landscapes Pty Ltd ("Landscapes") were also involved in the project. K, an employee of Landscapes, was injured whilst assisting Constructions to remove debris from the site using Landscape's bobcat. Constructions was found to have breached its duty of care to K and damages were assessed against it.

81 Constructions filed third party notices against the insurers claiming indemnity and contribution under various insurance policies. The Pluim group were insured with HIH Casualty and General Insurance ("HIH") against public liability risk. The Club had effected public liability insurance with Commercial Union Assurance Group ("CU") on behalf of Constructions in respect of personal injury which arose out of the execution of the building works. HIH admitted its obligations under the policy to indemnify Constructions, subject to its right to rely on various provisions of its policy, including Condition 7, which dealt with principal-arranged insurance, and exclusion 4(a). HIH relied on its "other insurance" exclusion in its policy and contended that Constructions liability to K was covered by the CU policy. HIH also submitted that under Condition 7 it could escape liability if CU was liable under its policy. Alternatively, HIH contended that there was double insurance, although no claim for contribution was pleaded between the insurers. CU denied liability to Constructions, relying upon various exclusions including one which dealt with injuries in connection with motor vehicles. At first instance, it was held that Condition 7 of HIH's policy was rendered void by s 45(2) of the IC Act because the CU policy was not "specified" in the HIH policy. It was also held that the CU policy did not respond to Constructions claim.

82 On appeal, the majority, which included Handley JA and Foster AJA, concluded (at [73] and [80]) that cl 7 in the CU policy did not apply to Constructions claim for indemnity in respect of K's damages. Consequently, the CU policy did respond to Constructions claim and it had double insurance from CU and HIH. In relation to the balance of the issues before the Court of Appeal, the majority, who indicated that they had had the advantage of reading in draft form the reasons for judgment of Mason P, said this (at [73]):

"We agree generally with his Honour except as to the meaning of the exclusion in cl 6(b) of the [CU Policy]."

83 Mason P found that the CU policy did not respond to Constructions' claim (at [28]) as a result of which it was unnecessary for him to address HIH's submission that the cover of the HIH policy was withdrawn because of the operation of Condition 7 of the HIH policy. However, as the issue was fully argued, he decided to make some remarks on the topic: (at [29]). On that basis, Mason P's conclusions on the validity of HIH's "underlying insurance clause" were obiter dicta. However, the fact that Handley JA and Foster AJA who took the opposite view in relation CU's liability, agreed with Mason P's reasons on this particular issue, provides those reason with greater status than a mere obiter comment.

84 Condition 7 of HIH's policy was headed "PRINCIPAL-ARRANGED INSURANCE" and was in the following terms (at [30]):

"In the event of the named Insured entering into an agreement with any other party (who for the purpose of this clause is called 'the Principal' pursuant to which the Principal has agreed to provide a policy of insurance which is intended to indemnify the named Insured for any liability arising out of the performance of the Works then the Company(ies) will (subject to the terms and conditions of this Policy) only indemnify the names Insured for such liability not covered by the policy of insurance provided by the Principal."

85 Counsel for Zurich describes Condition 7 of the HIH policy as being in a different form but with a similar intent to the policy condition in the MMI contract. I understand that submission to mean that the MMI policy similarly attempted to deal with the situation where companies such as Hamersley require the many and varied sub-contractors with which it contracts to arrange public liability insurance to include Hamersley's interest as a principal and to indemnify Hamersley against any personal injury claim made by the sub-contractor's employees.

86 It was acknowledged by the parties in HIH Casualty & General Insurance Ltd (supra) that the effect of s 45(1) of the IC Act was to render void Condition 7 unless s 45(2) was found to apply: (at [32]). The primary judge held that the language of Condition 7 was too general and not of sufficient specificity to satisfy s 45(2), a view which Mason P considered to be correct: (at [33]). The issue then became one of determining whether the words "the policy of insurance provided by the Principal" in Condition 7 were sufficient to specify the CU policies for the purposes of s 45(2).

87 Mason P then referred to the ALRC Report and its conclusions and made specific mention of the ALRC's mention of the mischief involved in "other insurance" clauses which limit an insurer's liability (at [34]):

"Such clauses were said to fall into three main classes (par 281). The first class covers provisions which purport to exclude liability altogether in the event of other insurance. The insured's sole recourse is to the other insurer. The second comprises provisions which limit the insurer's liability to a rateable proportion of the loss. In that event the insured must bring two actions. Even then the insured may suffer an overall loss if the other insurance is insufficient or if the claim against the other insurer is defective. The third class covers provisions which limit the liability of the insurer to any amount by which the loss exceeds the amount recovered or recoverable from the insurer. Such a provision converts a policy into an excess policy without appropriate reduction in the premium."

88 Reference was then made by Mason P to the ALRC's conclusion that there was no substantial justification for any of the classes of "other insurance" clauses since they all may cause the insured's reasonable expectations to be defeated: (at [35]).

89 Mason P noted (at [35 - 36]) that the ALRC recommended that all forms of "other insurance" clauses should be rendered ineffective and that the recommendation was later embodied in cl 46 of the Draft Bill amended to the ALRC Report which subsequently became s 45 of the IC Act.

90 Zurich contended that there is no difference in substance between the clause that MMI relies on and the clause relied on in the HIH case. Emphasis was placed by counsel on the use of the terms "futurity, contingency and lack of specificity". Despite the fact that the underlying insurance clause in the Hamersley Policy refers to specific contracts, it is said that it does so in the broadest, most general, most contingent and futuristic way. There is no specificity or identification sufficient to avoid the mischief that Parliament sought to overcome where two insurers would stand back and require the insured to sue them both.

