Reported Decision : (2001) 11 ANZ Ins Cas 61-502 53 NSWLR 35 New South Wales Court of Appeal CITATION : AMP WORKERS COMPENSATION v QBE [2001] NSWCA 267 FILE NUMBER(S) : CA 40994/00 HEARING DATE(S) : 13 August 2001 JUDGMENT DATE : 19 September 2001 AMP Workers Compensation Services (NSW) Ltd PARTIES : v QBE Insurance Ltd JUDGMENT OF : Mason P at 1; Handley JA at 2; Beazley JA at 31 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT 2184/00 FILE NUMBER(S) : LOWER COURT Santow J JUDICIAL OFFICER : COUNSEL : Appellant C Gee QC/P Morris Respondent N Rein SC SOLICITORS : Appellant Moray & Agnew Respondent Henry Davis York CATCHWORDS : Insurance - Double Insurance - Contribution - Plaintiff's choice of defendants Motor Accidents Act 1988 LEGISLATION CITED : Workers Compensation Act 1987 Employees' Liability Act 1991 Law Reform (Miscellaneous Provisions) Act 1946 Albion Insurance Co Limited v Government Insurance Office (NSW) (1969) 121 CLR 342 Commercial and General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374 Post Office v Norwich Union Limited [1967] 2 QB 363 CA Cacciola v Fire and All Risks Insurance [1971] 1 NSWLR 691 CA CASES CITED: Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 Australian Iron and Steel Pty Limited v Government Insurance Office of New South Wales [1978] 2 NSWLR 59 Craythorne v Swinburne (1807) 160 [33 ER 482] at 165, [484], 171, [486] Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562 Government Insurance Office of New South Wales v QBE Insurance Limited (1985) 2 NSWLR 543 State Government Insurance Commission v Switzerland Insurance Australia Ltd (1995) 64 SASR 537 DECISION : Appeal dismissed with costs IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40994/00 ED 2184/00 MASON P HANDLEY JA BEAZLEY JA Wednesday, 19 September 2001 AMP WORKERS' COMPENSATION SERVICES (NSW) LIMITED v QBE INSURANCE LIMITED FACTS The appeal involved a question of double insurance. The employer held a compulsory third party policy with QBE Insurance Limited in respect of a motor vehicle and a current workers' compensation policy with AMP Workers' Compensation Services (NSW) Limited. An employee in the course of his employment was injured by another employee negligently driving in the course of his employment with the same employer. The first employee commenced proceedings against the second employee but did not seek to join the employer although it would have been vicariously liable. Those proceedings were settled. QBE satisfied the judgment debt as the compulsory third party policy covered the employee as the driver of the vehicle. QBE then claimed contribution from AMP. AMP argued that there was no relevant double insurance because its workers' compensation policy did not cover the negligent employee who was liable and entitled to indemnity from QBE, and the employer it did insure was never liable and never entitled to indemnity under either policy. The dispute turned on the relevant date for the purposes of determining the question of double insurance. AMP contended that this had to be determined after the event when the claim for contribution was made. QBE contended that the question must be determined at the date of casualty. In the latter case there would clearly be double insurance in this case. HELD (per Handley JA, Mason P and Beazley JA agreeing) (i) The right of contribution only exists in respect of insurances which are contracts of indemnity, where two or more insurers are on risk in respect of the same loss or liability. The right arises when and because one of the insurers has paid more than his proper share of the common demand. Where one insurer has paid in full the indemnity is satisfied and the insured has no right of indemnity against any other insurer. The right of contribution therefore cannot depend on the continued existence of coordinate liabilities for the same demand because the very payment by one which calls the right into existence will have put an end to the liability of the other insurance. (ii) The judgments in Albion Insurance Co Limited v Government Insurance Office (NSW) (1969) 121 CLR 342 require the question of double insurance to be determined at the time of the casualty. Although the present question did not arise in Albion Insurance , the focus in both judgments was on the contractual position at the time of the casualty when the loss in the one case, or the liability in the other, accrued. (iii) There is no reason in precedent or principle why the right of contribution should be defeated by the existence of a second layer of choice available to another party. It should not rest with either of the persons who had available choices to exercise those choices in a way which would leave the ultimate burden on one of the insurers without any right of contribution from the other. ORDER Appeal dismissed with costs. ******** IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40994/00 ED 2184/00 MASON P HANDLEY JA BEAZLEY JA Wednesday, 19 September 2001 AMP WORKERS' COMPENSATION SERVICES (NSW) LIMITED v QBE INSURANCE LIMITED JUDGMENT 1 Mason P: I agree with Handley JA. 2 Handley JA: This appeal involves a question of double insurance. Mudgee Refrigerated Transport Pty Limited (the employer) held a compulsory third party policy (CTP) with QBE Insurance Limited (QBE) in respect of a truck RNF 196 which was in force on 9 September 1996. The employer also held a current workers' compensation (WC) policy with AMP Workers' Compensation Services (NSW) Limited (AMP). On that day Mr Mitchell, one of its employees, was injured in the course of his employment as a result of the negligent driving of the truck by Mr Graupner, another employee, who was driving in the course of his employment. 