Author: Isabel Cusumano
Judgment date: 7 November 2019
Citation: Allianz Insurance Australia Limited v Certain Underwriters at Lloyd’s of London  NSWCA 271
Jurisdiction: New South Wales Court of Appeal
Mr Dempsey issued proceedings against Baulderstone and obtained a judgment in the sum of $1,025,000.
Baulderstone was insured under two different liability policies issued by:
Allianz then commenced proceedings against Lloyd’s seeking equal contribution towards the judgment on the basis that Lloyd’s were also liable to indemnify Baulderstone in relation to Mr Dempsey's claim.
The other insurance provisions of Section 45(1) of the Insurance Contracts Act 1984 (Cth) did not apply as Baulderstone had not entered into either of the policies.
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'.
(Clause 8.17)Underlying Insurance was defined as insurance arranged on behalf of an insured pursuant to a contract that provides cover for a risk which, save for the underlying insurance would have been covered by the Allianz Policy.
The Allianz Policy also included an ‘other insurance’ exclusion clause which stated that:
8.20 Other Insurance
Where allowable by law this policy is excess cover and any other valid and collectable 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
(Clause 8.20)Clause 8.17 and 8.20 are considered 'Excess Clauses' as they only provide cover for losses in excess of other valid insurance.
In comparison, the Lloyd’s policy contained an exclusion at Clause 10.5 which stated that the Policy did not cover liability "which forms the subject of insurance by any other policy and this policy shall be drawn into contribution with such other insurance" (Clause 10.5).
Clause 10.5 is considered an 'Escape Clause' as it provides that Lloyd's will not be liable if there is other valid insurance available.
As a result, there was no double insurance because Clause 8.17 of the Allianz Policy provided indemnity even though (and in fact because) the Lloyd's Policy did not not provide indemnity. The existence of cover under the Allianz policy excluded Lloyd's liability by reason of the operation of Clause 10.5.
Allianz appealed this decision.
Chief Justice Bathurst and Justice Meagher agreed that Lloyd’s was liable to indemnify Baulderstone. Justice Macfarlan dissented and agreed with the original findings of Justice Rees.
The Court applied the rule of construction set out in Weddell1 and found that Clause 10.5 of the Lloyd's Policy and Clause 8.20 in the Allianz Policy cancelled each other out. Chief Justice Bathurst held that:
Each policy is to be construed independently and if each insurer would be liable but for the existence of the other policy, then the exclusions would be treated as cancelling each other out, both insurers are then liable.2As the clauses cancelled each other out, the result was that both Policies responded to the claim by Baulderstone and Allianz was entitled to contribution from Lloyd's.
With respect to the application of Clause 8.17 of the Allianz Policy, the Court found that the Lloyd's Policy was not Underlying Insurance as by virtue of Clause 10.5, the Lloyd's Policy did not provide cover for the risk in question. Therefore Clause 8.17 had no application.
1 Weddell v Road Transport and General Insurance Company Ltd  2 KB 563.
2 Allianz Insurance Australia Limited v Certain Underwriters at Lloyd’s of London  NSWCA 271, par 3.