91 As noted above, MMI's interpretation of both aspects of s 45 differs markedly from that of Zurich. According to MMI, s 45 only has the effect of limiting or excluding the liability of the insurer "by reason that the insured has entered into some other contract of insurance". Section 45(1) does not make void other insurance provisions where the insured is entitled to the benefit of a policy "entered into" by another.

(i) follows from the words expressly used in s 45(1);

(ii) is consistent with the distinction between a party to an insurance contract on the one hand and a person entitled to the benefit of that contract, on the other. In support of that proposition, reliance is placed on Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107.

(iii) Is consistent with the distinctions expressly drawn in s 48 of the IC Act between the person who is a party to an insurance contract and a person to whom the benefit of the contract extended: see CE Heath Casualty & General Insurance Ltd v Grey & Ors (1993) 32 NSWLR 25 at 43 - 46; GIO Australia Ltd v P Ward Civil Engineering Pty Ltd (2000) NSWSC 371 at [11]; s 11(9) and s 56 of the IC Act.

(iv) Is consistent with the principal rationale of the ALRC recommendation which led to s 45, viz avoiding the defeat of the insured's reasonable expectations (at [289]).

93 MMI submits that, as is clear from the wording, s 45 applies to contracts of a certain kind: that is, contracts of general insurance. Further, it is said to make void provisions of a certain kind: that is, a provision in a contract of general insurance which has the effect of limiting or excluding the liability of the insurer. The term "liability", in the phrase "the liability of the insurer" in s 45(1), is said to be a key word in the proper understanding of the operation of the section and, counsel submits, the Court will need to determine the meaning of the term in the context of s 45(1). MMI submits that there are two principle views on the meaning of "liability" in this context. The first is that it means a potential or contingent liability, the sort which the insurer takes on when it first issues the insurance contract. The events insured against may or may not come to pass but there is a potential liability. The second meaning that can be given to the word is what counsel refers to as an "actual liability", the liability which accrues when the event which has been insured against occurs, so that the insurer has then been called on to meet the obligation to indemnify which it assumes on the payment of the premium and the entry into the contract.

94 Counsel for MMI refers to the view expressed by Professor Sutton on the issue (Sutton, "Insurance Law in Australia" (supra) at [12.22]) but for the purpose of refuting the Professor's opinion. It is said that the author does not cite any authority and the explanation given involves, at least in counsel's view, a non sequitur. Professor Sutton states:

"It is the liability of the insurer which is affected, and thus must refer to the insurer's potential liability [as to the possible meanings of the word 'liable' and its cognate 'liability' see Heath Underwriting & Insurance (Aust) Pty Ltd v SGIC (SA) (1983) 34 SASR 1 at 6] under the contract rather than any actual liability already incurred, for the section refers to 'a provision included in a contract of general insurance', that is, to a term agreed upon when the contract is entered into, at which stage the insurer's liability will be only a potential one. In any event, the mischief at which s 45 is aimed is clearly shown in the Report of the Australian Law Reform Commission to be the harm likely to be suffered by an assured by the use of limitation clauses seeking to restrict the potential liability of the insurer where other insurance has been effected."

95 MMI's position is that the meaning of "liability" in s 45(1) is an actual liability, the liability which accrues when the event insured against occurs. It is said that, if read in that way it enables the section to work in a way which is practical. Further, according to counsel for MMI, the clearest indication within s 45(1) that the word "liability" is referring to an actual liability are the words that follow it: "... limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance". Emphasis is placed on the fact that the section does not say "or may enter into". The use of the past tense "has entered into" is said to support MMI's interpretation. The use of the past tense is said to be significant because it indicates that the section is speaking to an event which has already occurred at the time that the effect of the provision has been considered.

96 Counsel maintains that if the word "liability" is read as a potential liability but the following words are still in the past tense, then it reads as if it is being considered the very moment after the contract was first entered into, then the section would only catch those other policies of insurance which had already been entered into as of that moment. But if one reads it as though its referring to an actual liability, then it catches not only the other insurance contracts which have been entered into at the moment of creation of the first but those which have been entered into subsequently up to the moment when the accrued liability comes into existence.

97 Further, MMI's proposition that "liability" means actual liability is said to be supported by the wording of s 45(2). If the term "liability" as it appears in s 45(1) meant potential liability then one would need to be construing the balance of s 45(1) as referring not only to contracts already entered into, but contracts which may be entered into during the life of the first policy. If that is so, then the contract of insurance referred to in s 45(2) will have to be "specified in the first mentioned contract by reference to class description as opposed to any specific policy".

98 Counsel for MMI maintains that the interpretation that MMI presses on the Court would actually give s 45 a greater operation than would otherwise be the case because one would have to ignore the words in the past tense. However, counsel notes that it seems unlikely that the section is intended to refer to only those contracts which had been entered into at the moment that the first contract came into existence as that would significantly circumscribe the operation of s 45(1).

99 According to MMI, another indicator that the section is referring to an actual liability are the words "has the effect of limiting or excluding". The fact that "limits or excludes" is not used is said to suggest that the operation of the section involves looking at the effect of the provision in the circumstances which have accrued or in the circumstances which have occurred.

100 The final indicator put forward by MMI is the use of the words "by reason that". They are said by counsel for MMI to be words of causation and questions of causation are questions of fact to be dealt with in retrospect so that one can examine the facts.