3 On 5 September 1998 Mitchell commenced proceedings in the District Court at Sydney (6512/98) against Graupner and the Roads and Traffic Authority claiming damages for his injuries in accordance with the Motor Accidents Act 1988. On 24 November 1999 those proceedings were settled and judgment was entered for Mitchell against Graupner for $450,000 inclusive of costs. The employer was not a party to those proceedings. A contribution claim against the RTA remained outstanding. The CTP policy covered both the employer as the owner of the truck and Grauper as its driver. QBE satisfied the judgment debt and claimed contribution from AMP. 4 The WC policy issued by the AMP in the prescribed form insured the employer, inter alia, for its common law liability to its workers. It did not cover negligent employees such as Graupner. AMP denied that there was any relevant double insurance. 5 The Motor Accidents Act 1988 (Pt 6) (the 1988 Act) and the Workers Compensation Act 1987 (Pt 5) (the 1987 Act) established different regimes for the award of common law damages for motor accidents and industrial accidents. However where the same accident falls within both Acts, as it did in this case, s 151E(2) of the 1987 Act provides that Pt 6 of the 1988 Act will apply. This means that the employer's liability to Mitchell was governed by the 1988 Act to the exclusion of the 1987 Act and that in this case its rights of indemnity under the CTP and WC policies were identical. 6 In the events that happened the employer's vicarious liability for the negligent driving of Graupner was never enforced, and it was common ground that its liability was satisfied when QBE satisfied the judgment against Graupner. AMP's simple point was that there was no double insurance in the events that happened because it had not insured Graupner who was liable and entitled to indemnity from QBE, and the employer it did insure was never liable and never entitled to indemnity under either policy. 7 AMP did not dispute that the position would have been different if Mitchell had sued the employer and judgment had been entered against it for the same amount. In that event there would have been double insurance and QBE would have been entitled to contribution in accordance with the decisions in Albion Insurance Co Limited v Government Insurance Office (NSW) (1969) 121 CLR 342 and Commercial and General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 374. 8 The dispute turns on the relevant date for the purposes of determining the question of double insurance. AMP contends that this has to be determined after the event when the claim for contribution is made. QBE contends that the question must be determined at the date of the casualty. If this is correct then there was clearly double insurance in this case. 9 The employer was vicariously liable for the negligent driving of Graupner in the course of his employment, and they were joint tortfeasors. The employer's liability was potentially covered by both policies, but its rights of indemnity would not accrue until its liability to Mitchell had been crystallised by settlement or verdict. See Post Office v Norwich Union Limited [1967] 2 QB 363 CA and Cacciola v Fire and All Risks Insurance [1971] 1 NSWLR 691 CA. As a result of the decision taken by Mitchell's legal advisers to sue Graupner as sole defendant, the employer's potential liability was never crystallised and no longer exists. 10 Graupner was insured by the CTP policy, but not by the WC policy. At common law an innocent employer was entitled to be indemnified by his negligent employee (Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555). This right was abolished by the Employees' Liability Act 1991 which also provided in s 3(1)(b) that in such a case the employer was liable to indemnify the employee unless the employee was otherwise entitled to an indemnity in respect of that liability. Graupner was entitled to an indemnity against his liability to Mitchell under the CTP policy and had no right of indemnity against his employer. Therefore in the events that happened the stage was reached where the employer had no enforceable right of indemnity against AMP in respect of its liability to either Mitchell or Graupner. 11 The immunity of AMP is the result of the decision taken by Mitchell and his legal advisers to bring proceedings against Graupner without joining the employer. This decision was not irrevocable and the employer could have been joined as an additional defendant at any time before final judgment. If QBE had failed to satisfy the judgment, Mitchell could still have sued the employer and recovered judgment up to the settlement figure (Law Reform (Miscellaneous Provisions) Act 1946 s 5(1)(a), (b)). 12 QBE could also have required Mitchell, as a term of the settlement, to join the employer as an additional defendant and take judgment against both defendants or against the employer alone. Mitchell and his legal advisers were not likely to refuse such a request. In either event AMP could have had no answer to the contribution claim. One must wonder about a defence to an equitable claim for contribution which is only available because of events outside the control of both insurers which could have been defeated if the plaintiff had taken simple procedural steps at the right time. 13 If the submission on behalf of AMP that the question of double insurance must be considered when the claim for contribution is made were to be fully accepted the right would be lost in every case. The right of contribution only exists in respect of insurances which are contracts of indemnity, where two or more insurers are on risk in respect of the same loss or liability. Albion Insurance at 346, 349-50. The right arises when and because one of the insurers has paid more than his proper share of the common demand. 