Allianz Insurance Australia Limited v Certain Underwriters at Lloyd's of London subscribing to policy number B105809GCOM0430

[2019] NSWSC 453

Supreme Court

New South Wales

Medium Neutral Citation:

Allianz Insurance Australia Limited v Certain Underwriters at Lloyd’s of London subscribing to policy number B105809GCOM0430 [2019] NSWSC 453

Hearing dates:

14 November 2018

Date of orders:

24 April 2019

Decision date:

24 April 2019

Jurisdiction:

Equity - Commercial List

Before:

Rees J

Decision:

Amended Summons dismissed with costs

Catchwords:

INSURANCE — Double insurance and contribution — Exclusion of liability — Competing ‘other insurance’ provisions — Where one policy contains an ‘excess’ clause and the other an ‘escape’ clause — Whether rule in Weddell v Road Transport and General Insurance [1932] 2 KB 563 applicable — Whether, on construction of each policy, there is double insurance — No double insurance.

Legislation Cited:

Insurance Contracts Act 1984 (Cth), s 45

Cases Cited:

Albion Insurance Co Limited v Government Insurance Office (1969) 121 CLR 342
Australian Eagle Insurance Co Limited v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59
Bankers & Traders Insurance Co Ltd v National Insurance Co Ltd [1985] 1 WLR 734
Chui Man Kwan v Bank of China Group Insurance Co Ltd [2008] HKDC 193
Commercial Union Assurance Co of NZ Ltd v Murphy [1989] 1 NZLR 687; (1989) 6 ANZ Ins Cas 60-948
Deaves v CML Fire and General Insurance Co Limited (1979) 143 CLR 24
Evans v Maritime Medical Care Inc. (1992) 87 DLR (4th) 173
Family Insurance Corporation v Lombard Canada Limited [2002] 2 SCR 695; 2002 SCC 48
Foster v QBE European Underwriting Services (Australia) Pty Ltd [2018] NSWSC 440
General Accident Insurance Co of Australia Ltd v Sun Alliance Insurance Ltd (1989) 17 NSWLR 80; (1989) 5 ANZ Ins Cas 60-916
Jauvin v L’Ami Michel Automobile Canada Ltée (1986) 33 DLR (4th) 576
Lambert Leasing Inc v QBE Insurance (Australia) Ltd (2016) 93 NSWLR 166; [2016] NSWCA 254
Nanyang Insurance Co Ltd v Commercial Union Assurance Plc [1996] 1 SLR(R) 441
National Employers’ Mutual General Ins Association Ltd v Haydon [1980] 2 Ll Rep 149
SHC Capital Ltd v NTUC Income Insurance Cooperative Ltd [2010] SGHC 224
Weddell v Road Transport and General Insurance [1932] 2 KB 563
Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391

Texts Cited:

Clarke, The Law of Insurance Contracts (5th ed., Informa, 2006)
Clarke, The Law of Insurance Contracts (6th ed., Informa, 2009)
Enright and Merkin, Sutton on Insurance Law (4th ed., Lawbook Co., 2015)
Merkin, Colinvaux’s Law of Insurance (11th ed., Sweet & Maxwell, 2016)

Category:

Principal judgment

Parties:

Allianz Australia Insurance Limited (Plaintiff)

  Certain Underwriters at Lloyd’s of London subscribing to policy number B105809GCOM0430 (Defendant)

Representation:

Counsel:

 

S.R. Donaldson SC with S. Sykes (Plaintiff)
A.J. Sullivan QC with J.G. Simpkins (Defendant)

 

Solicitors:

  Sparke Helmore (Plaintiff)
HBM Lawyers (Defendant)

File Number(s):

2018/236236

Judgment

1. HER HONOUR:   Mr Dempsey was a road worker. He was hit by a passing car and seriously injured. Mr Dempsey received some $1 million in damages from Baulderstone Hornibrook Pty Ltd (Baulderstone), who was building the road. Baulderstone was insured under two policies which covered the damages it paid to Mr Dempsey: one policy was issued by the plaintiff (Allianz) and the other by the defendant (Lloyds). Each policy contained an ‘other insurance’ clause excluding liability in the event that a loss was covered by another policy. Allianz has paid the claim and now seeks contribution from Lloyds. The question is whether this is a case of double insurance and whether Lloyds is obliged to contribute.