101 MMI submits that these factors lead to the conclusion that s 45(1) is speaking to actual liabilities and should, therefore, be read as rendering void a provision which has the effect of excluding or limiting the actual liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance.

102 None of the features on which MMI relies persuade me that the term "liability" should be interpreted as meaning an actual rather than a potential liability or indeed that the term must be construed as meaning one or the other. Indeed I do not consider that further defining the term "liability" assists in the proper construction of the provision. If the meaning of s 45(1) is considered as if the validity of the provision were under consideration, that is, when a claim is made on the policy or the claim is the subject of litigation, there would be no need to include the words "or may enter into". That is because, at the time of consideration of the provision, the "other contract of insurance" will necessarily have been entered into. Similarly, the fact that the past tense is used in s 45(1) will also be consistent with this approach. Viewed in that way, the section would apply to "other contracts" entered into both before and after the contract with the "other insurance" provision. It may well be that, where contracts are entered into after the contract with the relevant clause was executed, it will be more difficult to establish that the latter contract was intended to be a true "excess" policy. However, it should not follow that the section does not have so wide a scope.

103 In my view, both parties have tended to approach the interpretation of particular words and phrases used in s 45(1) in a manner consistent with a particular outcome and, in doing so, have lost sight of the natural meaning of the words and the fact that, when it comes to legislative drafting, there can be different ways of saying exactly the same thing. I consider that the only phrase included in the section which requires consideration as to its actual meaning is "by reason that the insured has entered into some other contract of insurance". Whether that expression includes contracts of insurance entered into by a third party in which "the insured" is a beneficiary and a principal is something that requires further consideration.

104 According to MMI, that question must be answered in the negative because Hamersley has not entered into any other contract of insurance. Hamersley did not enter into the Speno Policy as even Zurich accepts by virtue of its plea in par 2 of the Statement of Claim that the policy was entered into by Speno. Hamersley has the benefit of the Speno Policy but, as counsel for MMI submits, and which I have referred to above, s 45(1) does not seek to make void provisions which limit or exclude the liability of an insurer because the insured has the benefit of some other policy. On this issue, MMI is ad idem with Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) (at 8) where he observed that it would have been a simple matter for the draftsman to adopt language referring to other insurance, by whomsoever effected, if it had been the intention to extend the operation of s 45(1) to contracts other than those entered into by the insured.

105 The interpretation upon which MMI relies is said to be consistent, not only with the wording of the section, but also with the decision of the High Court in Trident General Insurance Co Ltd (supra). The facts of that case can be shortly stated. An insurer under a public liability insurance policy agreed to indemnify a company against all sums that it should become liable to pay in respect of injury to persons at specified building sites. "The insured" was defined to include the company's contractors. A person who was injured as a result of the negligence of one of the company's contractors, which was not a contractor when the policy issued, recovered damages against the contractor. The High Court held, by majority, that the contractor, although not a party to the insurance contract, was entitled to enforce the indemnity against its liability to pay the damages: per Mason CJ and Wilson J (at 123 - 124). The basis of the entitlement was that contractors were the intended beneficiaries of the contract.

106 Prior to the decision in Trident General Insurance Co Ltd (supra), the position at common law was that a third party could not sue upon a contract and that a stranger to the consideration could not maintain an action at law upon it: at 115. The Court of Appeal allowed the third party plaintiff to succeed in its claim because it considered that the law should allow an intended beneficiary to sue on a policy when commercial convenience and practice demanded it. Moreover, the Court expressed a belief that the development of the common law should proceed in parallel fashion with statutory reforms, enabling non-party beneficiaries to sue on policies of insurance: (at 113). In so doing, the Court of Appeal declined to follow the position at common law as it stood at that time.

107 On appeal, the High Court took the same approach: see Mason CJ and Wilson J who formed part of the majority together with Toohey and Gaudron JJ). Although the reasoning of those judges in the majority differed slightly, the judgment of Mason CJ and Wilson J reflects the considerations giving rise to the decision to modify the existing position at common law. In dismissing the appeal and allowing the third party to maintain an action against the insurer, the Court acknowledged that there was much substance in the criticisms directed at the traditional common law rule: (at 118 - 119). It also noted the an alternative method of conferring on a third party a right to sue on a policy of insurance was the device whereby the Court recognised the existence of a trust. However, although this approach produced greater consistency of outcome, there remained cases where the third party was left without a remedy: (at 121). Consideration was also given to the policy considerations justifying the privity and consideration rules which operate together to preclude an action being brought by a third party: (at 121 - 122). Also, attention was given to the terms of the various statutory provisions, including s 48 of the IC Act, which allowed a third party to sue: (at 123). The observation made was that there were a variety of statutory responses to the problem: (at 123). Ultimately, it was held that the principled development of the common law required that it recognised that where an insurance policy is expressed to indemnify the insured and a third party, the third party is entitled to enforce the indemnity: (at 123 - 124). I should add, in order to emphasise the relevance of the decision, that the Court allowed the third party to enforce the indemnity despite the doctrine of privity; the third party did not succeed because it was found to be a party to the insurance contract simply because it stood to benefit from the contract.

108 It is apparent that the decision in Trident General Insurance Co Ltd (supra) was made after the IC Act was passed. Therefore, as counsel for MMI observed, it cannot be said that the IC Act was giving effect to that decision. However, it is correct to say that the common law drew a distinction between the rights of someone entitled to the benefit of a contract on the one hand and the person who was a party to it on the other.