14 Where one of the insurers has paid in full the indemnity principle is satisfied and the insured then has no right of indemnity against any other insurer. The right of contribution therefore cannot depend on the continued existence of coordinate liabilities for the same demand because the very payment by one which calls the right into existence will have put an end to the liability of the other insurer. The point is covered by the decision in Albion Insurance where the majority said at 346: "The matter can, we think, be decided simply enough by inquiring whether payment by one insurer of the policy holder's claim for indemnity would provide the other insurer with a defence to a like claim against it. It clearly would, and it would simply because the policy holder had by the payment made been indemnified against the risk insured against. He had received all that he was entitled to receive under both policies so the payment by one insurer would discharge both. Thus, payment by one is made for the benefit of both, and, contribution is equity." 15 The right of contribution cannot, therefore, depend on the state of affairs which exists after the payment has been made which brings that right into existence. Prior to the payment to Mitchell being made, Graupner was liable to Mitchell pursuant to the consent judgment, and QBE was under a presently enforceable obligation to indemnify him against that liability. However the employer was also liable in a different but relevant sense. In Australian Iron & Steel Pty Limited v Government Insurance Office of New South Wales [1978] 2 NSWLR 59, where this Court considered the meaning of the word "liability" where it appeared in the text of the then form of compulsory third party policy, Glass JA, who delivered the principal judgment, said at 62: "In point of juristic analysis it is not open to doubt that a defendant incurs a liability in tort to pay damages contemporaneously with the accrual to the plaintiff of a cause of action. But the web of language in which the term 'liability' is integrated may impart to it the special meaning 'held liable', so that liability does not occur until it has been ascertained by judgment or settlement … the context which has elsewhere yielded such a construction is wholly absent here. On the contrary the legislative and contractual setting in which the phrase 'all liability incurred by the owner' appears, furnishes clear indications that the words are used in their normal sense." 16 Prior to the payment to Mitchell being made, the employer remained liable to Mitchell in the sense referred to by Glass JA, and both policies covered that risk. The payment by QBE extinguished the employer's liability to Mitchell, and the contingent liability of both insurers to indemnify the employer. 17 In my opinion the judgments in Albion Insurance, when properly understood, require the question of double insurance to be determined at the time of the casualty. The judgments referred to both loss and liability, but it is clear that loss is used in the context of marine and fire policies and the like, and liability is used in the context of liability policies. On some occasions only the word "loss" is used (345, 352), but it is clear that both types of policies are being referred to without any suggestion that the focus in cases of liability insurance should be on the situation when a loss has occurred in the sense of a payment has been made or judgment has been suffered. 18 The present question did not arise in Albion Insurance but the focus in both judgments was on the contractual position at the time of the casualty when the loss in one case, or the liability in the other, accrued. The majority said at 345: "The doctrine … only applies when each insurer insures against the same risk …" 19 They concluded at 347: "For the reasons which we have stated we consider that [the insured] was doubly insured against the risk of having to pay damages for its negligence causing the bodily injury suffered by its servant, and that the appellant, having indemnified the insured for the risk covered is entitled to contribution from the respondent." 20 Kitto J said at 349: "The argument that is put to the contrary may be condensed to the proposition that a right to contribution exists whenever a loss has occurred against which each of two or more insurers has contracted to indemnify the one insured … The authorities on the topic show that this proposition is to be upheld…" 21 At 350 he said: "… the corresponding point in regard to accident insurance is made by saying that each policy must insure the same person against … the very liability that in the event he has incurred." 