Double insurance

2. There is double insurance when an assured is insured against the same risk with two independent insurers. The policies need not be identical, as long as each insurer is liable to indemnify the insured in whole or in part against the happening which has given rise to the insured’s loss: Albion Insurance Co Limited v Government Insurance Office (1969) 121 CLR 342 per Barwick CJ, McTiernan and Menzies JJ at 345-6; Kitto J (with whom Windeyer J agreed) at 349-350 and 352. By way of example, in Albion Insurance, an employer held a workers’ compensation policy and a third party motor vehicle insurance policy. The High Court held that there was double insurance, even though the policy wordings were different, each reflecting the requirements of distinct statutory schemes. At 346:

The matter can, we think, be decided simply enough by inquiring whether payment by one insurer of the policy holder’s claim for indemnity would provide the other insurer with a defence to a like claim against it. It clearly would and it would simply be because the policy holder had by the payment made been indemnified against the risk insured against. He had received all that he was entitled to receive under both policies so the payment by one insurer would discharge both.

3. Double insurance is neither new nor particularly unusual. From the earliest days of marine insurance, it was common for an insured to obtain more than one insurance policy to protect against the fear of underwriter insolvency “at a time when the vast bulk of marine policies were placed with individual underwriters, mainly trading at Lloyd’s Coffee House, over whom there were no financial controls, so that defaults were commonplace”: Enright and Merkin, Sutton on Insurance Law (4th ed., Lawbook Co., 2015) at [19.10]. Having more than one policy enabled the insured to decide which insurer or insurers to claim against, and in what order. However, this was unfair to the insurers first claimed against by the insured, as those insurers were forced to bear an undue burden of a loss. This led to the development of the equitable doctrine of contribution: where there is double insurance, an insurer who pays a claim can look to the other insurers to contribute to the payment as “payment by one is made for the benefit of both, and, contribution is equity”: Albion Insurance at 346.

‘Other insurance’ clauses

4. Over time, insurers developed ‘other insurance’ clauses to restrain an insured’s right to double insurance and restrict the insured’s ability to determine the order in which to seek recovery from insurers. Insurers thereby endeavoured to contract out of the doctrine of equitable contribution and throw all or at least some of a loss on to other insurers. As explained by Merkin, Colinvaux’s Law of Insurance (11th ed., Sweet & Maxwell, 2016) at [12-095]: (footnotes omitted)

These [clauses] include: a requirement on the assured to disclose in pre-contractual negotiations the existence of any other insurance converting the same subject-matter; an obligation on the assured not to take out any further insurance on the insured subject-matter during the currency of the policy, either absolutely, failing which the policy terminates, or in the absence of the insurer’s permission (an “escape” clause); a provision which converts the policy into an excess layer policy in the event that some other insurance is taken out by the assured (an “excess” clause); and a provision to the effect that in the event of the existence of a number of concurrent insurances, the insurer is to bear only its own proportion of the loss (a “rateable proportion” clause). The range of other insurance clauses, and the complexities raised where the two policies in any one case contained different other insurance provisions, has led to a situation in which the common law right of an assured to recover from the insurers in such order as he thought fit had been eroded to a significant extent, and had been replaced with difficult and sometimes circular issues of construction.

5. The interaction between ‘other insurance’ clauses is the subject of complex case law — not always consistent — akin to a game of rock, paper, scissors. As the Supreme Court of Canada put it more eloquently, “The issue has engendered a significant amount of jurisprudence … [T]he reconciliation of competing and apparently irreconcilable insurance policy provisions has plagued the Courts and given rise to much academic comment …”: Family Insurance Corporation v Lombard Canada Limited [2002] 2 SCR 695; 2002 SCC 48 at [1]. The degree of difficulty is enhanced where the competing policies contain different types of ‘other insurance’ clauses as has happened in this case: Allianz has deployed an ‘excess’ clause whilst Lloyds has used an ‘escape’ clause.

6. In Australia, these cases are now largely irrelevant by reason of section 45 of the Insurance Contracts Act 1984 (Cth), which renders ‘other insurance’ clauses void as follows:

“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 … 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.

In this case, however, section 45 does not apply as Baulderstone was not a contracting party to either policy but rather a third party beneficiary of a policy negotiated and paid for by others: Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd (2009) 240 CLR 391; Lambert Leasing Inc v QBE Insurance (Australia) Ltd (2016) 93 NSWLR 166; [2016] NSWCA 254 at [134], [145]-[146].