109 Counsel for MMI noted that there is an express recognition of that distinction in s 48 of the IC Act, which also appears in Pt V Div 2 of the IC Act, which contains general provisions relating to insurance contracts. Section 48(1) gives the right to a person who is not a party to a contract of general insurance a right to recover the amount of the person's loss from the insurer in accordance with the contract, providing the person is "specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends". Section 48(2) and s 48(3) apply the respective rights and obligations of parties to a contract to the insurer and to the person on whom is conferred the right to recover as if a party. As counsel correctly notes, what s 48 does is to confer by statute the right which was subsequently recognised at common law by the High Court in Trident General Insurance Co Ltd (supra).

110 Counsel for MMI further submitted that the notion of entry into a contract is an important concept for the purposes of the IC Act and maintained that where s 45(1) referred to "entered into a contract" it was doing so advisedly. Support for this proposition is said to be found in s 21 which highlights the importance of the notion of entry into a contract in the context of the insured's duty of disclosure of relevant matters. Under s 21, an insured has a duty to disclose all relevant matters to the insurer "before the relevant contract of insurance is entered into". In that context, "entered into" clearly means entered into by the insured. MMI also relies on s 28, which deals with remedies for non-disclosure and misrepresentation with respect to contracts of general insurance. According to counsel for MMI, this is another example of where entry into a contract is important as a concept in the Act. Section 56 was also cited as another example although counsel for MMI conceded that this section is directed more to the notion of the party to the contract being different from the person entitled to the benefit rather than the notion of entry into the contract. Although s 56 draws the distinction between parties and third parties, for myself, I do not find it of any assistance in determining the meaning of the expression "entered into" in s 45. In s 21 and s 28, the references to entering into the contract are simply used to identify the point at which the required disclosure is to be made. Those sections, in my view, say nothing about whether the expression can be extended to the situation under consideration.

111 MMI also relies on s 11(9) of the IC Act, which is said to address the issue more directly and to identify those who can be said to enter into a contract of insurance for the purposes of the IC Act. The interpretation placed on this section by MMI is that, where the expression "entered into" is used in the IC Act, it means entered into by the insured and not by a third party. As I have noted above, when considering the same proposition made by Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra), I do not accept that s 11(9) sheds any light on the scope of the expression "entered into" in the context of s 45(1) of the IC Act.

112 MMI also relied on the decision in CE Heath Casualty & General Insurance Ltd (supra) for its submission that s 45(1) does not make void "other insurance" provisions where the insured is entitled to the benefit of a policy "entered into" by another.

113 The case of CE Heath Casualty & General Insurance Ltd (supra) arose from the failure of the Compass group of companies. Arrangements had been made with CE Heath Casualty & General Insurance ("CE Heath") for insurance cover in respect of loss suffered as the result of "wrongful acts" by, inter alia, directors and possibly former directors of the relevant companies. That insurance was intended to cover the loss suffered in that regard both by Compass and by the directors. It had been alleged against the directors that they were guilty of wrongful acts of the kind in question and the director brought proceedings to establish that they were entitled to the benefit of the insurance cover. CE Heath claimed it was entitled to avoid the policy or policies because, at the time the cover was effected, the defendants had knowledge of facts which, if revealed to CE Heath, would have affected the insurance and neither Compass nor the directors revealed those facts.

114 The principal point on which the case turned was whether or not the directors were themselves party to the contract or whether it was necessary for them to rely on s 48 in order to claim under the policy. The majority decided that the directors were parties to the contract and, as counsel for Zurich correctly observed, all that was said thereafter was obiter dicta. Clarke J said (at 43):

"... I agree with the conclusion reached by Mahoney JA that the directors, and not Compass, were parties to the [Directors and Officers] Policy ... If I have correctly understood the submissions of the parties that conclusion disposes of the appeal. However, in view of the detailed argument which took place before the Court it is appropriate that I express my conclusions on the question whether, assuming that the directors were not parties to the D/O policy, the non-disclosure by Compass of material facts constituted a partial or complete defence to claims made by the directors and other relevant officers for indemnity under that policy."

115 Clarke J addressed that issue by first considering s 48 of the IC Act and observing (at 43) that the evident intent of the section was to overcome what was known as the indemnity principle and its relationship in the insurance context with the contractual doctrine of privity. Clarke J noted (at 43) that the operation of the principle generally precluded recovery by the insured of losses suffered by third parties and the contractual doctrine of privity. In reaching his conclusion on the issue, Clarke J called in aid the Explanatory Memorandum accompanying the Insurance Contracts Bill, the relevant paragraphs of the ALRC Report and the decision of the High Court in Trident General Insurance Co Ltd (supra) at 118 per Mason CJ and Wilson J.

116 That portion of the judgment of Clark J on which MMI rely is this:

"The first observation which should be made is that the Act in using the words 'insurer' and 'insured' is talking about the parties to the contract of insurance or the persons proposing to enter into the contract. There is, in my opinion, a clear dichotomy drawn in the Act between a party and a person who is not a party but who is entitled to benefit under the policy. Accordingly where s 21 speaks of the duty of an insured to disclose the matters set out in s 21(1) it is talking about the party who proposes to enter into a contract of insurance in the context of those provisions in the Act which spell out the consequences of the failure by a person who has entered into the contract to comply with that duty. A similar approach is taken in those sections which deal with misrepresentation."