22 The contribution principle applies where a creditor or other claimant has claims against more than one obligor for satisfaction of the same claim which he is free to enforce at his discretion. If the obligee does enforce his claim against one of the obligors, the others will be released. The release of others by the payment made by one was seen as inequitable, or in today's language it was seen as an unjust enrichment of the others at the expense of the one. The result was the right of contribution. Lord Eldon stated the underlying principle in Craythorne v Swinburne (1807) 14 Ves 160 [33 ER 482] at 165, [484], 171, [486]: "… whether they are bound by several instruments or not, whether the fact is or is not known, whether the number is more or less, the principle of Equity operates in both cases; upon the maxim that equality is Equity: the creditor, who can call upon all, shall not be at liberty to fix one with the payment of the whole debt; and upon the principle, requiring him to do justice, if he will not, the court will do it for him … the doctrine of contribution … stands upon this; that all sureties are equally liable to the creditor; and it does not rest with him to determine, upon whom the burthen shall be thrown exclusively; that equality is equity; and, if he will not make them contribute equally, this Court will finally by arrangement secure that object." 23 These principles were recently reaffirmed and applied in Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562, 571-2. The principles apply to co-insurers as much as to co-sureties. See Albion Insurance at 351 per Kitto J. 24 In this case the employer had double insurance and Mitchell could choose his defendants, but in principle this should make no difference. The insured's decision to claim against one insurer rather than the other or both was not allowed to unjustly enrich the other, but contribution could be enforced so that all would share the burden equally. Similarly the more or less arbitrary decision by Mitchell to sue the driver and not the employer or both jointly should not be permitted to impose the whole burden on QBE to the exoneration of AMP. Both should contribute equally and would have done so if Mitchell had sued the employer or both driver and employer. 25 The contribution principle is based on "general principles of justice" (Albion Insurance at 351 per Kitto J). In my judgment there is no reason in precedent or principle why the right of contribution should be defeated by the existence of a second layer of choice available to another party. In a case such as the present it should not rest with either of the persons who had available choices to exercise those choices in a way which would leave the ultimate burden on one of the insurers without any right of contribution from the other. 26 Similar conclusions were reached in Commercial and General Insurance Co Ltd v Government Insurance Office (NSW) (1973) 129 CLR 375. In that case the WC insurer in the position of AMP sought indemnity from the CTP insurer in the position of QBE. This claim was supported on the ground that the employer's liability in that case was purely vicarious, and it was entitled to indemnity from its negligent employee in accordance with Lister v Romford Ice and Cold Storage Co Limited [1957] AC 555. Since the employee was insured under the CTP policy, but not the WC policy, it followed, on the argument of the WC insurer, that the CTP insurer should bear the whole loss. This claim failed and it was held that the WC insurer was entitled to contribution, not indemnity. The Court said at 380: "… the doctrine [of contribution] is not concerned with working out the rights of insurers and third parties. It is concerned with distributing the indemnity to which the insured is entitled under policies of insurance with two insurers." 27 This decision was followed by Rogers J in Government Insurance Office of New South Wales v QBE Insurance Limited (1985) 2 NSWLR 543 where a CTP insurer, who insured both the owner employer and the driver paid a claim against the owner brought by another employee injured by the negligent driving of the vehicle. The WC insurer denied any liability for contribution on the ground that the CTP insurer also insured the negligent driver and argued that the decision in Commercial and General Insurance Co Limited v Government Insurance Office of New South Wales did not apply when a defendant was resisting a claim for contribution on the ground that the plaintiff should bear the whole loss. Rogers J refused to distinguish the High Court decision and ordered the WC insurer to contribute. 28 In State Government Insurance Commission v Switzerland Insurance Australia Ltd (1995) 64 SASR 537 the facts were substantially the same but the injured employee sued to judgment both employer and negligent employee. The CTP insurer satisfied the judgment and sought contribution from the WC insurer. This claim was resisted on the ground that the CTP insurer alone had insured the negligent driver and should therefore bear the whole loss. The Full Court of the Supreme Court of South Australia rejected this defence and upheld the right to contribution because the payment by the CTP insurer of the judgment extinguished the employer's liability (above at 542-3, 548). 29 The present case differs from the earlier ones only because here the injured employee sued the negligent driver as the sole defendant. In my judgment, for the reasons previously given, this makes no difference in principle, and the appeal should be dismissed. 30 The order for contribution made by Santow J did not reflect a modest recovery by QBE from the RTA in the contribution proceedings which remained on foot after the settlement with Mitchell. The Court was informed that the parties and their solicitors would be able to agree on the necessary adjustment to the order for contribution made by Santow J without the necessity for this Court to make formal orders. Accordingly the orders that I propose are simply the appeal should be dismissed with costs. 31 BEAZLEY JA: I agree with Handley JA. ******** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.