7. Aside from section 45, the common law approaches the problem by a two-stage process. First, the Courts construe the terms of each policy to determine whether there is, in fact, an overlap in coverage. This may reveal, for example, that the wording of one ‘escape’ clause is absolute whilst the other is not, with the result that the loss will be cast from the insurer with the absolute clause onto the other insurer: see Sutton at [19.110]. A review of the case law indicates that most cases are resolved at this stage as, on close examination, one policy responds notwithstanding the existence of another: Evans v Maritime Medical Care Inc. (1992) 87 DLR (4th) 173 (Appeal Division of the Supreme Court of Nova Scotia); Chui Man Kwan v Bank of China Group Insurance Co Ltd [2008] HKDC 193; Bankers & Traders Insurance Co Ltd v National Insurance Co Ltd [1985] 1 WLR 734 (Privy Council on appeal from Malaysia); Nanyang Insurance Co Ltd v Commercial Union Assurance Plc [1996] 1 SLR(R) 441 (High Court of Singapore); SHC Capital Ltd v NTUC Income Insurance Cooperative Ltd [2010] SGHC 224; National Employers’ Mutual General Ins Association Ltd v Haydon [1980] 2 Ll Rep 149 (Court of Appeal); Australian Eagle Insurance Co Limited v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59. There is, in truth, no double insurance.

8. Second, in the event that, on close examination, neither policy responds due to the existence of other, then the Courts apply a specific rule of construction which treats the ‘other insurance’ clauses as cancelling each other out such that both insurers are liable. This principle was famously articulated by Rowlett J in Weddell v Road Transport and General Insurance [1932] 2 KB 563 at 567-8:

In my judgment, it is unreasonable to suppose that it was intended that clauses such as these should cancel each other (by neglecting in each case the proviso in the other policy) with the result that, on the ground that in each that the loss is covered elsewhere, it is covered nowhere. On the contrary, the reasonable construction is to exclude from the category of co-existing cover any cover which is expressed to be itself cancelled by such co-existence, and to hold in such cases both companies are liable … [Otherwise] one would reach the absurd result that whichever policy one looks at it is always the other which is effective.

9. However, as Bastarache J, delivering the judgment of the Supreme Court of Canada, explained in Family Insurance Corporation v Lombard at [33]-[34]:

However, this step is only to be taken where there is a true impasse. Where the respective wording of two “other insurance” clauses can be reconciled so as to give effect to both policies while providing coverage for the insured, then no mutual repugnancy exists, and the process is simply one of giving effect to the intent of the insurers.

… the approach … serves to respect the intentions of both insurers whilst simultaneously respecting the insured’s contractual right to full indemnity.

See likewise Deaves v CML Fire and General Insurance Co Limited (1979) 143 CLR 24 per Gibbs ACJ at 38, per Mason J at 66-67.

10. A review of the case law indicates that the principle of construction in Weddell has been applied whether the ‘other insurance’ clauses are relevantly the same and, mostly, where both policies used an ‘excess’ clause. For example, in Family Insurance Corporation v Lombard, the Family Insurance policy provided cover unless other valid insurance was available, in which case it provided only excess coverage. The Lombard policy provided cover unless other valid insurance was available, in which case it limited its liability to only excess coverage even where the other insurance also provided excess coverage, thus rendering the Lombard policy “excess to excess”. The Supreme Court of Canada concluded that, were the Court to give effect to each insurer’s intention, the Family Insurance policy would provide only excess coverage and the Lombard policy would provide only excess to that, leaving the insured without primary coverage at all. At [38]:

This result is obviously absurd. Thus, where the competing policies cannot be read in harmony, the most sensible course, and that which accords with the interest and expectation of both the insured and the insurers is to treat the conflicting clauses as mutually repugnant and inoperative.

11. Competing ‘excess’ clauses were treated in the same manner by Rothman J in Foster v QBE European Underwriting Services (Australia) Pty Ltd [2018] NSWSC 440 at [96]-[97] and Brownie J in General Accident Insurance Co of Australia Ltd v Sun Alliance Insurance Ltd (1989) 17 NSWLR 80; (1989) 5 ANZ Ins Cas 60-916, each applying Weddell. In Lambert Leasing v QBE, also a case of two ‘excess’ clauses, Payne JA (with whom Ward and Gleeson JJA agreed) considered obiter that the parties’ concession that the ‘other insurance’ clauses cancelled one another out was correctly made, citing Sutton and Clarke, The Law of Insurance Contracts (5th ed., Informa, 2006) at [28-9B]: at [177]-[178].

