Part I: Foundation of Insurance Law
Fundamentals about Insurance
General Ideas about insurance
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Insurance is risk transfer at a price
Two categories: indemnity and contingency
Two forms: first party and third party (i.e. liability)
Indemnity protects against financial loss as a result of happening of a risk,
be that happening risk to the insured or a third party
Contingency is merely protection against occurrence of an adverse event
Types of insurance policies – claims based or occurrence based
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Claims based is payment upon a claim whereas occurrence is payment
per occurrence regardless of needing to make a claim
Claims based may be claims made and notified, requiring both making
and notifying of a claim before recovering
Insurance cover – joint vs. composite
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Joint is where two or more people take out the one policy, with the act of
one party directly impacting the other, with both being able to claim for
the whole value of the policy (McQuade)
Composite is where policy covers a shared interest but each party can
only recover to the extent of their distinct interest, with a co-insured not
having impact on other insured in terms of acts etc.
Stuff that looks like insurance but isn’t
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DOFI’s and mutuals and SGIO’s (Hancock Memorial)
DOFI’s are offshore insurers – generally illegal except for certain risks
Mutuals are group of people whom insure each other by pooling monies
Mutuals can be discretionary i.e. a claim to indemnity from the pool of
money is not enforceable
The need for an insurable interest
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No need for insurable interest under the ICA (as opposed to CL – right in
property or right derivable from some contract which may be lost upon
some contingency – Lucena)
Insurable interest will be deemed where insured suffers pecuniary or
economic loss as a result of the risk occurring
Regulation of insurance market
Statutory regulation
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Overseen by the ICA and the APRA as well as ASIC
Corporations Act also regulates the financial market in general
Operation of ICA
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ICA encompasses only federal level – albeit states have adopted the ICA
into their operation
ICA is not a code – common law will apply where there are gaps
Should a contract fall within the ICA, you cannot contract out of its scope
Section 8 is the application of the ICA – extends to all contracts of
insurance to which the proper law is one to which the Act applies i.e.
applies to all insurance contracts in Australia generally; express
provisions in an insurance contract determining applicable jurisdiction
will be ignored (Akai)
Section 9 lists the exceptions i.e. workers compensation, third party
compulsory motor vehicle insurance, marine insurance etc.
Section 10 extends ICA to contracts of insurance in substance (Hannell)
Internal regulation
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Agents vs. brokers (use of licenses)
Agents owe duty of care – Caldwell v JA Neilson
Brokers owe duty of care too – McNealy v Pennine, Rocco Pezzano; where
broker misrepresents and insured is denied claim, insured can recover
amount of indemnity from broker (Kotku v Vero)
Premium payments
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Payment of premium to broker with a license – Corp. Act s 985B (1), (2);
MMI v Boardman Insurance Brokers: s 985B only operates to make the
payment of the premium to the broker the discharge of a liability under a
contract effected as contemplated by the offer of renewal; it does not
operate to make the payment the acceptance of the offer and the
simultaneous discharge of the liability under the contract then formed
Payment of recovery amount to the broker – s 985B (3)
Insurance Contracts
Formation
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Common law rules of offer and acceptance apply (Adie, Cronk)
Consideration and certainty – through premiums
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Terms of contract generally specified and incorporated (but even where
not specified, bound by general terms: Lotus Manufacturing, Steadfast v F
& B Trading)
Interim insurance
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In between actual insurance and proposal form for insurance, may be
covered by interim insurance
Subject to same terms as actual insurance through cover note (Action
Scaffolding v AMP Fire)
Under ICA, insured covered by interim until they get actual cover, interim
is cancelled by insurer, or insured withdraws their proposal
Under ICA, interim cover is not subject to satisfactory proposal of
insurance
Renewal of insurance
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Section 58 – insurer obliged to tell insured of policy end date – if not told
and given 14 days prior notice, statutory policy will cover insured
Cancellation
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Contract requires to repay time proportionate premium sum
Can only cancel on grounds listed in s 60 in accordance with procedure in
s 59
Part II: The Duty of Utmost Good Faith
Utmost Good Faith
The contract peacekeeper
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Under common law, utmost good faith means both parties need to deal
openly, honestly and fairly in terms of the contracts interpretation,
performance and execution
Pre-contractually, this manifests as the duty of disclosure – failure of
which will entitle insurer to rescission (elaborated in the ICA) – the duty
will arise when the contract is varied or renewed
Post contractually, the open, honest and fair requirement remains,
requiring the parties to act in due regard to the other parties interests
without giving up their own interests
A statutory augmentation
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Section 13 and 14 of ICA implies term of utmost good faith in all contracts
and prevents reliance on any clause that would be contrary to the utmost
good faith
Remedies such as damages, rescission and court orders are available
Termination is also possible under s 60
Pre-contractual Duty of Utmost Good Faith (COMMON LAW)
General test
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Cannot misrepresent (non-disclose) information known to the insured
which is material to the risk transferred in pre-contractual disclosure (see
Guardian Assurance for half truths)
Elements of misrepresentation:
1. A misrepresentation of fact which the insured knows
2. Fact must be material to insurer in deciding whether to offer
insurance or not
3. Misrepresentation induced entry
4. Culpability of misrepresentation
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Onus lies with insurer to establish misrepresentation (Goodwin v SGIO)
What does the insured know?
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For purposes of disclosure, insured knows things they can be reasonably
expected to know or know with reasonable enquiry:
1. Stuff they should know if not blind to truth – Economides
2. Stuff their agent knows (Buffe – broker ignorance does not overcome
knowledge of insured)
3. Stuff their employee knows
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They do not know for purposes of disclosure:
1. What in ordinary course of business they ought to know
2. Information they would know if they investigated for purpose of
discovering it (Blackburn v Vigors)
3. Information they ought to know publically, specific to their industry or
business
What is a material fact?
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Would fact have reasonably influenced or affected a prudent insurer in
deciding whether to accept risk and if so, on what terms (Akedian, Drake,
Avon House)
Categories fact which may be material:
1. Facts known to insured relevant to risk of insured even fortuitously
(James v CGU) occurring as a result of intrinsic nature of subject
matter of insurance
2. Facts relevant to moral hazard i.e. insured’s honesty, morality, prior
insurance record (Locker; Woolfe v WA)
3. Facts generally relevant to insured’s past insurance history of this
type of insurance being sought (Insurance Corp. of Channel Island) –
does not include criminal record
Induced entry
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Where insurer waives scope of obligation to make fair representation
(Wise Underwriting) and misrepresentation falls within the waived scope
Where insurer fails to follow up vague answer which reasonable insurer
would follow up (Wise Underwriting), no inducement
Where insurer knows of facts contrary to representation but does nothing
about it, no inducement – Avon Hill
Where insurer would have entered into the same contract even with
knowledge of true facts – Drake
Culpability
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Fraud principles – knowingly, without belief in truth, recklessly
indifferent (Derry v Peek) – subject to Briginshaw
Not enough that there was mere lack of honesty (Muggleston)
Failure to prove fraud may amount to breach of contractual duty of UGF
and result in damages for insured (Bottrell)
Remedies
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Innocent party entitled to rescission – not entitled to damages for
innocent misrepresentation
Where rescission, insurer must repay premium unless fraudulent (HIH
Casualty v Chase Bank)
Pre-contractual Duty of Utmost Good Faith (STATUTE)
Insurer’s duty to inform insured of their duty of disclosure
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Section 22: insurer needs to inform of duty to disclose if they want to seek
remedies as a result of non-disclosure or misrepresentation
Within 14 days of entering the contract s 69
