Quito Pty Ltd t/as Benara Nurseries v Insurance Commission of Western Australia - [2002] WASCA 8

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: QUITO PTY LTD t/as BENARA NURSERIES -v- INSURANCE COMMISSION OF WESTERN AUSTRALIA [2002] WASCA 8

CORAM: ANDERSON J
SCOTT J
PARKER J

HEARD: 16 NOVEMBER 2001

DELIVERED : 1 FEBRUARY 2002

FILE NO/S: FUL 43 of 2001

BETWEEN: QUITO PTY LTD t/as BENARA NURSERIES
Appellant
AND
INSURANCE COMMISSION OF WESTERN AUSTRALIA
Respondent

Catchwords:

Insurance - Indemnity - Workers' compensation and common law liability - Different insurers - Award of damages to employee - Insured employer having paid weekly compensation - Extent of insurer's liability to indemnify employer

Legislation:

Motor Vehicle (Third Party Insurance) Act 1943

Workers' Compensation and Rehabilitation Act 1981

Result:

Appeal allowed

Category: B

Representation:

Counsel:

Appellant: Mr M L Greenland
Respondent: Mr J G Staude

Solicitors:

Appellant: Greenland Brooksby
Respondent: John G Staude

Case(s) referred to in judgment(s):

Co-Operative Bulk Handling Ltd v The State Government Insurance Commission (1990) 3 WAR 145
Motor Vehicle Insurance Trust v Forbes, Brambles Holdings Ltd and White [1985] WAR 50

Case(s) also cited:

Commercial Developments Pty Ltd v Mercantile Mutual Insurance (Workers’ Compensation) Ltd (1991) 5 WAR 208
Hacai Pty Ltd v Rigil Kent Pty Ltd, unreported; SCt of WA; Library No 960450; 16 August 1996