12. Four examples illustrate the two-stage process. In Evans v Maritime Medical Care Inc., the insured had a health insurance policy and a car insurance policy. The car insurance policy provided that the insurer would not be liable for medical expenses recoverable under health insurance. The insured was injured in a car accident and incurred hospital expenses. Chipman JA, who gave the judgment for the Appeal Division of the Supreme Court of Nova Scotia, noted that there was no need to apply Weddell as the wording of the relevant clauses in the policies made the result “crystal clear”: at [15]. The car insurance policy had an unqualified exclusion which barred the insured from any access to it and thus did not provide any benefits to the insured in view of her protection under the health insurance policy. The health insurance policy did not contain an exclusion such as that in the car insurance policy which might, but for Weddell, lead to the conclusion that since coverage was elsewhere it was nowhere. “This is not a circular situation where the decision as to which policy is primary depends on which policy is read first:” at [15].

13. In Nanyang Insurance Co Ltd v Commercial Union Assurance Plc, two public liability policies gave the insured cover in respect of property damage as a result of an accident occurring in the course of works carried out by contractors. Neither contract had an exclusion clause in the case of other insurance, so Weddell was of no assistance. One policy contained an ‘excess’ clause. Mr Justice Khoo of the High Court of Singapore considered that the ‘excess’ clause was clear enough and there was no reason not to give effect to its plain ordinary meaning. As the ‘excess’ layer had not been triggered given the quantum of the loss, that policy had not taken effect in respect of the loss as it had been effectively excluded from cover by the terms of the policy and in the event that had happened such that there was no double insurance: at [19].

14. In National Employers’ Mutual General Insurance Association Ltd v Haydon, a firm of solicitors had two consecutive policies of professional indemnity insurance. The latter policy issued by the Law Society scheme contained an exclusion in respect of claims notified under any other insurance attaching prior to the inception of its policy. The Court of Appeal did not apply Weddell as, on examination, the two policies contained clauses which were clearly distinguishable from each other and on their true construction had the result that one policy responded to a claim and the other did not. Bridge LJ noted, in respect of Weddell, at 154:

But the question whether that principle applies in the circumstances of any particular case and as between any particular insurance policies must, in my judgment, depend not upon any general principle of law, but upon the true construction of the two policies applied to the relevant circumstances.

The Court of Appeal considered that was no double insurance, no conflict between the two policies and no possibility of the absurd result of the solicitors being left without cover. The Law Society scheme simply did not cover the claim already notified under the earlier policy.

15. In Australian Eagle Insurance Co v Mutual Acceptance (Insurance) Pty Ltd, the Mutual policy contained an ‘other insurance’ clause which provided:

If at the time of any occurrence giving rise to a claim under this policy there shall be other insurance covering such loss, damage or liability or any part thereof, the company shall not be liable for more than its rateable proportion thereof.

16. The Australian Eagle policy contained as ‘excess’ clause as follows:

This policy does not cover … any loss or damage or liability which is insured by all 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.

17. Mutual conceded that, however the clauses were construed, the Mutual policy granted an indemnity of some kind as the relevant clause did not purport to exclude all liability in the event of there being another policy. The Australian Eagle policy, on the other hand, did purport to exclude liability altogether. It “does not cover … any loss or damage or liability which …”. Mahoney JA found that there was no double insurance. At 61:

This clause in the Australian Eagle policy operates, in my opinion, in the following way. If the Australian Eagle policy had not been issued, the loss here in question would have been insured by the Mutual policy. The Mutual policy would, had the Australian Eagle policy not been issued, have insured, not merely a rateable proportion of the loss but all of it. Therefore, on the proper construction of this clause of the Australian Eagle policy, it “does not cover” the relevant loss or damage or liability, except in so far as, by its concluding words, it covers the “excess” there referred to. But, in the present case, such “excess” provision is of no significance because, as it provides, it applies only to such excess as would not have been covered by the Mutual policy had the Australian Eagle policy “not been effected”. Therefore, on the proper construction of the Australian Eagle policy, it did not “cover” any of the loss covered by the Mutual policy.

18. His Honour considered that there was no reason why, if the policy contained a provision like that in the Australian Eagle policy which on its proper construction would result in there being no insurance under it, that clause should not be given its ordinary effect: at 63. Weddell was distinguished as concerning a materially different policy.

19. I have not found, and was not taken to, a case which considers a competing ‘escape’ clause and ‘excess’ clause. Indeed, Colinvaux notes at [12-099]:

There is no authority on the relationship between Policy A containing an “escape” clause and Policy B containing an “excess” clause. There is certainly a plausible argument that the two clauses would be self-cancelling. There can be no liability under Policy A because Policy B is in existence and provides cover unless there is some other policy in existence which provides cover. However, there is no other policy in existence providing cover, because Policy A is negatived by the existence of Policy B. Nevertheless, it has been held in New Zealand in Commercial Union Assurance Co of NZ Ltd v Murphy [1989] 1 NZLR 687 that an escape clause and an excess clause are self-cancelling.