117 Clarke J considered it was important to take to take sufficient account of the words actually used in the relevant section and added that (at 47):

"... despite its economy of language, the subsection says in plain words that the insurer is to have the same defences to a claim by the named person as it would have in an action by the insured".

He considered that the approach of the learned trial Judge would lead to the result that the defence of fraudulent non-disclosure, open to an insured and entitling the insurer to avoid the contract, would not be available in an action by the named person. Consequently, the insurer would not have the same defences against a person suing under the right accorded by s 48(1) as it would have against the insured.

118 Clarke J proceeded to deal with the difficult question of the consequence, when a person enters into a contract of insurance and another person has the benefit of it, of a non-disclosure by one or the other. He considered s 21, s 28 and s 48 in the context of the non-disclosure point to which he was referring.

119 On behalf of Zurich, it is said that MMI have seized on the words of Clarke J in CE Heath Casualty & General Insurance Ltd (supra) to support the proposition that "insured" means a party to the contract. However, Zurich maintains that s 48 and the decision in CE Heath Casualty & General Insurance Ltd (supra) is confined to a specific aspect of contracting, the duty to disclose, which is a duty which you would usually place on the person contracting.

120 According to Zurich, MMI misconceives what Clarke J said in that case. Counsel emphasised that Clarke J was not talking generally about every section of the IC Act, the IC Act being an Act which deals with a vast array of quite disparate problems. Clarke J is said to there be giving to the words "insurer" and "insured" in the context of s 21, s 28 and s 48, the meaning to be given to them in that context, having regard to the purpose sought to be achieved by Parliament and having regard to the mischief which is sought to be overcome. According to counsel, when consideration is given to the broad reforms intended to be imposed by the IC Act, it is apparent that disparate mischief is sought to be avoided.

121 Zurich's counsel suggests that to apply to s 45 the meaning attributed to the term "insured" in other sections, without having regard to the mischief that is sought to be avoided and the purpose that is sought to be achieved by the IC Act, is to read the words in a judge's reasons as though they were words in an Act of Parliament. Another analogy would be to read the definition determined by Clarke J as the meaning of the word for all purposes, at least for all purposes within the IC Act, without giving consideration to whether it would be appropriate to do so in all circumstances. Counsel submits that the words are to be read having regard to the purpose for which they are used: Mills v Meeking [1990] HCA 6; (1990) 169 CLR 214 (at 235).

122 Counsel for MMI conceded that Clark J was dealing with issues arising from nondisclosure and in the immediately preceding paragraph he says so expressly. However, counsel noted that the language used by Clarke J in the paragraph on which MMI relies is not confined to nondisclosure cases. Clarke J expressed himself in general terms and not in terms specific to s 56. Counsel for MMI accepted Zurich's proposition that a judgment which interprets a word or phrase for the purposes of a section in an Act cannot be said to be determining the meaning of the word or phrase for the purpose of every section of the Act. MMI refutes the proposition that that is what it is doing. However, MMI submits that when one looks at the way in which Clarke J expressed himself, it can be said that his interpretation was intended to have a wider operation than the section of the Act being considered. The portion of Clarke J's judgment on which MMI relies is expressed in terms of the meaning of the terms in the Act rather than simply in the section itself. Further, he refers to the terms of s 21 as illustrating the distinction and, indeed, to other sections of the IC Act.

123 Zurich maintains that when Div 2, in which s 45 and s 48 are found, is considered, it is apparent that it deals with such disparate subjects as interim contracts of insurance, instalment contracts of general insurance, arbitration provisions, interim contracts of insurance, other insurance provisions, pre-existing defects or imperfections. In other words, Div 2 contains a vast array of controls and protections. The range of matters dealt with in Div 2 clearly reflects the title of the Division: "General provisions relating to insurance contracts". Accordingly, it is said that it is necessary to look at each provision having regard to the mischief that each provision was intended to deal with and not assume that words such as "insure", "insurer", "insured" and "party entitled to a benefit", defined in the context of particular provisions, had a set meaning everywhere they are to be found in the IC Act.

124 Generally speaking, I accept the propositions put on behalf of Zurich. However, I believe that the interpretation in other contexts of the words used in s 45 does assist in identifying the meaning of those terms for the purposes of s 45. Further, irrespective of whether the comments of Clarke J in CE Heath Casualty & General Insurance Ltd (supra) are addressed in relation to a different provision of the IC Act, it remains the fact that his Honour's comments do relate to an interpretation said to be applicable to the Act as a whole and that is a factor to which appropriate weight should be given.

125 The next authority to which MMI referred is also a non-disclosure case which is an area in which determinations of whether third parties have obligations are necessarily going to arise. In GIO Australia Ltd (supra) the insured, M, who held a motor vehicle policy with GIO allowed his partner, S, to drive his car. The vehicle collided with and caused damage to a vehicle owned by W. S did not have a licence at the time. Under the policy GIO was obliged to indemnify M in relation to certain defined events. The first was for legal liability for loss of or damage to property other than the insured vehicle. The indemnity extended to any person driving the vehicle with M's consent. Another defined event was loss or damage to M's vehicle. Following the accident M made a claim for the damage to his vehicle and GIO met the claim. W commenced proceedings against S for the cost of repairing the damage to his vehicle. S did not defend the claim and default judgment was entered against her. S made a claim on the policy relying on the extended cover provided. GIO declined to indemnify her on the basis that she was an unlicensed driver and therefore, came within the exclusion.