Section 21A
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In relation to motor vehicle, home buildings, home contents, sickness and
accident, travel insurance
Insurer will waive duty of disclosure in relation to these contracts unless
questions (s 21A (5)):
1. Ask for specific questions relevant to insurer’s decision whether to
accept risk, and if so, on what terms (s 21A (3))
2. Require disclosure of answer in response to specific questions AND
questions require disclosure of exceptional circumstances (i) known
to insured, (ii) which could not reasonably have been expected to have
been a question to which the insurer would ask, (iii) or what a
reasonable insured in the circumstances would know is a matter
relevant to the insurer’s choice to insure, (iv) or is not covered by s 21
(2) (s 21A (4))
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Insurer bears onus in relation to exceptional circumstances that it could
not reasonably be expected to make the subject of specific questions s
21A (4) (s 21A (8))
Insured will discharge duty under s 13 if they:
1. Answer by disclosing matters they know and a reasonable person in
the circumstances could be expected to have disclosed in relation to
that question s 21A (6)
2. Answer a question as described in s 21A (4) (s 21A (7))
Section 21
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Requires broader disclosure about every matter known to insured that is:
(where joint insured’s, need to be common knowledge between them
(Advance v Matthews))
1. A matter relevant to whether an insurer might accept risk and on
what terms; or
2. A matter a reasonable person in the circumstances of the insured
would know to be a matter relevant to the insurer’s decision whether
to take on risk (subjective/objective – CGU v Porthouse: assess
objective and extrinsic knowledge of insured)
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Insured need not disclose information that is (s 21 (2)):
1. Will diminish the risk; is common knowledge; that the insurer ought
to know; or is waived by insurer
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Insurer will also be held to know if it is proved that responsible officer in
department has appreciated or should have appreciated the significance
of the knowledge – Evans v Sirius
If insured in a proposal, fails to gives an answer, or gives one incompletely
or irrelevantly, then insurer is held to have waived compliance with duty
in relation to that matter if they accept it regardless s 21 (3) i.e. they
cannot rely on non-disclosure or misrepresentation where insured does
not give answer and insurer chooses to leave it at that
1. This is reinforced by s 27 which makes it so that mere failure to
answer, or provide incomplete/irrelevant answer does not amount to
misrepresentation by and of itself
What does the insured know?
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What an insured ‘knows’ is stronger than what they believe or suspect
(Permanent Trustees v FAI) – actual knowledge rather than constructive
Does not include what the insured ought to know in course of business –
Advance v Matthews
Includes what the insured knows exclusively (AAMI v Goss)
What a predecessor company may know (Plasteel v CE Heath)
Does NOT include what their agent/broker knows (Permanent Trustees)
What is a matter relevant?
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Threats to property and circumstantial facts i.e. property used as
whorehouse (Lindsay), being denied recovery under previous cover
(Plasteel), insured is a drug user (Ayoub)
Misrepresentation provisions
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Establishing misrepresentation/non-disclosure follows common law
rules i.e. a false statement of past or existing fact (in relation to any
matter under s 21 or s 21A)
Any question which is ambiguous will be resolved in the policy holder’s
favor s 23
However, under s 26 (1), an answer will not be a misrepresentation if
insured believed statement to be true (or a reasonable person in the
circumstances would have held same belief) (insured onus)
Exception is that where the insured or a reasonable person in the
circumstances would know that statement would be so relevant to an
insurer’s decision to accept risk, it will still be a misrepresentation
(insurer onus)
Any failure to answer or provide a complete/relevant answer will not of
itself amount to misrepresentation s 27
Remedies
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Exclusive remedies under div. 3 of ICA for pre-contractual issues (s 33)
An insurer will have no recourse if they would have entered into the same
contract (same terms etc.) regardless (s 28 (1)) – onus on insurer to
prove that they would not have entered into precisely same contract (but
degree of proof of conduct should not be too high – Chisholm)
Where misrepresentation/non-disclosure was fraudulent, insurer may
choose to avoid the contract (ab initio) s 28 (2) – court may disregard
avoidance if to avoid would be harsh and unfair (Plasteel) and insurer has
not been prejudiced (or very little) by misrepresentation (s 31 (2)) Evans
v Sirius – consider factors in s 31 (1) when choosing to disregard… If
disregarded, insurer must pay just and equitable amount to the insured
BUT THIS DOES NOT REINSTATE THE CONTRACT!
Where chooses not to avoid, or where misrepresentation was not
fraudulent, insurer may reduce their liability to an amount that would
place the insurer in the same position as if the misrep. had not occurred;
insurer has onus on proving their conduct had they known of the
disclosed material s 28 (3) – liability can be reduced to nil (Ferrcom)
Under s 60 (1) insurer may cancel but needs to be subject to s 59
requirements (caution: Johnson v Australian Casualty)
POST-contractual Duty of Utmost Good Faith
Overview
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Orakpo – no reason for duty not to continue after contract made
Still requires open, honest and fair dealings (s 13) – CGU v AMP – act with
interests of other party in mind – cannot rely on provision contrary to
duty of utmost good faith (s 14) unless notified before formation (s 37)
Insured must at all times:
1. Be frank about claim and all circumstances around claim
2. Notify of change in circumstances or any information that they know,
or reasonable insured would think the insurer might want to know for
purposes of dealing with claim
3. Respond promptly to any request for information, co-operation etc.
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Insured will be in breach if they:
1. Deliberately provide false information about a claim – Gugliotti
2. Intentionally withhold information to deceive the insurer in relation
to a claim – NZI v Forbes
3. Fails to provide insurer with information they require – NSW Medical
4. Knowingly makes fraudulent claim – Moriatis
5. Fails to mitigate or consider alternatives to liability where they can –
CGU v AMP
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Insurer must at all times:
1. Be full and frank about handling of claims, notification of
circumstances about claim progress
2. Must provide reasons for decision to reject or pay less than insured
amount
3. Must deal with claims in reasonable time i.e. choose to accept or reject
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Insurer will be in breach if they:
1. Fail to act with candor in relation to the dealing of a claim i.e. not
telling insured of their entitlements
2. Attmepts to rely on clause included in error or against s 14 – Baradom
3. Delays unreasonably in dealing with claim – Moss, ACN v Zurich,
Gutteridge
4. Refusing to consent to reasonable settlement of claim – Distillers
5. Makes unreasonable and unnecessary request for info. – Haghis
Remedies
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In circumstances of breach or threatened breach, can seek damages for
breaking implied term, rescind the contract, court orders preventing
further breach, and option of cancellation for the insurer (s 60)
Part I: Claiming on your policy
An approach to claims
General
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First look to policy type, then look to scope of insuring clause and other
relevant exclusions, then prove causation, then see if s 54 or fraud applies
Distinguish occurrence based insuring clauses and claims based:
1. Occurrence based insurance policy will be liable so long as it occurs
within the policy year regardless of when they choose to claim against
you
2. Claims (made and notified) will only respond if they make a claim
against you for a loss which you can prove falls under insuring clause
a. ‘Claim’ is positive intimation that third party claimant has
suffered a loss
b. ‘Claims made and notified’ insured may need to notify insurer
before they can seek indemnity (Hollister)
Step 1: Construction
Principles of construction
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Broad construction without being too astute in finding defects; prefer just
and reasonable interpretation – Transport Industries per Kirby J
General principles (New Hampshire):
1. Undisclosed intention is inadmissible
2. Court considers written document alone and determines ordinary
natural meaning (with reference to precedent)
3. Customary meaning taken into account only if pleaded and proved
4. Surrounding circumstances are taken into account provided they
were known, or reasonably capable of being known to parties
5. Evidence of negotiations barred by parol evidence rule
6. Terms will be construed in the context of the contract as a whole
7. Contra proferentum as against the drafter of the contract (s 36 ICA)
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Inconsistencies will be resolved in favor of written contract (ABC v
Australasian Performing)
Insuring clauses