However, Commercial Union Assurance Co of NZ Ltd v Murphy [1989] 1 NZLR 687; (1989) 6 ANZ Ins Cas 60-948 does not support the proposition for which it is cited. In that case, Policy A contained an ‘escape’ clause. Policy B contained an ‘excess’ clause. Cooke P, delivering the judgment of the Court of Appeal, considered that the proper construction of Policy B was that it was intended to cover the loss in question and gave primacy to the insuring clause over the ‘other insurance’ clause within the policy wording. The Court ordered the insurer of Policy B to pay the entire claim, with the result that the ‘escape’ clause prevailed.

20. The absence of any case addressing the competing ‘other insurance’ clauses before me is not of grave concern as the same two-stage approach applies. In any event, as Priestley JA cautioned in Australian Eagle Insurance Co v Mutual Acceptance (Insurance) Pty Ltd, authorities in this field are of limited utility as each decision will necessarily involve the construction of two insurance policies which are most unlikely to be the same as the two insurance policies examined in any of the other authorities: at 65-66, 71-72. The policies must be construed according to their own terms in each case.

21. Before turning to the Allianz and Lloyds policies, I note that in considering competing ‘other insurance’ clauses, the usual principles of contractual interpretation apply. As these clauses are inserted by and for the benefit of the insurer, they are construed contra proferentem: Clarke, The Law of Insurance Contracts (6th ed., Informa, 2009) at [28-9] citing Jauvin v L’Ami Michel Automobile Canada Ltée (1986) 33 DLR (4th) 576. And the approach, overall, is that espoused by the Supreme Court of Canada in Family Insurance Corp v Lombard at [28], which appears to me to be consistent with Australian law:

… The focus of the examination is to determine whether the insurers intended to limit their obligation to contribute, by what method, and in what circumstances vis-à-vis the insured. In the absence of such limiting intentions or where those intentions cannot be reconciled, principles of equitable contribution demand that parties under a co-ordinate liability to make good the loss must share that burden equally.

Allianz policy

22. In 2007, the Roads and Traffic Authority of New South Wales (the RTA) entered into a contract with Baulderstone and others to upgrade Victoria Road between the Gladesville Bridge and The Crescent, Rozelle. Under the contract, the RTA was obliged to arrange insurance for the contractors, and did so: Allianz issued a “Construction Risks - Material Damage, Public and Products Liability” policy to RTA providing cover to the RTA and its contractors, including Baulderstone.

23. The Allianz policy was set out in the following manner. First, a Schedule noted the salient details of the policy, including the Named Insured, policy limits and, amongst other things, enabled the parties to list “Underlying Insurance” by providing details of the contract, policy type, policy number, insurer and underlying limit of such insurance. The existence of this portion of the Schedule is explicable by section 45(2) of the Insurance Contracts Act 1984. No policy details were listed.

24. Next, a Definitions section set out a number of definitions and interpretative principles, including:

Underlying Insurance means a policy of insurance arranged by or on behalf of an Insured either voluntarily or pursuant to a Contract (which may include a policy(ies) arranged by joint venture partners, principals, contractors, etc.) that provides cover to an Insured for a risk, which save for the Underlying Insurance, would be covered by this policy. Underlying Insurance includes those policies identified in the Schedule.

As mentioned, no policies were identified in the Schedule.

25. Section 1 of the policy provided cover in respect of material loss or damage. The section contained insuring clauses, extensions, exclusions and conditions relevant to such cover. Section 2 of the policy provided cover in respect of public and products liability. The section contained insuring clauses and exclusions relevant to such cover. Clause 7 then specified “General exclusions to all sections” and clause 8 specified “General conditions to all sections”. Clause 8.17 provided: (emphasis added)

8.17   Difference in Conditions Cover

In circumstances where an Underlying Insurance has been arranged, this Policy shall be deemed to be the ‘Master Policy’.

(a)   In the event of the Insured being indemnified by an Underlying Insurance in respect of a claim for which indemnity is available under this Master Policy, the insurance afforded by this Policy shall be excess insurance over the applicable limit of indemnity of the Underlying Insurance.

(b)   Coverage under this Master Policy shall not apply unless and until a claim for payment is made under the Underlying Insurance up to the amount of the Underlying Limit which, save for the limit of indemnity of the Underlying Insurance, would be covered by this Master Policy.

