Status Report: Speno Rail v Metals & Minerals Insurance.

In our August 2009 edition of the Deacons Insurance Update, we reported on the Western Australian Court of Appeal's decision in Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd.

The Court considered the issue of subrogation and the interpretation of section 45 of the Insurance Contracts Act 1984 (Cth) (Act) in the context of two insurance policies which could respond to a particular claim for personal injuries suffered by employees of Speno Rail Maintenance Australia Pty Ltd (Speno) while they were working for Hamersley Iron Pty Ltd (Hamersley). The first relevant insurance policy was between Speno and Zurich Australian Insurance Ltd (Zurich), under which Speno agreed, by way of contract, to indemnify Hamersley in relation to any injuries suffered by the relevant workers and added Hamersley as an insured under the Zurich policy. The second relevant insurance policy was between Hamersley and Metals & Minerals Insurance Pte Ltd (MMI).

Upon Hamersley being found liable for the workers' injuries, Speno and Zurich were ordered to indemnify Hamersley. Zurich met the claim but subsequently sought contribution from MMI based on the principles of dual insurance. MMI contended that it held the subrogated rights of Hamersley as an insured under its public liability policy with Hamersley, and that its policy was an excess policy as defined within the 'underlying insurance clause'. In relation to MMI's second argument, Zurich argued that section 45 of the Act voided the 'underlying insurance clause'.

In relation to the issue of subrogation, the Court confirmed that an insurer cannot be subrogated as to the rights of its insured without first indemnifying the insured for the loss. In relation to section 45 of the Act, the Court held that given the specific wording in this case (where the relevant provision in the MMI policy referred to insurance taken out 'on behalf of' as opposed to 'by' the insured), it was possible to sever a part of the 'underlying insurance clause' such that the balance of the policy survived, even if the severed part offended section 45. Therefore, MMI's policy responded like an excess policy and would only be triggered once Zurich's policy limit was exhausted.

On 21 April 2009, applications for special leave to appeal were filed by Hamersley, MMI and Zurich. The issues raised by the applications concerned the correct interpretation of the term "provision" in section 45 of the Act and more generally the breadth of the doctrine of subrogation.

The applications for special leave were heard on 31 July 2009, and the matter was set down for hearing on 13 and 14 October 2009. We will report on the appeal following the handing down of the High Court's decision.

Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (CACV 101 of 2007); Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (CACV 102 of 2007); Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (CACV 103 of 2007) (2009) 253 ALR 364Hamersley Iron Pty Ltd v Speno Rail Maintenance Australia Pty Ltd & Ors [2009] HCATrans 269 (13 October 2009)

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Ms Vivien Fung

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