Dual Insurance, Contribution And Co-Ordinate Liabilities. The Merry-Go-Round Stops Spinning – Is This The End Of The HIH Claims Support Saga? HIH Claims Support Ltd v Insurance Australia Ltd [2009]

The origins of the doctrine of contribution can be traced back to the second half of the 18th century and, although not quite as old, the battle in HIH Claims Support Ltd v Insurance Australia Ltd [2009] VSC 434 seems to have also spanned an age.

In yet another, and possibly final, set back for HIH Claims Support Ltd (HCSL), the Supreme Court of Victoria reached the conclusion on 1 October 2009 (over ten years after the insured event occurred), that the liabilities of HCSL and Insurance Australia Ltd (IAL) were not co-ordinate and, consequently, HCSL has no entitlement to any contribution from IAL.

The dogs begin chasing their tails

In Insurance Australia Ltd v HIH Casualty & General Insurance Limited [2007] VSCA 223, Ronald Steele, a scaffolder (Steele), was held liable for damages for an incident that occurred at the Australian Grand Prix in March 1998, where a large video screen was damaged. Steele held liability insurance with HIH and also had the benefit of cover under a third party liability policy issued by SGIC (later IAL).

Steele called on the HIH policy and the claim was accepted. After the corporate collapse of HIH, HSCL paid out 90% of the judgment against Steele and Steele assigned his rights under the HIH policy and his rights against any third party, to HCSL.

Claims were subsequently brought against SGIC and both at first instance and appeal, it was found that HCSL should not be characterised as an insurer and that the assignment agreement between Steele and HCSL was not a contract of indemnity insurance.

The trial judge noted that the SGIC Policy covered Steele's liability; however, as HCSL had discharged Steele's liability, Steele was not entitled to seek indemnity from SGIC for any or all of that liability. Chernov JA concluded:

"In my view, however, Steele has no right to payment under the SGIC Policy because he has been indemnified in respect of the same risk by the HCSL payment. ...the payment had that consequence; once it was made, the relevant liability of Steele to the judgment creditor was correspondingly discharged. In other words, it rendered him correspondingly harmless in respect of the claim made against him by Screenco. Hence, he was not entitled to be paid again in respect of the same risk under the SGIC Policy."

On appeal, Ashley JA agreed:

"It follows... that Steele could not sue SGIC seeking indemnification in respect of amounts paid for or on his behalf in the New South Wales proceeding; and that HCSL could not sue in Steele's name to recoup its payments. Nor could HCSL sue to recoup its payments in a stand alone proceeding against SGIC."

As the SGIC Policy covered Steele's liability HCSL could arguably seek contribution from SGIC but at that time no claim for contribution was made, it was not raised on the pleadings and was only briefly agitated during the appeal.

The saga continues

HCSL subsequently sought equitable contribution from IAL and, despite some argument about Anshun Estoppel, Hollingworth J was not persuaded that it was unreasonable for HCSL not to have brought the contribution claim in the first Victorian proceeding.

The key question considered was whether or not there was an entitlement to equitable contribution. HCSL argued that it was entitled to equitable contribution because; (a) it made payments to indemnify Steele, (b) its obligation to indemnity Steele was "founded in" the obligation of HIH to indemnify Steele under the HIH policy and (c) IAL's obligation to indemnify Steele under the SGIC policy was equal to and co-ordinate with the obligation of HIH to indemnify Steele under the HIH policy.

IAL did not dispute that HCSL made the payments to indemnify Steele nor did it dispute that IAL's obligation under the SGIC policy was equal to and co-ordinate with HIH's obligation under the HIH policy.

Rather, IAL denied any obligation to contribute, asserting that: (a) HCSL did not simply assume HIH's obligation, instead, HCSL's obligation to indemnify was created by the HCSL contract, (b) the HCSL contract was a contract of indemnification, which imposed a primary obligation of indemnification on HCSL and (c) any obligation of IAL to indemnify Steele was pursuant to the SGIC policy, which imposed a secondary obligation of indemnification.

IAL also argued that there could be no dual obligation of indemnity as neither HCSL nor the HCSL contract existed at the relevant date of the insured event, namely 3 March 1998.

HCSL loses again

Hollingworth J adopted the approach in Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408; (2000) 23 WAR 291, which was cited with approval in Caledonia North Sea Ltd v British Telecommunications plc [2002] Lloyd's Rep 261, [2002] UKHL 4, whereby an obligation to indemnify under a contract of indemnity and an obligation to indemnify under a contract of insurance are not generally co-ordinate. The distinction being that a contract of insurance is tantamount to a secondary obligation, whereas a contract of indemnity is primary. His Honour construed HCSL's obligation to indemnify as a separate contractual indemnity rather than being of the same nature as HIH's original indemnity obligation.

However, Hollingworth J did not examine this issue in great detail as he determined that in accordance with the recent decision in QBE Insurance (Aust) v Lumley General Insurance Ltd [2009] VSCA 124 that the relevant date when the common liability must have existed was the date of the casualty.

This ensured that any subsequent event which may throw the loss onto one insurer rather than the other is irrelevant when determining whether or not there is a liability to contribute.

As such, Hollingworth J agreed with IAL, stating:

"...even if the obligations of HCSL and IAL were in the same degree, HCSL had no indemnity obligation as at 3 March 1998. HCSL did not even exit until 2001. The HCSL contract only came into existence when HCSL made the first payment under the support scheme."

Lessons learned

This decision further illustrates the confusion that continues to plague the issues of dual insurance and equitable contribution. Perhaps further light will be thrown on the subject when the High Court considers the appeal in Speno.

In general, it is important to remember that a contract of indemnity ordinarily amounts to a primary obligation whereas a contract of insurance generally constitutes a secondary obligation. Before claiming, it is wise to closely examine whether liabilities are truly co-ordinate in terms of the identity of the insured and the nature of the loss or liability being indemnified against. Further, caution should be exercised when settling claims if relying upon a potential claim for contribution (i.e. ensure the right of contribution is not illusory).

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