Summary
Majority: French CJ, Gummow, Hayne, Heydon and Kiefel JJ (unanimous).
Decision: Appeal allowed.
The Workers' Compensation Act 1926 (NSW) provided that an employer must have insurance cover for injury to workers of at least $40,000. An employee contracted mesothelioma. QBE was liable as the compulsory insurer of the employer. The existence of a contract of insurance was admitted, but the contract itself was never presented at trial. QBE argued that, in the absence of proof, the contract should be presumed to be limited to the statutory minimum of $40,000. The Court held that the purpose of the legislation promoted an interpretation that the onus of proof of the limitation of liability fell to the insurer. Therefore in the absence of proof to the contrary the indemnity was presumed to be unlimited.
Background
The appellant, Irene Stewart, was the trustee of the deceased estate of her late husband who had contracted mesothelioma in the performance of his employment. At the time he was employed, s 18(1) of the Workers' Compensation Act 1926 (NSW) (the “WCA”) required his employer to have insurance cover “for an amount of at least forty thousand dollars in respect of his liability … for any injury to any such worker and shall maintain such policy in force”.
The liability of the compulsory insurer for the employer fell to the respondent, QBE Insurance. It was not disputed that a contract of insurance existed between the employer and the compulsory insurer but the contract itself could not be located and so was not tendered at trial. Therefore, although it was accepted that there was an insurance agreement, there was no evidence as to the amount of cover under that agreement.
QBE argued that a court should consider such contracts to be for the statutory minimum of $40,000, unless the insured has proven otherwise. The appellant argued that the contract should be presumed to be for an unlimited indemnity, unless the insurer proved otherwise. Accordingly, the question for the Court was who has the burden of proof to prove any limitation of the insurance cover.
The Exception Cases
The Court affirmed a line of authority regarding burdens of proof in insurance law cases, which provides that the insured has the burden to prove that the case comes within the contract of insurance, but the insurer has the burden to prove that the facts come within any exception in the contract (the “Exception Cases”).
That is to say that if a matter is a ‘condition precedent’ to the indemnity – in that it is a fact that needs to be proved to establish an obligation to indemnify – then the burden to prove that matter falls to the insured. If the obligation to indemnify is established, but the insurer argues that an exception in the contract applies, then this matter is secondary and the burden falls to the insurer.
However, in those authorities the existence of the clause in the policy that sets out the exclusion is generally conceded and the burden is on the insurer to produce evidence that the circumstances come within the exception. In this case, the question is, 'who has the burden to prove the existence of the exception clause?’
Finding
The Court considered the purpose of the WCA (at [18]) and the statutory context (at [33]) and found that, in the circumstances, the insurer bore the onus of proof to prove that the contract of insurance was limited to $40,000.
In so finding, a strong analogy was drawn with the Exception Cases (at [35]). The Court looked at the nature of indemnity in insurance contracts. It said that a clause providing for a cap on payments under an indemnity insurance contract does not limit the indemnity but provides a limit to the amount that can be collected under that indemnity. That is, the maximum cover under the insurance contract was not a ‘condition precedent’ to the indemnity but merely a limitation on the amount recoverable under that indemnity, once established.
Accordingly, in the absence of proof to the contrary, the court will consider the insurance contract to be unlimited.
Comment
Some caution should be occasioned when trying to apply this case to insurance law generally. One ought not think it appropriate merely to plead a general indemnity on the insurer and require the insurer to plead the limited cover in its defence (except perhaps for insurance under the WCA). The Court was careful to base its reasoning, ostensibly at elast, upon construction of the particular contract of insurance alleged within its statutory scheme (at [37]). The Court did not make a general statement on proof of terms of insurance contracts. That said, it is not clear why the reasoning of the Court wouldn’t have more general application. The purpose of the Act was certainly consistent with the reasoning of the Court but the reasoning itself was based on principle not on the purpose of the Act. I don’t know that 'lost policy' cases arise that often outside of the dust diseases jurisdiction but it would be interesting to see what courts do with this case in cases of general insurance.
Post Script – QBE’s argument
It’s worthwhile to quickly state QBE’s argument because the Court spent some time on it. The form of the insurance contract, that was required under the WCA, was found in the Regulations. That precedent form stated that the insurer was to pay an amount not exceeding “forty thousand dollars”.
QBE argued that if the parties wanted insurance in excess of $40,000, the legislation required the parties to execute a contract in terms of the form in the regulations (ie for $40,000) and then to execute an variation document increasing the cover. Applying basic contractual principles concerning variations, the burden to prove the variation would then fall on the insured.
The Court dismissed this interpretation. The purpose of the WCA promoted an interpretation of the regulation in which the words “forty thousand dollars” in the form of contract in the regulations were merely an example of what the parties might insert as a limitation on cover (at [17]).
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