Observations from Australia
Chris Rimmer, Partner, Jarman McKenna
Broadly speaking double insurance exists when more than one indemnity insurance
policy covers the same person (the insured) against the same risk of loss. The
insured cannot recover more than its loss from either or both insurers. Once double
insurance is identified a question arises as to the sharing of the liability to indemnify
the insured between two or more insurers. In practice, it is often the case that once
contribution is identified, insurers agree as to how the liability should be
This paper will address the various methods of calculating
contribution. Before arriving at the question of calculating contribution, the bigger
issue, particularly in light of recent decisions of superior courts in Australia, is
identifying those circumstances in which double insurance and the right to claim
contribution arises.
The law in relation to contribution (which is an equitable right) a concept not
confined to insurance, has developed over many years. However, in Australia we
also have legislation which created a statutory right of contribution. Section76 of
the Insurance Contracts Act (“the ICA”) enables an insured to recover from any one
or more of its insurers who are liable in respect of the same loss, the amount which
will indemnify it fully in respect of that loss but without enabling the insured to
recover from the insurer an amount that exceeds the sum insured under the
contract of insurance or to recover an amount that exceeds the amount of the loss.
Arguably the provision simply restates a part of what was already the law in relation
to contribution prior to the enactment of the ICA.
It is important to bear in mind that the ICA does not apply to several different types
of contract of insurance, some of which have been the subject of the most significant
decisions in relation to double insurance/contribution in Australia (workers’
compensation insurance and CTP motor vehicle insurance as examples). Section76
of the ICA does not specify how contribution is to be calculated under the statutory
right of contribution. The Australian Law Reform Commission had recommended
that the losses should be apportioned on the basis of equal independent liabilities in
the absence of agreement between insurers but the recommendation never became
See also s.86 of the Marine Insurance Act 1909 which provides that where an insured
is ‘over-insured’ by double insurance, the insurers are bound to contribute rateably
to the loss in proportion to the amount for which they are liable under their
The leading Australian case in relation to double insurance is Albion Insurance Co Ltd
v Government Insurance Office (New South Wales).2 In the High Court’s recent
decision in HIH Claims Support Ltd v Insurance Australia Ltd3 Gummow ACJ, Hayne,
Crennan and Kiefel JJ said the following in relation to the principles of equitable
“In Albion, Kitto J said the basic concept of contribution was longstanding and
was ‘accepted by both law and equity as one of natural justice’, expressed by
ensuring equality between persons obliged in respect of a common obligation;
although his Honour recognised that ‘the doctrine of a quality operated more
effectually in a court of equity’.
He described the basic principle thus:
“Persons who are under co-ordinate liabilities to make good the one loss ….
must share the burden pro rata.”
Australian Law Reform Commission,
Insurance Contracts (ALRC 20) para 296.
(1969) 121 CLR 342
[2011] HCA 31
Recent Australian Authorities
Zurich Australian Insurance Ltd v GIO General Ltd4
The Wood family ran buses and coaches through two companies, Caringbah Bus
Service Pty Ltd (“Caringbah”) and Tiger Tours (Management) Pty Ltd (“Tiger”). All of
the buses and coaches operated by Caringbah and Tiger were registered in the name
of Caringbah. McLellan was employed by Tiger as a driver. He usually drove a Tiger
coach but at times he drove a Caringbah bus or a Tiger coach which was used for
Caringbah’s bus service. McLellan injured his shoulder lifting the door of a trailer
towed by a Tiger coach that he was driving for a golfing party. He sued Caringbah in
the District Court of New South Wales claiming motor accident damages under the
Motor Accidents Compensation Act 1999 (“the MAC Act”). McLellan claimed that
Caringbah was the owner of the coach and trailer and that the design of the trailer
was defective in that the heavy tailgate had to be lifted manually. He did not sue
Tiger either as his employer or as the owner of the coach and trailer.
McLellan conceded in the District Court that he could not recover damages against
Tiger under the Workers’ Compensation Act 1987 (“the WC Act”) because he did not
have a whole person impairment of 15% or more. Caringbah admitted that it was in
breach of a duty of care owed to McLellan which carried with it the implication that
it was the or an owner of the coach. It admitted the defect in the trailer. Damages
were agreed at $352,000 inclusive of workers’ compensation payments that had
been made to McLellan.