126 Simpson J held (at [10]) that S was a person to whom s 48 of the IC Act referred and she would, in appropriate circumstances, be entitled to recover from GIO. However, s 48 does not purport to create an extension of the terms of the contract of insurance, other than to provide standing to claim to a person to whom the policy expressly applies but who is not, in terms, a party to the policy. Under s 48(3), GIO was entitled to rely on any defence the insurer would have against the insured and hence was entitled to rely on the exclusion relating to unlicensed drivers: (at [10]).

127 Significantly, for MMI's purposes, Simpson J also held (at [11]) that S was "not 'a person who has entered into a contract of insurance' within the meaning of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946". Simpson J said (at [11]):

"She is a person who was entitled, in appropriate circumstances, to the benefit of the contract of insurance entered into by [M], but she is not herself such a person. It does not seem to me that s 48 of Insurance Contracts Act alters that position; as I have already observed, s 48 would give her standing to recover under policy but her right to recover is in accordance with the terms of the policy only."

128 MMI also relies on the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). Counsel commented that the fact that the issue has not previously been dealt with in the courts is probably because the correct application of s 45(1) really has not been given close attention. Certainly, in most of the cases there was no dispute between the parties as to the correct application of, at least, s 45(1). As I have noted, in my view, this action is the result of an attempt by both parties to read more into the provision than the natural wording of it allows.

129 In particular, MMI relies on the conclusion of Robin DCJ, expressed as follows (at 8):

"It is not lightly to be assumed that merely because a policy of insurance may inure for the benefit of a person it was effected by or "entered into" on behalf of that person".

130 However MMI submits that this Court should not follow Robin DCJ's decision that the whole of the relevant clause is void by operation of s 45 because it contained, in addition to other situations not covered by s 45, a reference to insurance effected by the insured.

"In the end, I have concluded that s 45 operates by reference to the language of the limitation of the insurer's liability and what its effects may be, as a matter of interpretation or logic, rather than by reference to whether the prescribed effect stand to arise in the particular circumstances of an individual claim."

In my view, what his Honour is there saying is that one must look at the nature of the clause and then look to the precise terms of s 45, irrespective of the outcome in the particular case.

132 Counsel for MMI submits that Robin DCJ has not considered what is logically the first step: the liability that is being reduced or diminished by this provision. MMI's position is that, until one has identified that liability, one cannot go to the next step and ask whether the provision has the effect of limiting or excluding that liability. As I have indicated, I do not accept that such an analysis advances the proper construction of s 45(1).

133 On the basis that s 45(1) renders void "the provision" which has the defined "effect" Robin DCJ determined (at 9) that the insurer may not take advantage of any "effect" not covered by s 45(1). It is this "all or nothing" approach to which MMI objects. Counsel for MMI submits that not only does Robin DCJ pass over what MMI says is the key word, the meaning to be given to the word "liability", but he also fails to ask in the circumstances of the other insurance clause being considered in that case, whether or not it as capable of being read distributively, so that s 45(1) might have the effect of rendering the provision void in one of its applications but not in another.

134 According to counsel for Zurich, MMI's analysis of the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) fails to pay any regard to the underlying purpose and mischief sought to be dealt with by s 45. It is said that, if the submission on behalf of MMI is to be accepted then, based on what ALRC said (at [279]), one of the most common forms of the other insurance provisions arising will escape the effect of s 45.

135 Zurich rejects the distributive approach to construction urged on the Court by MMI on the basis that s 45 was intended to render void all other insurance clauses. It is said that, whether s 45(1) is read distributively or not, the intention of Parliament was to render void all such other insurance clauses and it is s 45(2) that controls, limits and excludes the extremely narrow categories where subs (1) will not operate to avoid the provision.

136 MMI submits that the underlying insurance clause in the Hamersley Policy can easily be read in a distributive sense: namely, a clause which relates to contracts entered into by the insured and a clause relating to contracts entered into on behalf of the insured. According to MMI, the fact that policy was drafted with more economical expression, including both situations in the one paragraph, should not lead to the anomalous situation that both situations, one of which does not offend the IC Act, should be precluded from having the intended effect. I accept that it would be a very technical result.

137 While I agree that the clause can be read distributively, rendering the provision void in so far as it concerns contracts effected by the insured, but not in so far as it concerns contracts entered into on behalf of the insured, is a result which is difficult to accept in view of the precise wording of s 45(1) and the conclusion of Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra). I do accept that the result is being determined by the technical expression used in the contract rather than the substance of the matter, which is something that the law attempts to avoid.

138 Counsel for MMI recognises that decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) is against MMI on the effect of s 45(1) in the circumstances of MMI's underlying insurance clause, but emphasises that this Court is not bound by the decision in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra).

139 I have formed the view that the effect of the underlying insurance clause is that the Hamersley Policy operates as an excess policy in two circumstances: firstly, where Hamersley has effected or entered into another insurance policy covering the same area of risk and, secondly, where another insurance policy covering the same area of risk has been effected on behalf of Hamersley. I consider the second circumstance to reflect the situation where a third party organises insurance cover of that type to the benefit of Hamersley. I consider that the expression "on behalf of Hamersley" must have the latter meaning because if it were to mean insurance arranged by an agent there would be no legal difference between that situation and Hamersley having effected the insurance itself. There is nothing controversial in these conclusions.