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Insuring clauses which record the risk the insurer is going to pay for
should it eventuate and cause loss – defined in widest terms and
sometimes qualified by exclusion or limitation clauses
1. Burden on insured to prove risk falls within insuring clause (Munro v
War Risks Association)
a. Room for estoppel or election/waiver? Control of litigation?
2. Burden lies on insurer to prove scope of limitation/exclusions (Striker
v Durant) (those clauses subject to s 35 and 37)
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Control of litigation clause: allows insurer to take over claim; may give
rise to estoppel (underlying UGF s 13) Nigel Watts v GIO; electing to take
over a claim is final and conclusive (Freshmark v Mercantile cf. ACN v
Zurich)
Section 35 ICA – notice of payout if less than minimum specified in
regulations – sufficient notice will depend on complexity of provision;
understandable it with little difficulty (Marsh)
Section 37 ICA – notice of unusual terms in policy
Basis of contract clause: subject to s 24 ICA which reduces all warranties
to pre-contractual representations
Specific interpretations of certain provisions
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‘Occurrences’ are things which happen at a particular time and a
particular place; similar to ‘series of occurrences’; see Distillers and
Kuwait Airways v Iraqi Airways
‘Defence costs cover’ is cover for defence of claims that fall within scope
of policy (Sherlex v Thornton)
‘Reasonable precautions’ means taking all reasonable steps to prevent
risk from occurring – reasonable in the commercial sense – will not be
unreasonable merely because of negligence (Fraser v Furman; Albion v
Body Corporate) … needs recklessness (S&Y Investments: in case of
vicarious liability, actions of employee not 100% always actions of
employer – needs authorization; reasonable precautions does not mean
24/7 supervision of employee)
‘Accidents’ are unintended and unforeseeable occurrences which produce
hurt or loss (Fenton); narrow interpretation in Gray v Barr but liberal in
Australian Casualty v Frederico (emphasis on unintended consequence)
1. Would an ordinary reasonable person be surprised by the occurrence
and damage that resulted? Robinson v Evan Bros; Chick
Miscellaneous
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Final threshold: is payout in interests of public policy and insurance
industry e.g. Gray v Barr
Insurer liable to pay for each claim even if total amount of claims exceeds
policy limit – Distillers
Claim paid within reasonable time or else breach of UGF and have to pay
additional interest damages (Hungerford) s 57
Can claim directly against insurer per s 51 ICA so long as no valid defense
against payment of claim i.e. exclusion or s 54 (see also Corps Act 601AG,
NSW LRA s 6, Property Law Act s 58/s 63)
Step 2: Causation
General
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Then need to prove causation (between risk and loss) unless contract
specifies otherwise (Phoenix Insurance v Liddy)
Some general causative provisions:
1.
2.
3.
4.
‘Caused by’ most strict
‘Arising from’ less strict than ‘caused by’ (Dickenson v Motor Vehicle)
‘In connection with’ wide
‘In relation to’ widest (Fire Insurance v Turner)
The test for causation
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Proximate cause test:
1. The cause that is proximate in efficiency, the real efficient cause; or
2. The effective, dominant or operative cause (Lipertis v Australian
Casualty); or
3. The active or efficient cause which set in motion the events which
brought damage
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Where there are competing interdependent causes (i.e. neither alone
would be sufficient to cause loss), loss is attributed to each; insurer will
be liable for insured’s loss even if one of the causes wasn’t insured – Lloyd
v Northern Star
But where one or more causes are excluded, then insurer need not pay
anything: Wayne Tank rule; McCarthey v St Paul; Tektrol v Hanover
1. Think about layers of loss and whether recoverable for each layer;
Flood scenario AKA Elilade
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Also, where contract requires one loss to be the sole or exclusive loss,
then the insurer need not pay where there are competing causes
Exceptions to causation:
1. Where a person deliberately acts or omits in relation to the loss, this
can result in supervening the chain of causation, as with any other
supervening act (Allianz v Waterbrook)
2. Where loss was deliberately caused by the insured (McQuade) or by
any employee or agent of the insured with their knowledge cf. S&Y
Investments
3. Failure to take reasonable steps to mitigate loss resulted in the
additional loss which is sought to be indemnified (but rare for this to
be basis for complete denial of indemnity) – Allison v Lumley
Step 3A: Section 54
General
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Section 54 puts limits on when insurer can avoid liability
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Any mention of ‘act’ includes ‘omissions’ (s 54 (6))
1. An omission being any inadvertent, careless, deliberate or reckless
failure to perform a contractual obligation or exercise a right, choice
or liberty the insured enjoys under the contract – Antico v CE
a. Johnson v Triple C – can only be omission if had capacity to
perform in the first place
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Extent to which insurer is prejudiced – onus on insurer to prove conduct
had the act/omission not occurred – Antico v CE Heath (cheaper lawyers
available to insurer) QBE v Moltoni (no proof of more proactive claim
dealings)
For potentially causative acts, see, Bunting, McNeil
Section 54, 40 and deeming provisions
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Where there is a contractual deeming provision in a claims made and
notified policy, a failure to notify of circumstances (that may give rise to a
claim) to which the insured becomes aware of within policy year will fall
within s 54 (see East End, FAI v Australian Hospital Care)
Where there is no deeming provision, and only a s 40 statutory deeming
provision, it will not fall within s 54 (because it isn’t the effect of the
policy) – Gosford City v GIO
The core limitation to s 54
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One must distinguish between situations where s 54 will apply by virtue
of some act or omission and situations where s 54 will not apply by virtue
of a core limitation of the policy i.e. in a claims made and notified policy
without a deeming provision, failure to notify within policy year will
result in no indemnity for subsequent claim (Greentree v FAI; FAI v
Hospital Care) – compare Antico v CE Heath (defence costs indemnity if
obtain insurer consent) with Stapleton v MTI (cover for certain area)
Step 3B: Fraudulence
Fraudulent claims
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Claim is fraudulent where false statements or dishonest omissions were
made in relation to claim, either deliberately, recklessly, or knowingly and
lacking honest belief in the truth of the matter, for the purpose of creating
false belief in insurer and thus obtain money – McCann v Switzerland;
AAMI v Thiep
The claim involves some element of dishonesty or moral turpitude:
Australian Casualty v Hall
1. May be fraudulent even if made to prevent embarrassment – To v
Associated Motors
2. Will also be fraudulent where insured, believing claim is invalid, uses
fraudulent means or devices (false invoice, receipts, statements) in
effort to improve chances of recovery – Agapitos v Agnew
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Mere exaggeration of loss should not be regarded as fraudulent – insurer
has sufficient information to determine for itself range of claim
1. In Entwells, court distinguished between exaggerating value of lost
stock and claiming on non-existent loss stock – the latter which was
fraudulent
Burden of proof
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High standard of proof required – Briginshaw v Briginshaw; Ocean
Harvester v MMI
Remedies
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Insurer need not pay fraudulent claim (to either joint insured): McQuade
Can refuse to pay even where claim partly fraudulent – but more likely
apportionment (Entwells)
Under common law, insurer can only refuse where fraud not trivial or
insignificant part of claim (Lek v Matthews) – can also claim damages for
deceit and avoid contract prospectively (Orakpo)
Under statute, s 56 ICA can only refuse to pay but not avoid contract
1. Court may disregard refusal to pay where only a small or insignificant
portion of the claim is made fraudulently and to non-payment of the
remainder of the claim would be harsh and unfair s 56 (2) but must
regard policy i.e. deterring fraud and any other relevant circumstances
s 56 (3) – if disregarded, must pay just and equitable amount
2. Can also seek to cancel contract in alternative s 60
Part II: Under-insurance, subrogation and contribution
Under-insurance
Averaging Clauses (s 44)
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Where insured nominates value of sum less than actual value of insured
property, and loss which eventuates is greater than the nominated value,
averaging clauses will limit amount recoverable
1. If insurer wants to rely, must notify before formation
a. If in relation to house or residence, cannot rely on averaging
provision if nominated value is 80% or more of actual value
b. Where less than 80%, can rely on AS/P, with P being fixed at
80% of true value of property
2. Formula: AS/P (A: dollars of loss; S: amount insured)
3. Can only apply in relation to partial loss; where entire loss, insured is
limited to amount policy provides
Being underinsured by reason of policy type