Caringbah pleaded reliance upon s.151Z(2)(c) and (d) of the WC Act which permitted
a reduction in McLellan’s damages if he was entitled to take proceedings against
Tiger. There would only be a reduction if McLellan could have taken action against
Tiger as his employer but there would be no reduction if McLellan could take action
against Tiger as the owner of the coach claiming motor accident damages because
the WC Act damages regime did not apply to an award of motor accident damages.
As a result, the judge had to consider whether Tiger was an owner of the coach but
[2001] NSWCA 47
without Tiger being a party to the proceedings. McLellan argued that Tiger was an
owner of the coach. Caringbah did not concede that it and Tiger were owners of the
coach but did not argue to the contrary. The trial judge held that Caringbah and
Tiger were both owners of the coach for the purposes of s.3 of the MAC Act.
Zurich Australian Insurance Limited (“Zurich”) was the third party insurer of the
coach. Zurich insured “the owner” of the coach against liability in respect of injury to
a person caused by the fault of its owner. Zurich had conducted the defence of the
District Court action as Caringbah’s insurer. GIO General Limited (“GIO”) was the
workers’ compensation insurer of Tiger. Under its policy it promised to indemnify
Tiger against compensation payments to its workers and any other amounts that
Tiger became liable to pay independently of the WC Act for injury to its workers, plus
costs and expenses. GIO had made workers’ compensation payments to McLellan in
the amount of $172,834.48. It was entitled to be repaid that sum from McLellan’s
Zurich paid McLellan the full damages award and costs but less the workers’
compensation recovery. Claiming double insurance, it then declined to pay the
workers’ compensation recovery to GIO. It sought a declaration in the Supreme
Court that double insurance applied and that it was entitled to contribution from
GIO. It sought an order that it was entitled to retain the workers’ compensation
recovery and that it was entitled to an order that GIO pay a further $41,845.52
which, together, made up one-half of McLellan’s damages and costs.
In the NSW Court of Appeal Giles JA (with whom Allsop P and Young JA agreed)
observed that Caringbah was entitled to indemnity from Zurich against its liability to
McLellan as owner of the coach. However, it was not entitled to indemnity from
GIO. This was not a case of one insured being entitled to indemnity from two
different insurers in respect of the same liability. There were two different insureds
who could each be held liable to McLellan for the same injury. Zurich was seeking to
extend the principle of contribution on the basis of double insurance relying upon
AMP Workers’ Compensation Services (NSW) Ltd v QBE Insurance Ltd.5
The trial judge had proceeded on the assumption (which had been found in the
earlier proceedings) that Tiger was an owner of the coach (together with Caringbah).
In rejecting the claim for contribution he went on to find that:
there was no finding in the earlier proceedings that Tiger was liable in tort to
McLellan. The question of any breach of duty of Tiger did not arise.
It could not be found in the present proceedings that Tiger had a liability to
McLellan because there was no evidence of what Tiger did or did not do in
relation to the circumstances leading to McLellan’s injury.
On no view could it be seen that Tiger had incurred a liability for damages for
negligence or other tortious conduct towards McLellan. There was therefore
no basis for a finding of liability of Tiger to which the Zurich policy responded.
Whatever the scope of the GIO policy, no question of double insurance in relation to
any liability of Tiger arose. His Honour went on to say that the Zurich claim in
relation to Tiger was entirely hypothetical and that questions of double insurance
were to be answered by reference to crystallised liabilities6 not to liabilities which
might have arisen if McLellan had pursued a different course of action. Giles JA
observed that the trial judge had misunderstood the MMI case and pointed out that
the AMP case had explicitly referred to an uncrystallised liability as being sufficient
for double insurance to arise.
Zurich’s submission on appeal was that it was liable to indemnify Caringbah for its
liability as owner and GIO was liable indemnify Tiger for its liability as owner at the
time that McLellan suffered his injury. The alternative argument if GIO was correct
in its submission that Caringbah was not the owner of the coach and Tiger was, was
that Zurich had a liability to indemnify for its liability as owner and GIO had a liability
[2001] NSWCA 267
Referring to the Court of Appeal’s decision in Mercantile Mutual Insurance (Aust) Ltd v QBE Workers’
Compensation (NSW) Ltd
to indemnify Tiger for its liability as owner. In that circumstance, Zurich’s indemnity
of Caringbah (even if it was not the owner) had relieved GIO of its obligation to
indemnify Tiger and GIO was liable to make contribution.
