Introduction
This litigation arose out of a tragic airline crash in which two pilots and all 13 passengers were killed.
In a recent decision by the Court of Appeal of New South Wales dismissing the appeal by the appellants Lambert Leasing Inc and Saab Aircraft Leasing, Inc (Saab Leasing) and finding in favour of QBE, the Court amongst other things discussed an insurer’s duty of good faith in the context of the vexed issue of a claim for privilege over documents pertinent to the claim for cover, as well as the impact of “other insurance” clauses in the context of s45 of the Insurance Contracts Act 1984 (Cth).
Background
In 2003, the Saab aircraft was purchased by Jalgrid Pty Ltd and Dramatic Investments Pty Ltd, from Lambert Leasing Inc and Saab Leasing, Saab AB subsidiaries. The aircraft was then leased by Jalgrid and Dramatic Investments to Lessbrook Pty Ltd. Saab AB had a liability policy covering it and its subsidiaries, led by Global Aerospace Underwriting Managers Limited (Global). It was a term of the sale agreement that the purchasers would also obtain insurance cover and they did so with QBE.
In 2005, the aircraft crashed in Cairns. Relatives commenced proceedings in two States in the US, and claims in relation to those proceedings were made under the Global policy, where Lambert Leasing and another Saab Leasing subsidiary were insured under the Saab AB Swedish policy. Global granted indemnity, and paid defence costs.
In 2010, it was discovered that there was a policy with QBE, and a claim was made under it.
QBE reserved its position, and sought material in connection with the claim, including 24 reports from the US lawyers retained by Global on the US claims. It was QBE’s position that those reports contained information material to the claim for indemnity, including but not limited to information about whether the information and assistance policy condition had been complied with, and without satisfying that condition, it was not in a position to advance its analysis on coverage1. Global refused to provide the reports. It asserted that the reports were privileged and there was no common interest privilege.
Relevantly, before the appellants commenced their suit against QBE, the appellants and Global had entered a deed which asserted, amongst other things, that:
- Global’s policy was excess and QBE’s policy was primary; and
- Global’s payments for defence costs were a loan, not an indemnity
As it seems the parties were at an impasse, with QBE reserving its position pending receipt of relevant material in support of the claim, and the appellants asserting that QBE’s “fence-sitting” demonstrated a lack of good faith, the appellants commenced proceedings for declaratory relief.
Decision of the Court of Appeal
The Court of Appeal confirmed the first instance decision of Justice Rein, as follows:
- The proceeding had been issued prematurely;
- Whilst a claim for privilege had been maintained, it had not been substantiated as yet;
- However, QBE was entitled to seek the relevant privileged information and without it, it was entitled to “fence-sit”, and that was no a breach of the duty;
- The primary Judge was correct in being prepared to proceed on the basis that the appellants should not be compelled to produce the reports in circumstances where they claimed they were at risk of losing the privilege over them in the US;
- As to the “other insurance” issue:
- s45 did not operate to void the “other insurance” clause in QBE’s policy, because the appellants were not the ones who had “entered into” the policies, as the Act required – and followed the High Court decision in Zurich Australian Insurance Ltd v Metal and Minerals Pte Ltd [2009] HCA 50;
- as a result, the “other insurance” clause in the QBE policy remained intact, and it and the “other insurance” clause in the Saab Swedish policy cancelled each other out;
- The coverage afforded by Global was an indemnity (not a loan, as the deed had purported to structure), and as such there was no entitlement to an indemnity from QBE; and
- There may have been a right of recovery from QBE by way of contribution, but that was not in issue in the proceeding under appeal.
Observations
The decisions at first instance and on appeal were salient reminders of a number of issues. First, the fact that there will be some occasions when an insurer is not in breach of its duty of good faith if it resists making a decision on indemnity due to the lack of supporting information. Second, that can apply to privileged information.
Third, advancements by an insurer structured as loans can be struck down as being artificial.
Fourth, the decision is also a useful reminder of the complexities around “other insurance” clauses in the context of s45. Whilst there may be difficulties in relying on them and they may be void, it remains worthwhile including such terms in policies as they would be valid (and not void) if the relevant entity was not the entity that “entered into” the policies. Here, as both policies had valid “other insurance” clauses, they were held to cancel each other out.
Fifth, as the Court of Appeal noted, other things being equal, Global would still have a right of contribution against QBE if the QBE policy also responded.
This article was written by Ailbhe Kirrane, Partner and Jonathan Tapp, Partner.
1Section 4(B) cl 3(c) of the QBE Policy: … give all information, do all things, provide signed statements provide all documents, records and things, and assist the insurer sand their agents in any other way in the investigation and in connection with any proceeding or inquiry as … [QBE] … may require.