DMS Maritime Pty Limited v Royal and Sun Alliance Insurance Plc

DMS Maritime Pty Limited, the plaintiff, sued Royal and Sun Alliance Insurance Plc, the defendant, in a dispute stemming from a contract between the plaintiff and the Commonwealth for the supply and in-service support of a patrol boat, the HMAS Bundaberg. During the course of the contract, the HMAS Bundaberg was destroyed by fire while in the plaintiff's possession. The plaintiff was liable to indemnify the Commonwealth for any loss or damage to the vessel, and consequently, the plaintiff was required to replace or otherwise make good the loss. The plaintiff and the Commonwealth settled the plaintiff's liability for $31.5 million via a settlement deed. The defendant, who insured the plaintiff against its contractual liability to the Commonwealth, was then called upon to indemnify the plaintiff for the settlement amount.

The central legal issues before the court involved the proper construction of the plaintiff's indemnity obligations under the contract with the Commonwealth and the extent to which the settlement deed with the Commonwealth could be used to determine the quantum of the plaintiff's liability under the insurance policies. The court had to decide whether the settlement with the Commonwealth was a reasonable measure of the plaintiff's liability, and whether this settlement amount could be used to establish the defendant's liability under the insuring clause of the insurance policies.

The court determined that the defendant was obliged to indemnify the plaintiff for the settlement sum paid to the Commonwealth, as this settlement sum reflected the plaintiff's liability under the contract. The settlement was deemed reasonable in all the circumstances and therefore could be used to establish the quantum of the defendant's liability. The court found that the defendant must indemnify the plaintiff for the $31.5 million settlement sum, along with interest calculated in accordance with the Insurance Contracts Act 1984.

In its orders, the court declared that the defendant is obliged to indemnify the plaintiff for the settlement sum, and ordered the defendant to pay the plaintiff $15,852,453.75, plus interest. The parties were to be heard on the question of costs.