Zurich submitted that the liability which was covered by both policies was
crystallised by a judgment which placed the entire burden on Zurich as a result of
McLellan’s choice to sue Caringbah and it should therefore be shared equally with
GIO which would have worn the burden if McLellan had chosen a different course of
It is important to note that in the earlier proceedings GIO had concurred in an
admission of liability to McLellan on the basis that Caringbah was owner of the
Giles JA found that GIO’s claim that Caringbah was not an owner of the coach was
not maintainable and was not an answer to Zurich’s claim for contribution. His
Honour went on to find that the absence of Tiger and McLellan from the
contribution proceedings did not preclude a liability finding as between the two
insurers for the purposes of the contribution claim. There was evidence before the
Court upon which it could be found that Tiger was liable to McLellan (and indeed
such a finding was made).
Giles JA preferred to leave for another day Zurich’s alternate submission that if Tiger
was the sole owner of the coach the incorrect provision of indemnity by Zurich (to
Caringbah) relieved GIO of its obligation to indemnify Tiger against damages payable
to McLellan, with Zurich also having an obligation to indemnify Tiger against
damages payable to McLellan. The issue of whether the contribution claim was
made out in the absence of GIO’s concurrence in the course taken by Zurich to
indemnify Caringbah against its liability to McLellan. He conceded that it may be
taking the contribution principle too far to find in Zurich’s favour based almost
purely on the relieving of a financial obligation which would have fallen on GIO.
The Court of Appeal allowed Zurich’s appeal and, there being no submission that the
contribution ought not be equal, declared that Zurich was entitled to contribution
from GIO for one-half of the damages and costs paid to McLellan.
HIH Claims Support Ltd v Insurance Australia Limited
The HIH Claims Support case concerned rather a different issue. Ronald Steele had
been sub-contracted to erect scaffolding in Albert Park for 1998 Australian Grand
Prix. He was insured under a general liability insurance policy with HIH Group. The
Australian Grand Prix Corporation and its contractors and sub-contractors, of which
Steele was one, were insured under an insurance policy issued by SGIC General
Insurance Limited (which later became Insurance Australia Limited). At the Grand
Prix some support scaffolding erected by Steele collapsed causing damage to
property owned by Screenco Pty Ltd (“Screenco”).
In proceedings in the Supreme Court of New South Wales Steele was found liable for
the damage to Screenco’s property and judgment was entered against him. It was
accepted in the contribution proceedings that the HIH policy and the SGIC policy
responded to the claim made against Steele. Prior to the collapse of the HIH Group
in 2001, Steele had claimed under the HIH policy for indemnity in respect of the
property damage claim by Screenco. HIH accepted the claim and prior to being
wound up it paid approximately $80,000 in legal costs in defending Steele against
Screenco’s claim. Steele applied to HIH Claims Support for assistance under the HIH
Claims Support Scheme. On signing an ‘Offer to Assign’ Steele assigned to HIH
Claims Support all of his rights under the HIH policy and any rights which he may
have against any other person or organisation in connection with the matters giving
rise to his need to make a claim under the policy. In return for assigning those rights
HIH Claims Support promised to pay him at least 90% of the amount that would have
been provided by HIH under the relevant insurance policy. HIH Claims Support paid
90% of Steele’s defence costs (over and above those that had already been paid by
HIH) and 90% of the judgment sum and 90% of the costs of other parties which
Steele had been ordered to pay.
Prior to the collapse of HIH it had sought from SGIC an admission that Steele was
insured under the SGIC policy. Having not secured that admission, it commenced
proceedings in the Supreme Court of Victoria claiming equitable contribution
(limited to defence costs paid by HIH). Later in the proceedings and after the
collapse of the HIH Group Steele also claimed an indemnity from SGIC/IAL in respect
of the damages and costs he had been ordered to pay in the New South Wales
proceedings and his defence costs. IAL defended that claim by pleading that its
obligation to indemnify Steele had been discharged by payments made by HIH
Claims Support in satisfaction of the liabilities incurred by Steele. At first instance
HIH and Steele were successful.7 The Court of Appeal upheld the order for payment
of contribution in respect of the costs which HIH had paid but otherwise allowed
IAL’s appeal on the basis that its obligation to indemnify Steele had been discharged
by HIH Claims Support’s payments in respect of Steele under the contract between
HIH Claims Support then brought proceedings against IAL in the Supreme Court of
Victoria seeking equitable contribution being 50% of all of the benefits that it had
paid in respect of Steele. HIH Claims Support failed at first instance and on appeal to
the Court of Appeal.