(c)   Should any such Underlying Insurance, by virtue of its scope of cover, definitions, deductibles or excesses, conditions or limits of indemnity, not indemnify the Insured in whole or in part in respect of a loss, damage, liability, costs or expenses indemnifiable under this Master Policy, this Master Policy will provide indemnity to the extent that such indemnity is not provided by the terms and conditions of such Underlying Insurance. For the purpose of clarity, it is intended that indemnity by this Policy extends to cover losses not covered under the Underlying Insurance by virtue of the fact that such Underlying Insurance has a higher deductible or excess than the Excess under this Master Policy.

(d)   The provisions of this clause are subject always to the terms, Conditions and Exclusions of this Master Policy, except as provided under (c) above.

“Underlying Limit” was not defined.

26. Clause 8.20 of the Allianz policy further stated: (emphasis added)

8.20   Other Insurance

Where allowable by law, this Policy is excess over and above any other valid and collectible insurance and shall not respond to any loss until such times as the limit of liability under such other primary and valid insurance has been totally exhausted. …

27. The Allianz policy is an example of an ‘excess’ ‘other insurance’ clause. Clauses 8.17 and 8.20 each provide in terms that, in the event that the insured has “Underlying Insurance” or “other valid and collectible insurance”, then the Allianz policy is excess insurance over and above such insurance.

Lloyds policy

28. Baulderstone was a subsidiary of Bilfinger Berger Australia Pty Ltd and, in that capacity, was insured under a “Public and Products / Contract Works Liability” policy issued by Lloyds. The structure of the policy was different to the Allianz policy. After a Schedule, some general clauses followed in respect of liability insurance, then Section A contained specific clauses in respect of public liability cover. Section B contained specific clauses in respect of products liability cover. Clause 10 then contained “General Exclusions”, relevantly:

10   GENERAL EXCLUSIONS

This Policy does not cover liability …

10.5   which forms the subject of insurance by any other policy and this Policy shall not be drawn into contribution with such other insurance

29. The Lloyds policy is an example of an ‘escape’ clause in that Lloyds purports to be simply not liable in the event that there is another policy in force.

The insurers’ submissions

30. Allianz submitted that the Lloyds policy is “Underlying Insurance” within the meaning of clauses 8.17 and 8.20 of the Allianz policy. It was arranged by or on behalf of Baulderstone and, leaving aside the potential impact of clause 10.5 of the Lloyd’s policy, it provides cover to Baulderstone for risks covered by the Allianz policy. On the other hand, leaving aside the potential impact of clauses 8.17 and 8.20 of the Allianz policy, Baulderstone’s liability to Mr Dempsey is a liability that “forms the subject of other insurance by another policy” within the meaning of clause 10.5 of the Lloyd’s policy. That raises, it was submitted, the conundrum identified and resolved by Rowlett J in Weddell.

31. Allianz submitted that the operation of the rule of construction in Weddell is simple. For the purpose of ascertaining the rights and obligations of Baulderstone and Lloyds under the Lloyds policy, by reason of the presence in the Allianz policy of clause 8.17 and 8.20, Baulderstone’s liability to Mr Dempsey was not “the subject of other insurance by another policy” within the meaning of clause 10.5 of the Lloyd’s policy. Conversely, for the purpose of ascertaining the rights and obligations of Baulderstone and Allianz under the Allianz policy, by reason of clause 10.5 of the Lloyd’s policy, there was no “Underlying Insurance” within the meaning of clause 8.20 of the Allianz policy. It follows that “the exclusions would be treated as cancelling each other out, both the insurers are then liable” and “the one who pays can claim contribution from the other”: Lambert Leasing at [177]-[178] and the texts there cited. Allianz had a tendency, in its submissions, to elide the two-stage approach.

32. Lloyds submitted that the Lloyds policy is not “Underlying Insurance”. Clause 10.5 of the Lloyds policy operates to exclude cover for liability which forms the subject of the Allianz policy. As such, the Lloyds policy cannot be properly described as a policy of insurance which provides cover for a risk, which, save for the Lloyds policy, would be covered by the Allianz policy. This is not a case where two policies, as a matter of construction, contain ‘other insurance’ clauses which are virtually indistinguishable and should therefore cancel the other out because of the “absurdity” that an insured has no insurance cover despite having two policies of insurance in place: Foster v QBE at [66]-[74], [84]-[85], [94]-[98]. Rather, as a matter of construction, the only cover afforded to Baulderstone in the circumstances is that given by the Allianz policy. There is no “absurdity” and no “double insurance” because Lloyds, as a matter of construction, is not liable to indemnify Baulderstone under its policy.