140 I consider the appropriate approach to the interpretation of s 45(1) to be to give the words of the section their natural meaning when considering the effect of the underlying insurance clause, in circumstances where an insured has either entered into another contract of insurance covering the same risk or where the insured has the benefit of another contract of insurance taken out by a third party which covers the same risk. In those circumstances the underlying insurance clause, in my view, clearly has the effect of limiting or excluding the liability of the insurer under the contract because it converts a policy which indemnifies the insured for the whole of the loss to a policy which insures the insured for any excess over the applicable limit of indemnity of the underlying insurance policy.

141 However, such a provision is void only where the insured has "entered into" the underlying insurance policy. I accept without reservation that the recommendation of the ALRC was to prohibit an insurer, in all circumstances other than the stated exceptions, from converting an insurance policy into an excess only policy. I also accept that the evidence points toward that being the Parliamentary intention. Further, interpreting s 45 in a way which protects an insured from the effects of underlying insurance clauses, whether the underlying insurance was effected by the insured or on behalf of an insured, is consistent with the purpose of the Act as reflected in the long title and the approach to statutory interpretation to provisions of this type identified in authorities such as East End Real Estate Pty Ltd (supra) and Kelly (1996) (supra). It is also the case that the criticisms that the ALRC levelled at excess clauses are equally applicable to contracts where the insured has the benefit of but is not a party to the contract, as it is to contracts taken out by the insured itself.

142 Nevertheless, in my view, the only way in which to achieve that result is to give to the expression "the insured has entered into" and the words of which it is comprised, a meaning they simply do not have; that is, I believe I can achieve that interpretation only by manipulating the English language to confer a meaning that is inconsistent with the natural and proper meaning. The Concise Oxford Dictionary definition of "enter into" is to "engage in (conversation, agreement, inquiry etc); to bind oneself by (recognizances, treaty, contract)". When one considers the words "enter into" in the phrase "the insured has entered into", it is evident that it involves the insured himself carrying out the activity and, in the relevant context, being the party to the insurance policy. I do not accept that the particular words employed are consistent with the arrangement involved in the Speno Policy, notwithstanding the status of Hamersley under that agreement as an insured. Further, I am not persuaded that it is appropriate to adopt any of the "devices" suggested by either party to achieve the particular result. Therefore, I accept the construction determined by Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) although for different reasons.

143 The final issue with respect to subsection (1) is whether, as MMI submits, the underlying insurance clause can be read in a distributive sense with the result that so much of the clause which does not offend s 45(1) remains valid. For the reasons to which I have already referred, while I accept that the underlying insurance clause does address two different circumstances, it is the case that, as Robin DCJ noted, the clear words of s 45(1) is that it is the provision which is void; the provision being the underlying insurance clause in the Hamersley Policy. As I have already noted, I accept that this is a technical result which arises simply because of economical drafting. However, it remains the case, as I have noted, that the available material indicates that it was the ALRC's recommendation, which to all intents and purposes appears to have been accepted by the legislature (although it does not appear to have been successfully translated into legislation) that all types of "other insurance" clauses should be prohibited. On that basis, although the result is technical, it is not necessarily inconsistent with the intention behind the implementation of s 54.

144 Essentially, I believe that s 45(1) requires amendment to achieve the purpose which I accept was intended by the legislature acting on the recommendation of the ALRC.

145 With respect to the correct interpretation of s 45(2), MMI's position is that the subsection does not prescribe the way in which a contract of insurance is to be specified and nor does it refer to a minimum requirement before a contract can be said to be specified. A contract may be "specified" by name, policy number, parties, or MMI submits, by class or description. Where the second contract is not in existence at the time of creation of the first, the specification will necessarily have to be by description of the class of policy.

146 Counsel for MMI submitted that if the word "liability" in s 45(1) meant potential liability then one would need to be construing the balance of s 45(1) as referring not only to contracts already entered into but contracts which may be entered into during the life of the first policy. If the proposition is that that is somehow caught by s 45(1) then the reference to those later policies necessarily will be by reference to class description as opposed to any specific policy. Where it is contemplated that such a policy will be entered into in the not too distant future and the identity of the insurer, the terms and the policy number are known, it might be possible to provide greater specification in that situation. However, in most cases people, at the time they enter into the contract, are not going to know enough about the later contract to confer on it a more precise description.

147 The question for the Court is whether or not the Zurich policy is specified in the sense required by s 45(2). MMI's submission is that it is sufficiently specified and, further, that s 45(2) effectively leaves it up to the parties own expression of their bargain to be looked at to see whether or not there has been a specification. I accept MMI's submission that there is a whole range of ways in which parties in a given contract might choose to specify something. However, if one looks at the purpose of the section and looks at the term "specified" it would, in my view, in some way have to identify a specific contract of insurance or class of contract rather than talking about a contract in the sort of terms that are used in the underlying insurance clause in the Hamersley Policy which is, in my view, particularly general in that it simply refers to "insurance coverage" effected by the Insured or other parties involved in particular, though unspecified, projects. Counsel conceded that the wording was "somewhat" general but nevertheless submitted that there is a sufficient specification. In view of the history of the provision, one might anticipate that the provision requires greater specificity than a mere class of contract. In effect, however, the description in the underlying insurance clause only identifies a class which is itself particularly broad: that is, a class of contract taken out by the insured or other parties in varying types of relationships with the insured who are involved in a specific but unidentified project and which covers a specific but unidentified project.

148 Counsel for MMI submitted that the question to be asked is: How have the Insurer and the Insured gone about identifying the contract and within the context and confines of that contract does that meet the degree of specificity which is required by s 45(2) of the IC Act? Counsel maintained the submission that you can specify by reference to class and relied on a passage in the judgment of Mason P in HIH Casualty & General Insurance Ltd (supra) which is the only authority of which counsel was aware which addressed the question of whether specification by way of class is sufficient.