At first instance Hollingworth J found that the parties’
respective liabilities were not co-ordinate.
Her Honour stated that it was not
appropriate to construe HIH Claims Support’s obligation to indemnify Steele as being
substantially equivalent to HIH’s obligation as insurer under the HIH policy. In fact,
even with the assignment of Steele’s rights under the HIH policy, HIH still remained
liable to indemnify Steele. The contract between HIH Claims Support and Steele
allowed the former to benefit from Steele’s equitable assignment but did not put it
in HIH’s position. Furthermore, Hollingworth J noted that HIH Claims Support was
not liable to pay Steele the same benefit to which he would have been entitled
under the HIH policy. HIH Claims Support’s liability to indemnify Steele arose solely
from its contract with Steele and not HIH’s liability to Steele under the HIH policy.
HIH Casualty and General Insurance v Insurance Australia Limited (2006) 14 ANZ Insurance Cases 61685
Insurance Australia Limited v HIH Casualty and General Insurance Ltd (In Liq) (2007) 18 VR 528 at 531
Her Honour also observed that to the date upon which the co-ordinate liabilities
needed to exist as being 3 March 1998 (the incident date), was prior to the existence
of HIH Claims Support.
On appeal HIH Claims Support argued that it stood in the shoes of HIH and that
principles of equity imposed a duty of contribution between the two insurers. The
Court of Appeal dismissed the appeal holding that the liabilities for which the parties
indemnified Steele were different. Their Honours went on to say that on the facts of
the case the intervention of equity was not justified and that Steele would not have
had “equal or substantially equal recourse” to HIH Claims Support and IAL as
required by the doctrine of contribution because if he had been paid under the IAL
policy there would never have been an occasion for him to make a claim on the HIH
Claims Support Scheme and no contract would have come into existence between
him and HIH Claims Support.
HIH Claims Support was granted special leave to appeal to the High Court which then
dismissed its appeal. The argument on appeal was that double insurance arose
because the HIH policy and the SGIC policy involved co-ordinate liabilities and that
HIH Claims Support Ltd had discharged a burden which was “in substance” the same
burden shared by IAL. It was submitted that it would be inequitable for IAL to
escape liability to contribute simply because HIH Claims Support Ltd had resumed
responsible for HIH not as a result of an assignment of rights from HIH but because
of an assignment from Steele. IAL relied upon the fact that it could not have brought
a claim for contribution against HIH Claims Support Ltd. The majority reviewed the
authorities and observed that no court had departed from their requirement that
the equity to contribute depends upon in this case, the insurers having a common
burden. The majority stated that:
“A proposition upon which [HIH Claims Support] wishes to rely – namely, that
equity looks to substance rather than to form (Friend v Brooker (2009)
239 CLR 129 at 150) – has never been invoked successfully to achieve a
departure from, or modification of, that requirement.”
The majority held that the assignment of the insured’s rights by Steele did not place
HIH Claims Support in the same position as HIH “either effectively or in substance”.
HIH Claims Support did not step into the shoes of HIH and “become exposed to all
the claims under policies issued by HIH and to contribution claims from co-insurers of
HIH”. HIH Claims Support in fact stepped into the shoes of Steele. The obligations of
HIH Claims Support to Steele under the Scheme were not the same, in nature and
extent, as the obligation of IAL in its capacity as co-insurer of HIH in respect of
Steele’s liability. There was no common burden because if Steele had been paid by
IAL under its policy before HIH Claims Support Ltd entered into the contract with
Steele, Steele would not have been an eligible person as defined in the Act which
brought the Scheme into existence and there would never have been a contract
between Steele and HIH Claims Support Ltd so that possible double indemnification
in respect of the losses suffered by Steele would never have arisen.