Three main policies which may lead to underinsurance
1. Defence within limits
2. Indemnity plus costs
3. Partly uninsured claims
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Defence within limits = defence costs included in policy cover
Indemnity costs = defence costs not included but general costs included
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Partly uninsured = when claim only partially covered by insurance;
question as to arrangement and apportionment of defence costs and third
party settlements etc.
Subrogation
Generally
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Applies to any contract of indemnity (not limited to ICA contracts but ICA
modifies equitable principles a little in respect of ICA contracts)
Limited to rights insured has against third party – Stratti
Insurer must bring in insured’s name if they wish to go against third party
Insured must also account to insurer any subsequent payment they
receive which may reduce insured’s loss in respect of the payout
(Monson)
1. This does not include gifts, pension, or benefit which doesn’t actually
reduce loss but rather ameliorates loss (Burnand v Rodocanachi)

Any monies recovered from subrogation are distributed from top down
(Lord Napier) – where windfall, insurer retains (s 67) but subject to
potential view that insured recovers their excess first…
Non-interference with insurer’s right to subrogation
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Subject to policy terms, normally, insured cannot breach insurer’s right to
subrogation without first obtaining insurer’s consent i.e. cannot settle
without consent with third party
In relation to settlements by insured:
1. Settlement without consent will protect third party from subrogation
only if third party not aware of existence of insurance or had no
reason to suspect insurer did not consent (Buckland v Parmer)
2. Insured may then be in breach of insurance contract – Boag
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Where insured enters into contract limiting the insurer’s right of
subrogation against third party (SGIO v Brisbane Stevedoring), insurer
will be bound by this
1. Under ICA, insurer can rely on this arrangement to reduce liability if
they notified insured before formation s 68 (1) – insured does not
need to disclose such an arrangement before they enter s 68 (2) i.e.
insurer bears risk
Availability and exercising of the right