ANDERSON J: This is an appeal from the judgment of a District Court Judge dismissing a claim against an insurer for indemnity in respect of a liability to pay damages to an employee.
The appellant was the employer of the injured employee and the respondent was the appellant's compulsory motor vehicle third party liability insurer in respect of the appellant's liability to pay common law damages to persons injured arising out of the negligent use of its motor vehicles.
The facts are that on 20 March 1990, the employee, one Leigh, was injured in the course of his employment and claimed and received worker's compensation amounting to $31,218.04. Those payments were made by the appellant under the Workers' Compensation and Rehabilitation Act 1981 and the appellant was indemnified for its obligations under that Act by Mercantile Mutual Insurance (Workers' Compensation) Ltd ("Mercantile Mutual") which reimbursed the appellant in respect of the full amount of $31,218.04. Leigh then brought an action in the District Court claiming common law damages against the appellant in respect of the same injury. The appellant joined the respondent and Mercantile Mutual as third parties, claiming to be indemnified by them in respect of the damages claim. There were negotiations between the appellant and Mercantile Mutual and the indemnity claim against Mercantile Mutual was settled and the third party proceedings against Mercantile Mutual were dismissed in consideration of Mercantile Mutual agreeing to forego its entitlement to be repaid its workers' compensation payout of $31,218.04 from Leigh's award of damages.
The right of an employer to recover from the damages award the amount of workers' compensation paid to an employee is conferred by s 92(b) of the Workers' Compensation and Rehabilitation Act 1981 which is in the following terms:
"Where in respect of a disability an action is brought by a worker for damages independently of this Act against his employer or against some other person (referred to in this section as 'the defendant') or against both of them -
(a)…
(b)if the action proceeds to judgment, … against the employer only or against the employer and the defendant, there shall be deducted from the amount of the judgment and be paid to the employer a sum representing the amount … actually recoverable by the worker by way of weekly or lump sum compensation, medical and other expenses paid pursuant to this Act, but where liability is apportioned between the employer and the defendant the defendant's liability to pay to the worker shall be reduced accordingly."
The effect of this is that the full amount of any payments made under the Workers' Compensation and Rehabilitation Act must be deducted from the damages award and must be paid to the employer.
The right, in turn, of the workers' compensation insurer to recover from the employer the amount so paid arises under well settled principles of insurance law which require the insured (the employer) to disgorge to the insurer any portion of the loss recovered by the insured.
Leigh's damages action proceeded to judgment against the appellant in the sum of $345,994.71 and it was that sum which the appellant claimed from the respondent by way of indemnity. The respondent has paid the amount of the judgment less $31,218.04, contending that this is the limit of its obligation in light of the fact that the appellant has already recovered indemnity in the sum of $31,218.04 from Mercantile Mutual without any liability to repay that sum to Mercantile Mutual.
The Judge at first instance upheld this contention and dismissed the appellant's claim.
In my opinion, there are two decisions of this Court which cannot be distinguished from the present case in any material respect and which should have been applied in the court below. They hold that the respondent's liability to indemnify the employer, in a case such as this, is not reduced by the amount of the indemnity provided by another insurer in respect of workers' compensation payments made to the employee.
The cases are Motor Vehicle Insurance Trust v Forbes, Brambles Holdings Ltd and White [1985] WAR 50 and Co-Operative Bulk Handling Ltd v The State Government Insurance Commission (1990) 3 WAR 145.
In the first of those cases, the plaintiff had been injured by a crane in the course of his employment and sued his employer and the crane driver, after having been paid workers' compensation in the sum of $35,220.82. His common law damages were assessed at $67,355.37 and judgment was entered for that amount against the employer and the crane driver. A predecessor to the respondent (the Motor Vehicle Insurance Trust) was the defendant in third party proceedings brought by the employer for indemnity under the compulsory motor vehicle insurance policy and in those third party proceedings it was declared that the respondent was "bound to indemnify [the employer] in respect of its vicarious liability for the negligence of [the crane driver] in the sum of $67,355.37" and an order was made that the Motor Vehicle Insurance Trust pay the employer that amount. The Motor Vehicle Insurance Trust appealed against the orders, contending that judgment ought to have been entered in favour of the injured employee in an amount of $31,918.35, being the damages as assessed, less the amount of workers' compensation already paid by the employer to the injured employee; and that the liability of the Motor Vehicle Insurance Trust to the employer should be reduced to that amount. This argument was rejected. The Court (Burt CJ, Wallace and Brinsden JJ) held that under the contract of insurance between the employer and the Motor Vehicle Insurance Trust, the latter was obliged to indemnify the employer for his "liability for negligence" and the extent of that liability was the sum assessed as payable to the employee; namely, $67,355.37. As Burt CJ pointed out at page 54:
"The extent of that liability [for negligence] if it goes to trial is the sum assessed and for which judgment should be entered and it remains that sum notwithstanding the fact, if it be the fact, that judgment has been pro tanto satisfied by the payment of compensation."
The terms of the compulsory motor vehicle third party liability policy are fixed by the Motor Vehicle (Third Party Insurance) Act 1943 and the policy in force in this case is in identical terms to the policy in force in Motor Vehicle Insurance Trust v Forbes, Brambles Holdings Ltd and White (supra). By the policy, the respondent insures the appellant "in respect of all liability for negligence" arising out of the use of its motor vehicles. Hence, in this case, as in Motor Vehicle Insurance Trust v Forbes, Brambles Holdings Ltd and White the policy is required to respond to (that is, the respondent is obliged to pay) the full amount of the judgment for damages, namely, $345,994.71, rather than that sum less $31,218.04.
In Co-Operative Bulk Handling Ltd v The State Government Insurance Commission the facts were that an employee had been injured in the course of his employment arising out of the use of the employer's motor vehicle driven by a fellow employee. Workers' compensation payments were made to the injured employee and that employee then sued for and recovered damages assessed at $125,895. The compensation already paid to the injured employee was $70,045.60. The employer had been indemnified in respect of the payments of compensation by a different insurer. (By this time the Motor Vehicle Insurance Trust had become the State Government Insurance Commission.) Once again, the State Government Insurance Commission contended that it should only be liable to indemnify the employer to the extent of the difference between the amount of the workers' compensation indemnity which it had received and the full amount of the assessed damages. On behalf of the State Government Insurance Commission, it was argued that the employer suffered no loss in relation to that part of the award of damages which had been satisfied by the payment of workers' compensation and, hence, no obligation arose on its part to indemnify the employer with respect to that part of the award. The Court (Malcolm CJ, Wallace and Rowland JJ), in rejecting this argument, applied Motor Vehicle Insurance Trust v Forbes. The Court held that the liability of the State Government Insurance Commission was to indemnify the employer in respect of all liability for negligence and this liability was not reduced by the amount of the workers' compensation indemnity provided by another insurer unless there was double insurance, which there was not.
The distinction which is sought to be made on behalf of the respondent in this case, and which appears to have been accepted as valid by the Judge at first instance, is that, in both of the cases mentioned above, the amount of the workers' compensation recovered by the employer from the damages award had to be reimbursed to the workers' compensation insurer, whereas in this case the employer will not have to reimburse that money to the workers' compensation insurer, Mercantile Mutual. In the result, it is argued, the employer, having been fully indemnified by Mercantile Mutual for its workers' compensation payments is not entitled to recover that money again from the respondent.
In my opinion, any double recovery is simply the consequence of the compromise agreement which the appellant reached with Mercantile Mutual; and there is no reason in principle why the appellant should have to pass the benefit of that agreement on to the respondent. If the agreement had not been made, the case would be exactly on all fours with the Motor Vehicle Insurance Trust v Forbes and Co‑Operative Bulk Handling Ltd v State Government Insurance Commission and, unquestionably, the liability of the respondent would have been to indemnify the appellant for the full amount of the judgment. I cannot see