The majority also held that because the Scheme’s offer of assistance was conditional
upon Steele’s assignment of his rights under the HIH policy which covered events
that had already occurred, the risk undertaken by HIH Claims Support could not be
described as the same risk undertaken by IAL.
Heydon J delivered his own judgment in which he also found that HIH Claims
Support’s appeal should be dismissed. However, he did so without missing the
opportunity to comment, negatively, upon the position taken by IAL as being one in
which it had been “adventitiously placed as a result of the Federal Government’s
QBE Insurance (Australia) Ltd v CGU Workers’ Compensation (NSW) Ltd10
QBE sought contribution from CGU alleging they both insured Megbuy Pty Ltd in
respect of the same loss. Peter Horwood suffered significant injuries when driving a
forklift on 7 November 2005. The forklift toppled onto its left hand side resulting in
his left hand being amputated. QBE provided CTP insurance for the forklift in
accordance with the MAC Act. The forklift was registered in the name of Levira Pty
HIH Claims Support Ltd, supra at [62]
[2012] NSWSC 377
Ltd, a company connected with Megbuy. Horwood was employed by Megbuy and
was driving the forklift in the course of his employment. Megbuy also held a policy
of insurance from CGU consistent with its obligations under s.155(1) of the WCA
1987. Horwood sued Megbuy in the District Court pleading that it was both his
employer and the owner of the forklift. He asserted that Megbuy’s liability to him
was governed by the MAC Act. QBE conducted the defence of the proceedings on
behalf of Megbuy. It filed a defence admitting ownership of the forklift but denying
liability and alleging contributory negligence. It later filed an amended defence
admitting liability and continuing to press the allegation of contributory negligence.
Subsequently, Horwood, QBE and CGU entered into a heads of agreement by which
Horwood’s claim was settled for $1,500,000 inclusive of costs and there was
agreement as to the amount to be repaid to CGU as a partial reimbursement of the
workers’ compensation payments that Horwood had received from CGU.
The proceedings were settled on 10 December 2009 and consent orders were made
by the District Court at around that date. The court order provided for a judgment in
favour of Horwood for $1,500,000. QBE paid the judgment sum. There was no
reference in the heads of agreement and there was no other evidence that CGU
agreed to Megbuy’s admission of ownership of the forklift. It did not matter to QBE
as it was the insurer of whichever entity owned the forklift. However, it was
important to CGU as it only insured Megbuy and did not insure Levira.
The contribution proceedings were conducted on the basis that the date for
ascertaining the existence of the common obligation to insure Megbuy was the date
of Horwood’s accident. In its defence in the contribution proceedings CGU put in
issue whether Megbuy was “the owner” of the forklift for the purposes of the MAC
Act. In its pleadings CGU agreed that the sum of $1.5m inclusive of costs was a
reasonable sum in the circumstances but went on to deny that Horwood’s injury was
an ‘injury’ as defined under the MAC Act because it was not caused by the fault of
the owner in the use or operation of the vehicle and nor was it as a result of and
caused during the use or operation by a defect in the vehicle.
Beech-Jones J agreed that CGU’s admission that the settlement sum was a
reasonable amount in the circumstances was not to be taken to be an admission that
Megbuy was the owner of the vehicle and that Horwood sustained an injury as
defined by the MAC Act. CGU also asserted that the question of whether Megbuy
was the owner of the forklift and whether the definition of ‘injury’ was satisfied
needed to be litigated. However, QBE relied upon the Court of Appeal’s decision in
Zurich v GIO where it was held that in contribution proceedings if the liability of the
first insurer’s insured has been judicially determined or has been the subject of a
reasonable compromise, that suffices for contribution, and a second insurer could
not put an issue in contribution proceedings the liability of the common insured.
Beech-Jones J felt that he was bound by Zurich v GIO (a claim which was also
compromised) although he had some doubts as the correctness of the proposition.
His Honour then went on to state that in his view the admission of ownership by
Caringbah in Zurich v GIO was taken to bind GIO because GIO had concurred in
Zurich’s admission that Caringbah was the owner of the vehicle. This was not such a
case and Beech-Jones J considered that he had to address that issue afresh.