Insurer can only exercise subrogation after they indemnify insured and
with approval of insured (assuming there aren’t any defences against the
subrogation) – Smith v Mainwaring
1. Where insurer has not indemnified fully, they cannot stop insured
from commencing their own claim against the third party (Morely)
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Can’t claim where contract modifies or waives subrogation rights
(Woodside v H & R) see above and link to s 68
Can’t claim subrogation against insured (for circuity of action: Jennings)
Can’t claim subrogation against co-insured except where conduct of coinsured makes it so that they cease to be insured – Lombard v NRMA: case
involving composite insurance)
Can’t exercise subrogation if insurer has only contributed – only direct
indemnifier can subrogate (but note what is received from subrogation
claim is to be shared pro rata) Speno v Hamersly
Can’t exercise subrogation against another insurer who insures same loss
– look to contribution
Unclear whether insurer can subrogate against non-insurer indemnifier
for the same loss – Speno suggests that it may be possible but Stratti
indicates that contribution is more appropriate (if liabilities are coordinate)
Under ICA, can't exercise in relation with family or [former] employees
(cf. Deutz v Skilled Engineering) (ss. 65-66)
1. Recognized exceptions of serious or willful misconduct (Boral v Pyke)
Contribution
Generally

Double insurance where paying insurer proves:
1.
2.
3.
4.