why the result should be any different simply because the appellant made a private commercial arrangement with the workers' compensation insurer which allowed it to keep rather than repay the workers' compensation component of the damages award. The appellant's private arrangements must be left out of account. They cannot provide the respondent with a defence to a claim under the policy, which is binding according to its terms. They do not convert the insurance arrangements into double insurance.

Underlying the submissions made on behalf of the respondent relating to double recovery, is the idea that, if the respondent indemnifies the appellant to the extent of the damages award, including the workers' compensation component, the appellant will be unjustly enriched. I cannot agree. With due respect, it is a misconception to regard the appellant as having recovered its workers' compensation payments twice, by way of a windfall. It must be assumed that the employer gave good consideration for the arrangement between itself and Mercantile Mutual. If it did not, the arrangement is not binding and the employer remains at risk of having to disgorge to Mercantile Mutual the workers' compensation recovered from the damages award. But it is not suggested that the arrangement between the appellant and Mercantile Mutual was other than a mutually binding commercial arrangement supported by consideration moving from the appellant. Therefore, to hold that the indemnity provided by the respondent is reduced by the amount the subject of that arrangement would wholly deprive the appellant of the value of Mercantile Mutual's promise, for which it gave good consideration. I am not persuaded that there is any principle of law which demands that result.
In my opinion, the appeal must be allowed.
SCOTT J: I have had the opportunity of reading in draft the reasons published by Anderson J. I agree with his Honour's reasons and the orders proposed.
As set out in the reasons of Anderson J, the appellant made a private commercial arrangement with its workers compensation insurer, pursuant to which it was authorised to retain any workers compensation payments recovered from the common law insurer. I can see no reason why such a private commercial arrangement should be taken into account in assessing the respondent's obligation to indemnify the appellant with respect to any workers compensation payments made.

I would also allow the appeal.
PARKER J: I agree, for the reasons published by Anderson J, that this appeal should be allowed.