149 Mason P turned his attention to the exceptions to the principle embodied in s 45(1) and referred (at [37]) to the ALRC Report and to the recommendation as to exceptions (at [54] of the Summary of Recommendations) and the reasons behind them (at [290] of the ALRC Report). Reference was also made by Mason P to the Explanatory Memorandum explaining cl 45 of the Bill which I have outlined in full earlier in these reasons: (at [38]). Finally, his Honour referred to and quoted from the academic literature which was said by him to reveal a spectrum of opinion as to the meaning and application of the word "specified" in s 45(2).

150 The first reference to the academic literature is to Sutton, "Insurance Law in Australia" 3rd ed Law Book Co, Sydney, 1999 which is said to suggest (at 982) that s 45(2):

"... refers to the situation where contract A provides cover in relation to a loss that is not covered by contract B and contract B is specified in contract A. In that case, the section has no application to contract A. What constitutes specification is not defined but it must mean that contract B need not be precisely named but must be sufficiently described so as to be capable of identification, and the requirement of specification makes it clear that only true excess liability policies are intended to be exempted from the operation of s45(1)."

151 The second extract from academic literature is from Derrington and Ashton, "The Law of Liability Insurance" Butterworths, Sydney, 1990 at 378 which takes a slightly narrower view of s 45(2) and is as follows (at [40]):

"Because of the purpose of s 45, it is most probable that the specification of the policy to which it is to be an excess is so general that it would not meet the requirement of sub-s(2) which would except it from the general avoidance which sub-s(1) visits upon conditions relating to other insurance. [sic] Otherwise, the scope of the section is obviously intended to be far-reaching by its reference to the result, so that it may well be found to apply to all such conditions and provisions except those in an excess policy that is related to a specific and named policy."

152 The final extract from academic literature is taken from Kelly and Ball, "Insurance Legislation Manual" 3rd ed (1995) at 132 and states (at [41]) that "specified" means that the actual contract must be identified in the excess policy - otherwise the excess policy would not be a "true excess policy".

153 Having considered the ALRC Report, the Explanatory Memorandum and extracts from academic literature, Mason P considered the only judicial decision on the issue at that time: the decision of Robin DCJ in Austress-PSC Pty Ltd and Carlingford Australia General Insurance Ltd (supra) that the reference to "other insurance" must be specific, as opposed to a description in general words capable of extending to other insurance: (at 6). Mention is also made by Mason P of Robin DCJ's view that the underlying notion is that the insured and the insurer have tailored their own bargain to take account of the impact of other contracts: (at 6).

154 Ultimately, Mason P considered that it was unnecessary to seek the definitive meaning of the subsection, although the policy of s 45(1) suggested to him that the exception in s 45(2) should be construed narrowly, as some of the writers suggest: (at [44]). His Honour concluded that, even on the approach suggested by Professor Sutton, Condition 7 of the HIH policy did not specify a (emphasis added) contract of insurance such as the CU Construction Policy: (at [44], [46]). However, Mason P did refer to the reasoning behind his conclusion when he made the following observations (at [45]):

"Here there was no identification of any particular policy with any particular insurer. The type of insurance which the proprietor was obliged to take out was described in the building contract in terms of the broadest generality and with no reference to conditions or exclusions. The HIH policy is not in form or substance a type of layered insurance or excess insurance. The fact that 'a policy of insurance' would be 'principal-arranged' only emphasises its futurity, contingency and lack of relevant specificity."

However, Mason P did note that it may be that a contract of insurance need not actually have been formed and/or commenced before it is capable of being specified within s 45(2). He added that it is possible that a clearly defined class of insurance such as "X's standard Construction Policy with an excess of Y" would suffice. His Honour preferred to reserve his position on these possibilities: (at [48]).

155 MMI relied on this paragraph despite the fact that the conclusion drawn was that the relevant clause, although in very similar terms to the underlying insurance clause in the Hamersley Policy, was considered to be insufficiently specified. I accept the proposition that, if you intend the clause to specify a contract which is not yet in existence, precise details cannot be given. However, it seems to me that you can do more that talk in the very general terms of the clause here being considered. It will be necessary to specify the other policy in such a way that it is clearly understood which policy or which group of policies are being referred to and the purpose of the policy is known, so as to make it clear that the policy under consideration was indeed intended to be a true excess of liability contract in those circumstances.

156 Counsel for MMI conceded that the form of class to which the Judge referred in HIH Casualty & General Insurance Ltd (supra) was more precise than we have here but, nevertheless, the decision can be relied upon as an indication that specification by class is sufficient. I accept that proposition but consider that if the contract cannot be clearly specified then the class of contract should be.

157 Reliance was also placed on the dictionary definition of the words "specific" and "specify". In the Macquarie Dictionary, the definitions of "specific" are these:

(1) having a special application, bearing, or reference; specifying, explicit, or definite;

(3) peculiar or proper to something, as qualities, characteristics, effects etc;

The meaning MMI confers on the word "specified" is capable, at least as a matter of dictionary definition, of including "kind" as opposed to something more precise.

At a glance

Court

Decision date

Before

Source

Judgment (572 paragraphs)

(1) The relevant provisions of the Speno Policy and the Hamersley-Speno Contract

2. The distinction between contribution and subrogation

Legislation Cited (7)

Cases Cited (18)