Circumstances and amount of insured loss;
Terms of its and the other insurer’s contract
That both terms respond to the loss
Extent to which it paid for the loss and extent to which the other
insurer has not paid
Where third party settles, paying insurer must prove additionally in order
to get contribution:
1. But for the settlement or flawed judgment, the insured would still be
liable to the third party
2. The third party had a more than negligible or speculative chance of
proving that but for the settlement/judgment, the insured would still
have been liable
3. The extent to which the settlement/judgment reflected a genuine
assessment of the claimant’s loss (genuine in the sense that there was
a high likelihood the insured would be liable)

Can claim contribution when there is double insurance (Burke) see Albion
1. Extension of contribution where insurer A insures losses X and Y and
insurer B insures loss Y; when insurer A pays out for loss X, can claim
from insurer B (AMP v QBE)


Must seek in the name of insurer and not insured (Sydney Turf)
No right of contribution between insurer and non-insurer indemnifier
because liabilities are not co-ordinate (Caledonia North Sea)
Contribution mechanisms




Maximum potential liability – apportioned based on ratio of total to
amount covered under each individual policy
Independent actual liability – ratio between amount coverable under each
policy divided by total potential sum covered under both policies
(preferred approach: GIO v Crowley)
Equal actual liability – shared loss for amount coverable under lowest
limit policy with excess being paid by higher limit policy (Collyear –
preferred in practice)
Example: Policy A covers 3 million; Policy B covers 1 million; loss of 2
million…
1. Maximum Liability: 3/5 x 2 (Policy A) and 2/5 x 2 (Policy B)
2. Independent Liability: 2/3 x 2 (Policy A) and 1/3 x 2 (Policy B)
3. Equal Liability: 0.5 + 1 (Policy A) and 0.5 (Policy B)
Other insurance clauses


In situation of double insurance, other insurance clause limits/excludes
liability of an insurer (subject to policy terms) – under common law,
insured must disclose of other policies (Zurich v MMI)
Under statute, s 45 ICA makes void any other insurance clause which has
effect of limiting or excluding liability by virtue of the insured entering
into another contract covering the same risk
1. Section 45 will not operate where insured obtains benefit of another
contract by virtue of someone else entering into it for their benefit
(Zurich v MMI) – clause is void only to extent that it satisfies s 45



Section 45 has no application to other policies entered into before entry
into the contract which has the other insurance clause – effect is
prospective (Speno)
Section 45 does not apply in respect of true excess policies (ones where
reference to other contract is made and clearly intended to operate as
excess) (s 45 (2)) nor in respect of compulsory insurance contracts e.g.
worker’s comp or CTP (s 45 (1))
Under statute, s 76 also prevents insurer from relying on other insurance
clauses for purposes of resisting a claim i.e. other insurance clauses only
effective in ICA governed contract to the extent that it responds to a claim
of contribution
Entry of contract by third party for benefit of another