However, he did not believe that he could consider afresh the question of whether
the fault of the owner had caused the injury to Horwood in relation to the ownership
of the forklift. The MAC Act provided that the owner was the registered operator of
the vehicle and “if any such registered operator or owner had sold or ceased to have
possession of a vehicle – any person who solely or jointly or in common with any
other person is entitled to the immediate possession of the vehicle …”. The evidence
was that Levira was a company which did not trade. It was created to operate a
transport business. That business was at the time operated by Megbuy. They had
the same operating address. Levira purchased the forklift in 1997 and had held the
registration and insurance since that time. Although Levira was not operating it had
not been dissolved or wound up. His Honour found that Levira did not use the
forklift in connection with any activity that it was carrying on as at 7 November 2005
and had not done so since the beginning of 2005. He was satisfied that as at the
date of Horwood’s injury Levira had ceased to possess the forklift and Megbuy had
an entitlement to immediate possession of it. It was therefore the owner of the
forklift at the relevant time. Beech-Jones J found that the compromise made by QBE
was reasonable and that even if he was wrong on that he would have found Megbuy
liable because there was evidence of persistent deficiencies with the steering and
braking of the forklift.
He then had to decide whether the liability resulted in the definition of “injury” being
satisfied for the purposes of the MAC Act. The trial judge was satisfied that the
circumstances did fall within the definition of injury and that the contention
advanced by CGU was contrary to previous authority and stretching the language
beyond its ordinary meaning and with the result that would not give effect to the
intention of the MAC Act.
Having found that Megbuy was an owner of the forklift and/or having found that
QBE had acted reasonably in causing Megbuy to admit ownership and having found
that, if necessary, the definition of “injury” was satisfied, it followed that QBE
established an entitlement to recover contribution from CGU. This was another
matter where it was not disputed that the contribution should be 50% each
consistent with the statement of Kitto J in Albion that the burden is to be shared pro
Making the calculation
There are three possible bases upon which the contribution calculation can be made:
Equally to having regard to the independent actual liabilities.
Having regard to the maximum potential liabilities in the equal contribution the
insurers contribute equally up to the point where the loss reaches the amount
insured by the contract of insurance with the lower policy limit.
When the independent actual liability calculation is made – each insurer contributes
the proportion that its independent liability bears to the total of the independent
liabilities under all of the policies. The maximum potential liability calculation is
where each insurer’s contribution to the loss is the proportion that its maximum
potential liability bears to the aggregate of maximum potential liabilities under all
applicable policies. These methods of calculating contribution are not necessarily
the only methods by which such a calculation can be made bearing in mind that the
intended outcome of the application of the equitable right of contribution for there
to be fairness between the parties (in this case the insurers) in the relevant
As a matter of practice, where, for example, a public liability
insurance policy and the principal’s indemnity extension on a workers’ compensation
policy both indemnify the same loss the insurers will contribute equally because
there are very few cases where the lower policy limit (likely to be$10,000,000) will
be exceeded by the loss in question). However, given the $50,000,000 limit of
indemnity on the principal’s indemnity extension, if you were the liability insurer you
would be seeking to invoke one of the other methods of calculation because your
contribution would be potentially significantly less. By way of illustration, if policy A
is the principal’s indemnity extension on a workers’ compensation policy and
policy B is the principal’s liability policy and the limits of indemnity are $50,000,000
and $10,000,000 respectively, with a loss of say, $750,000 the contribution
calculations would be as follows:
Equal actual liability
$6m each
Independent actual liability Policy A
$12m ÷ $22m x $12m
= $6,545,455
Policy B
$10m ÷ $22m x $12m
= $5,454,545
Maximum potential liability Policy A
$50m ÷ $60m x $12m
= $10m
Policy B
$10m ÷ $60m x $12m
= $2m
In Australia there are not many decisions which address the question of which
method of calculation should be utilised.
Some recent and not so recent
authorities11 favour the independent actual liabilities test.
Finally, one must also have regard to other insurance provisions and s.45 of the ICA.
Other insurance provisions can quite clearly impact the existence of the right of
contribution or the amount thereof. Equally, a policy with an excess can effect the
calculation contribution.
QBE Insurance Ltd v GRE Insurance Ltd [1983] 2 ANZ Ins Cas 60-533, GIO of NSW v Crowley [1975] 2
NSWLR 78 and Zurich Australian Insurance Limited v Metals and Minerals Insurance Pte Ltd [2007]