Australasian Correctional Services Pty Limited v AIG Australia Limited

Australasian Correctional Services Pty Limited (ACS) and AIG Australia Limited (AIG) were involved in a dispute that was heard in the Federal Court of Australia. ACS, a former detainee of an immigration detention centre, had sued the Commonwealth in tort. In response, the Commonwealth cross-claimed against ACS, seeking contribution or indemnity from AIG, which had issued a general and products liability policy to ACS. AIG accepted the obligation to defend the cross-claim in ACS’s name and on its behalf. The central legal issues before the court were whether AIG was liable under the policy to pay or bear the entire cost of defending the cross-claim, and whether these costs fell within the policy’s deductible and exclusions.

The court ruled that AIG was liable to pay or bear the whole of the costs of the defence, regardless of any allegations in the cross-claim that could not result in legal liability under the policy. This liability was subject to any applicable deductible and up to any applicable limit of liability. Furthermore, the court determined that AIG’s expenses incurred in defending the suit were not to be construed as costs falling within the deductible and exclusions of the policy. Specifically, the first $200,000 of legal costs incurred in defending the cross-claim were not excluded under the policy’s terms. The court held that these costs were the expenses of AIG, not costs contemplated by the exclusions in the policy.

In conclusion, the court answered the two questions posed as follows: AIG was liable to bear the entire cost of the defence, and it was also liable under the policy to bear any of the first $200,000 of legal costs of or incurred in defending the cross-claim. Additionally, AIG was ordered to pay ACS’s costs to date.