Where contract between parties requires one to obtain insurance in
respect of the other, and that party fails to do so, the party can still be
indemnified by the other party (straight out of pocket) – Theiss
Part I: Other types of insurance contracts
Life Insurance
Overview



Regulated by provisions of ICA
Section 9 life insurance includes: payment of money on death, happening
of contingency, payment of money for continuity of life, income protection
No requirement for insurable interest
Life Insurance Regulation






Same as normal insurance contract except when dealing with certain
misrepresentations, remedies and coverage
Section 47 limits insurer’s denial of indemnity to only sicknesses and
illnesses that were known to the insured (or a reasonable person in
circumstances of insured) before the contract was entered into should
that pre-existing illness contribute in whole or part to some loss covered
by the insurance contract
Section 48A extends coverage to benefit of another person
Section 48AA extends coverage to context of superannuation
Section 25 deems any pre-contractual representation made by persons
who later became insured to be a misrepresentation by them
Section 29 deals with life insurance remedies for misrepresentation and
non-disclosure
1. Section 29 doesn’t apply if insurer would’ve entered into contract
regardless or if it was in respect of DOB (1) (onus on insurer; not an
overly strict onus – Tyndal v Chisholm)
2. Where misrepresentation was fraudulent (cf. Bottrell; Walton) or had
effect of inducing the insurer to contract, insurer may avoid the
contract (2) (3)
3. If they don’t avoid the contract, insurer (through written notice before
expiration of three years after contract entered into) vary the contract
by substituting the sum insured, a sum no less than ascertained in
accordance with SP/Q (S: amount insured; P: premium paid; Q:
premium that would have been paid had there been no misrep.)



Section 30 deals with misrep. of DOB: insurer may reduce sum insured by
an amount no less than obtained in accordance with SP/Q or the value of
SP/Q if sum insured was less than SP/Q)
Any power to avoid or refuse to pay a claim on basis of fraudulent
misrepresentation or claims (see Clark v NZI and King) are subject to s 31
and s 56
Courts have little patience for tardy insurers taking too long to assess and
claim and produce evidence in support of claim – Sayseng
Compulsory Third Party Motor Vehicle Insurance
Overview


Not governed by the ICA – instead: Queensland Motor Accidents
Insurance Act
Applies in respect of:
1. Personal injury caused by, through or in connection with a motor
vehicle only if injury is as a result of: the driving of a motor vehicle; or
collision or act taken to avoid collision with a motor vehicle; or a
motor vehicle running out of control; or a defect in vehicle causing it
to run out of control whilst being driven; or
2. Personal injury caused by, through or in connection with motor
vehicle only if injury is caused wholly or partly in connection with the
wrongful act or omission by a person other than the injured in respect
of a motor vehicle; or
3. Uninsured vehicles only if accident out of which injury arises
happened on road or public place

Does not apply in connection with bulldozers, amphibious vehicles etc.
unless accident out of which injury arises happened on a road
Causation: the phrase “caused by”… “Is a result of”


Matter of common sense – was it the driving that brought about the
accident? ICWA v Container: was it a consequence of driving or of some
feature of driving a motor vehicle (note WA legislation required injury to
be directly caused by…)
Distinguish between acts sufficient to cause accident itself and acts which
derive impetus from driving of vehicle to cause accident… often fine
distinction to make… liberal approach seen in Coley v ND and Lawes v ND
(No immediate connection required; words “in respect of”, “in connection
with”, “is a result of” employ wide interpretative avenues); cf. Mani v ND
Definition of ‘road’ and ‘public place’

Was it a road in ordinary sense? Driveway considered a road (R v
Sweeney)

Was it s public place at relevant time of accident? Cf. Turner
Marine Insurance
Overview



Codified in Marine Insurance Act – not regulated by ICA except to extent
of pleasure craft contracts
Marine insurance insures risk against marine losses incident to marine
adventure (Leon v Casey)
Marine adventure is defined as including:
1. When ships, goods or other movables exposed to maritime perils
2. The earning or acquisition of freight endangered by exposure to
maritime perils
3. Liability to a third party incurred as a result of insurable property
being exposed to maritime perils (Gibbs v MMI)

Marine perils are defined to include “the perils consequent on, or
incidental to, the navigation of the sea, that is to say, perils of the seas,
fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and
detainments of princes and peoples, jettisons, barratry, and any other
perils, either of the like kind, or which may be designated by the policy” –
see Edmunds v Rhesa and Leyland Shipping
Important provisions of Marine Insurance Act










