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What do all of these have in common? Coordinate liability update

This year the High Court in HIH Claims Support Limited v Insurance Australia Limited1 highlighted that coordinate liabilities are essential for the operation of the doctrine of equitable contribution and that whilst equity looks to substance rather than form, the basic requirement that the obligors share a common burden remains. 

The question is, what constitutes a common burden?  This article examines some themes which have emerged from selected cases in the past few years on coordinate liabilities.

The nature or quality of the obligations is critical although the quantum of liability may vary.2

Source of liability

The High Court in the HIH case, following the Caledonia case,3 stated that liabilities incurred in tort, delict or contract are generally primary whereas the liability of an indemnity insurer to an insured party is generally secondary.

Is one obligation conditional?  Is there reciprocity?

In the HIH case, the High Court found that because HIH Claims Support Limited’s (“HCSL”) offer of assistance under the HIH Claims Support Scheme (“Scheme”) was conditional upon Steele assigning his rights under the HIH insurance policy, covering events which had already occurred, the risk undertaken by HCSL could not be described as the same risk undertaken by Insurance Australia Limited (“IAL”).  Therefore the obligations of HCSL and IAL were not coordinate.

Another factor relied on by the High Court in finding that HCSL and IAL did not share a common burden was the lack of reciprocity.  If IAL had paid Steele under its insurance policy then Steele would not have been eligible for assistance under the Scheme and no payment would have been made by HCSL.  Since HCSL undertook no enforceable obligations under the Scheme until a payment was made, IAL would never have had an opportunity to bring a claim for contribution against HCSL.

This lack of reciprocity was also referred to in Limit (No 3) Ltd v ACE Insurance Ltd.4  In that case ACE was the primary insurer and Lloyds was an excess insurer unless ACE was not liable or if ACE refused to admit liability and its failure to do so was a breach of ACE’s obligations under the ACE policy.  Rein J found that if ACE had met its liability to the insured it would have no basis for a claim on Lloyds for contribution.  This lack of reciprocity was used to support the argument that the case was more suitably dealt with under the doctrine of recoupment rather than contribution.

Was the liability insured of the same type?

In Australasian Medical Insurance Ltd v CGU Insurance5 the Court of Appeal held that a CGU policy indemnified the insureds only for their liability to pay damages arising out of the negligence of an employee but not for the insureds’ own negligence.  An AMIL policy however, covered the insureds both for their own negligence and also for their liability to pay damages arising out an employee’s negligence.  The Court of Appeal therefore held that unless the basis of the claim was one of vicarious liability of the insured for the negligence of an employee, AMIL could not seek contribution against CGU.

Cases have confirmed that an employer’s liability to make payment under worker’s compensation is not coordinate with an employer’s common law liability to pay damages arising from the negligence use of a vehicle.6

In Kestrel Holdings Pty Ltd v APF Properties Pty Ltd,7 the Federal Court of Australia examined the case of Burke8 which held that there was not a sufficient relationship between a:

(a) vendor’s liability for misleading and deceptive conduct; and

(b) purchaser’s solicitor’s liability for breach of retainer as solicitor and negligence in failing to advise of certain matters,

to permit the vendor to recover contribution from the solicitor.  However in Kestrel, the Court found that the parties’ negligent and misleading and deceptive conduct all contributed to the loss and damage suffered by another party.  Therefore the similarity of the causes of action together with the manner in which the conduct of each party combined to bring about the loss and damage to another party was held to mean that the case was a proper one for contribution between the wrongful parties.

Community of interest not enough

The High Court in the HIH case and Friend v Brooker9 held that a “community of interest” or a “common design” between obligors is not a sufficient condition for the operation of an equity to contribute in circumstances where the obligations in question are qualitatively different. 

What is the relevant time?

In QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd,10 the Victorian Court of Appeal held that, ordinarily, the question whether the loss or liability is covered by both policies is to be determined at the time of the insuring clause event.  The fact that, subsequently, the second insurer ceases to be liable under its policy because the common insured has been indemnified by the first insurer under its policy does not extinguish the first insurer’s right to contribution.11  

The Victorian Supreme Court in the HIH case found that the liabilities of HCSL and IAL were not coordinate as they did not co-exist at the time of the insuring clause event.  The indemnity contract between HCSL and Steele only came into existence upon the payment of the first benefit, which was after the insuring event. 

Similarly in Limit (No 3) Ltd, Rein J proceeded on the basis that because the two insurers were not jointly liable at the time of casualty, contribution as a remedy in the insurance context was not available.

Contribution usually in equal proportion

Whilst the High Court in the HIH case left open the possibility that the quantum of liability may vary, Ward J in Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd12 stated that “whilst there is a suggestion in the authorities that in appropriate cases equitable contribution may be able to be determined by reference to the proportionate culpability of the parties, such a proposition is contrary to the traditional approach of equity in this context.”

In Limit (No 3) Ltd, Rein J also queried whether contribution is available where the party seeking contribution claims entitlement to 100% of the amount.  Such a claim was found by Rein J to propel Lloyd’s claim to one more akin to recoupment than contribution.

Conclusion

Whilst the principle of contribution is one which is long standing and is “accepted by both law and equity as one of natural justice”,13 the content of that principle is still developing.

Footnotes

[1] (2011) 280 ALR 1 (“HIH case”).
[2] HIH case, at [37] citing Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 345–6 (“Albion”); Government Insurance Office (NSW) v Crowley [1975] 2 NSWLR 78 at 83.
[3] Caledonia North Sea Ltd v British Telecommunications plc [2002] 1 Lloyd’s Rep 553.
[4] [2009] NSWSC 514.
[5] (2010) 271 ALR142.
[6] QBE Insurance (Australia) Ltd v Insurance Australia Ltd (2011) 247 FLR 333; GIO General Ltd v Insurance Australia Ltd t/as NRMA Insurance [2011] ACTSC 91.
[7] (2009) 260 ALR 418.
[8] Burke v LFOT Pty Ltd (2002) 209 CLR 282.
[9] (2009) 239 CLR 129.
[10] (2009) 256 ALR 574, at [70].
[11] Although there has been a divergence of authorities on the impact of conduct subsequent to the insuring clause event (see Zurich Australian Insurance Ltd v GIO General Ltd [2011] NSWCA 47) which is beyond the scope of this article.
[12] [2010] NSWSC 612 at [433].
[13] Albion at p 350.

 

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