33. Lloyds submits that clauses 8.17 and 8.20 of the Allianz Policy are not absolute. Clause 8.17(a) provides that the Allianz policy is ‘excess’ in the event of the condition being satisfied that Baulderstone was also indemnified by the Lloyds policy. Clause 8.17(c), properly construed, is to the same effect, providing that where the Underlying Insurance does not indemnify the insured in whole or in part then the Allianz policy will provide indemnity. Clause 8.20 of the Allianz policy is also conditioned on there being “other valid and collectible insurance”. Therefore, a situation of “double insurance” can only arise, as a matter of the proper construction of the Allianz policy, if the Lloyds policy, read as a whole, responds to Baulderstone’s claim. I do not agree with this interpretation of “valid and collectible insurance”: see [37].

34. Lloyds submits that the language in the Lloyds policy is markedly different: the policy emphatically states that it does not cover liability “which forms the subject of insurance by any other policy and this Policy shall not be drawn into contribution with such other insurance.” Clause 10.5 of the Lloyds Policy excludes liability where there is a claim “which forms the subject of insurance” by another policy. It does not talk in terms of “indemnity”; it is a much broader concept. The language of clause 10.5 of the Lloyds policy, construed in accordance with ordinary and natural English usage, is clear. The Lloyds policy does not cover liability which is the subject of insurance by another policy. It is submitted that that is the case here. As a matter of proper construction, and as evidenced by the fact that Allianz has in fact indemnified Baulderstone, the “liability” was “the subject of insurance by the Allianz policy”. Clause 10.5 then makes it plain that in such circumstances, contribution is not to occur.

Applying the two-stage approach

35. The Lloyds policy is simple and clear. It contains a general exclusion to the cover provided under the Lloyds policy: it “does not cover liability which forms the subject of insurance by any other policy”. If Baulderstone has a risk which “forms the subject of insurance by any other policy”, then it is not covered by the Lloyds policy. This is so regardless of whether the other policy is claimed upon, or responds to the claim, or pays the claim. It need simply “form the subject” of that other policy. Indeed, it would appear to be enough under the Lloyds policy that the other policy deals with the particular form of liability but subject to exclusions which have the result that the claim under the other policy is not ultimately paid. That may suffice to remove the risk from the realm of insured risk.

36. Clause 8.20 of the Allianz policy is also relatively straightforward, providing:

Where allowable by law, this Policy is excess over and above any other valid and collectible insurance and shall not respond to any loss until such times as the limit of liability under such other primary and valid insurance has been totally exhausted. …

37. It seems to me that the reference to the Allianz policy being in excess of “valid and collectible insurance” is consistent with an intention by Allianz to “drop down” to the primary layer in the event that the other policy cannot be collected because the other insurer is insolvent: Clarke, The Law of Insurance Contracts at [28-9B]. This is consistent with the genesis of ‘other insurance’ clauses in an unregulated insurance market populated with insurers of varying financial vigour. Whether the other policy is “valid and collectible” does not call for a close examination of policy wording of the other policy to determine whether it has a condition or exclusion which may preclude indemnity, or whether it contains an ‘other insurance’ clause which trumps clause 8.20. In part, this is because the two-stage approach requires the Court to examine each policy independently of the other policy rather than putting the two policies side by side and interpreting one policy by reference to clauses of the other. It does not seem to me to have been intended by clause 8.20 that Allianz and its insured would be obliged to examine any other policy and reach a considered view on the application of the other policy wording before ascertaining whether the Allianz policy was primary or excess cover. Clause 8.20, on its face, provides that in the event that the insured holds another policy, the Allianz policy becomes excess insurance. If that were the only relevant clause in the Allianz policy, then Weddell may apply.

38. Clause 8.17 is more complicated. The genesis of the clause appears to be the ability in section 45(2) of the Insurance Contracts Act to specify particular policies in order to avoid the operation of that section. It should be remembered that clause 8 is headed “General Conditions to all Sections”, compared to clause 7 which sets out “General Exclusions to all Sections”. Clause 8.17 therefore likely sets out conditions rather than exclusions. Likewise, the heading to clause 8.17 is “Difference in Conditions Cover”.