Section 4: policy without insurable interest is void
Section 17: imposes duty on insured of uberrimae fides
Section 18: proposer of insurer has duty to disclose all material facts
relevant to acceptance and rating of the risk
Section 33 (3): if a warranty be not exactly complied with, then subject to
any express provision, the insurer is discharged from liability as from the
date of breach
Section 34 (3): breach of warranty may be waived by the insurer
Section 39 (1): implied warranty that vessel is seaworthy at start of
voyage for the purpose of the voyage
Section 39 (5): no warranty that vessel shall be seaworthy during the
policy period – however, if assured knowingly allows unworthy vessel to
set sail, insurer is not liable for losses caused by unseaworthiness
Section 50: policy may be assigned
Section 60-63: issues of constructive total loss – insured can by notice,
claim for a constructive total loss with the insurer becoming entitled to
the ship or cargo if it should later turn up
Section 79: subrogation for salvage rights
Workers Compensation Insurance
Overview


Workers Compensation and Rehabilitation Act – requires employers to
insure against liability to pay compensation to employee for injury
sustained at work
ICA does not apply
Application




Subject to same notions of common law disclosure and
misrepresentation, duty of utmost good faith, fraudulent claims,
subrogation and contribution
In respect of contribution, can only apply if worker has cause of action
against employer in respect of indemnity – where such a cause has been
extinguished, no right of contribution for third party – Bonser v Melnacis
See SGIO v Brisbane Stevedoring for combination of subrogation,
contribution and liability generally in respect of worker’s comp
Compare with decisions of Multiplex v Irving and Vulcan v Pentax
Reinsurance
Insurance for the insurer




Reinsurance is the practice by which an insurance company insures the
entire risk itself and then passes on some of the amount it has accepted to
other insurance or reinsurance companies
Initial insurer will only retain an amount it can absorb
When insurance company cannot afford entire risk, it can share the risk
with another insurance company or it can cede the excess which it cannot
absorb to a reinsurer
Reinsurance not governed by the ICA and limited only by contractual
terms – can be one off, cover proportional or excess of losses or cover
risks horizontally/vertically
Part II: Insurance Concerns
Under-insurance Concerns
General Concerns


Disparity of interest when there is defence within limits policy – more
money spent on defence = less money for payout
In this context, where insurer knows of under-insurance and chooses to
continue to conduct defence, must be in good faith (Re Zurich)
1. In the alternative, insurer may be able to tender indemnity amount to
insured and let them conduct defence and case (may not be option
where there are unlimited defence costs cover i.e. may be breach of
good faith)



Insurer conducting defence may also expose themselves to cost orders if
it is established that insurer assumed conduct of defence in furtherance of
own interests in preference to the interests of the insured – TGA
Chapman
Uninsured interests may be set off against limit of indemnity – Citibank
NA v Excess Insurance
Where a single solicitor appointed for both insured and insurer faces
under-insurance, best to tell each party to seek separate legal advice
Solicitor Concerns (more in Ch. 26)
General duties



Duty to client is paramount – Groom v Crocker
Solicitor acting for insured, regardless of whether or not acting on
instructions of insurer, is solicitor for insured
Where solicitor appointed for two parties, cannot give advice to exclusion
of the other party (Verson v Ward)
Lawyer for insurer investigating claims


Lawyer aware of duty of UGF owed by insurer to insured
Inform insured:
1. You are acting for insurer
2. Contacted insured pursuant to their client’s instructions to investigate
the claim and advise on policy coverage and exposure
3. That the insurer has not yet decided on indemnity
4. Investigation is without prejudice
5. Insured may want to retain their own lawyer before providing
information to you as insurer’s lawyer


Communicating reduces risk of estoppel/election arguments
When informing insured that they are indemnified, qualify that indemnity
if subject to terms of policy and insurer retains right to deny claim should
they discover some fact which allows them to decline
Lawyer for insurer acting for insured in relation to third party claim


Only take on defence within scope of rights given to insurer and not for
any extraneous purpose
Limited by duty of UGF owed by insurer to insured – take account of
client’s (insured’s) best interests
Conflict of interests

Where insurer gives lawyer instructions conflicting with insured
instructions, lawyer can act solely on insurer’s instructions if within scope
of contract and consistent with UGF
1. Defence/settlement must consider interest of insured
2. Where insurer’s solicitor takes on settlement or defence, and ends up
discovering uninsured or underinsured, claim of estoppel/election
may arise – Hansen v Marco



Generally not smart to advise insurer on liability when acting for insured
unless they have let insured know that they are only acting for them in
relation to the defence and not coverage – Verson
Where there is dispute as to coverage of claim, lawyer appointed for both
parties should advise to each party to seek separate advise – Kennedy
Where insured gives confidential information to lawyer, joint retainer
ends and lawyer prevented from acting for insurer – confidentiality (ACN
v Zurich)
1. Mere contractual provision saying “insured must give all necessary
information to insurer and forward all documents” not enough
2. Waiver may however, be enough to eliminate confidentiality concerns
but caution this approach in light of UGF
Safeguards against conflict

Many safeguards available: QC clauses; reservation of rights letter; nonwaiver agreement; Cumis council