39. According to the chapeau, clause 8.17 applies “where an Underlying Insurance has been arranged”. All that is needed, it seems to me, is that the insured has obtained another policy, whether or not it responds to a particular claim. “Underlying Insurance” is defined as a policy that “provides cover to an Insured for a risk, which save for the Underlying Insurance, would be covered by this policy.” This is more consistent with a requirement that the other policy actually responds to the particular risk which has materialised before it will be considered to be Underlying Insurance, but this is not consistent with the chapeau nor the content of clause 8.17. It does not seem to me, contrary to the submission made for Lloyds, to have been intended that Allianz and its insured would be obliged to examine any other policy and reach a concluded view on the application of the other policy wording before ascertaining whether the other policy was “Underlying Insurance” and whether clause 8.17 has work to do. It suffices that the insured has another policy which on its face covers the same risk as the Allianz policy, such as public liability, without delving into the detailed policy wordings in respect of that cover.

40. Each of clauses 8.17(a), (b) and (c) is independent rather than interconnected. Clause 8.17(a) provides:

In the event of the Insured being indemnified by an Underlying Insurance in respect of a claim for which indemnity is available under this Master Policy, the insurance afforded by this Policy shall be excess insurance over the applicable limit of indemnity of the Underlying Insurance.

Before 8.17(a) is activated, it seems to me that the other policy must actually respond to the risk which has materialised such that the insurer confirms that it will indemnify Baulderstone. In that event, the Allianz policy becomes excess cover.

41. Clause 8.17(b) is in similar terms:

Coverage under this Master Policy shall not apply unless and until a claim for payment is made under the Underlying Insurance up to the amount of the Underlying Limit which, save for the limit of indemnity of the Underlying Insurance, would be covered by this Master Policy.

This differs from 8.17(a) in that Underlying Insurance has been arranged and a claim for payment has been made on that policy by Baulderstone, although not necessarily accepted by the other insurer. The Allianz policy will only respond to that part of the claim which exceeds the policy limit of the other policy.

42. Clause 8.17(c) is critical:

Should any such Underlying Insurance, by virtue of its scope of cover, definitions, deductibles or excesses, conditions or limits of indemnity, not indemnify the Insured in whole or in part in respect of a loss, damage, liability, costs or expenses indemnifiable under this Master Policy, this Master Policy will provide indemnity to the extent that such indemnity is not provided by the terms and conditions of such Underlying Insurance. …

In the event that the policy wording of the other policy has the result that it will not pay part of all or a claim otherwise covered by the Allianz policy, then the Allianz policy will respond. It seems to me that clause 8.17(c) envisages precisely the scenario before the Court: if the other policy contains an exclusion such that it will not cover liability which is covered under the Allianz policy, then Allianz has agreed to cover such a claim.

43. Clause 8.17(a), (b) and (c) envisage three potential scenarios where there is ‘other insurance’: ‘other insurance’ indemnifying the insured; ‘other insurance’ potentially indemnifying the insured; and ‘other insurance’ not ultimately responding due to the precise terms of the other insurance policy. Clause 8.17(b) applies where the other insurer’s decision has not been made: depending upon the other insurer’s response to the claim for payment, either clause 8.17(a) or 8.17(c) will then apply.

43. The interaction between clause 8.17 and clause 8.20 is governed by clause 8.17(d):

The provisions of this clause are subject always to the terms, Conditions and Exclusions of this Master Policy, except as provided under (c) above.

That is, the provisions of clause 8.17 are subject to clause 8.20 except as provided under clause 8.17(c), which provides that if the Underlying Insurance, by “virtue of its scope of cover … conditions …” does not indemnify the insured in respect of a loss indemnifiable under the Allianz policy, then the Allianz policy will respond. As such, clause 8.20 does not appear to me to rise higher than clause 8.17(c).

45. Having examined each of the policies individually, it seems to me that the Allianz policy responds to Baulderstone’s claim whilst the Lloyds policy does not. It is not a case where the Allianz policy would respond but does not by reason of the existence of the Lloyds policy. Rather, the Allianz policy specifically contemplates a scenario where there is another policy which has been arranged by the insured and which provides cover for a risk also covered by the Allianz policy but does not ultimately result in an indemnity for the insured because of the precise policy wording of that other policy. In that event, Allianz has agreed to indemnify its insured. In those circumstances, there is no scope to apply the specific construction principle in Weddell as there is, in truth, no double insurance. Rather, one policy responds and the other does not. In fact, the Allianz policy responds under clause 8.17(c) because the Lloyds policy does not.

ORDERS

46. Although this matter came before me as a separate question by orders made by Stevenson J on 19 October 2018, the parties agreed that, were I to find in Lloyds’ favour, the other relief sought in the Amended Summons would necessarily fail, and so the whole of it should be dismissed with costs.

47. For these reasons, the Amended Summons is dismissed with costs.

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Decision last updated: 24 April 2019