Claim a 'forensic manoeuvre': judge

The NSW Appeal Court has ruled an insurer cannot "relabel" a settlement amount as a loan to its policyholder to try to recover costs from another insurer.

Justice Anthony Payne, with whom Justices Fabian Gleeson and Julie Ward agreed, said a claim against QBE Australia by the former owners of an aircraft that crashed in Queensland in 2005 was an attempt to reduce costs by involving a second insurer.

Justice Payne said the claim was formally brought by Lambert Leasing Inc and Saab Aircraft Leasing Inc, but British insurer Global was directing the case. "In truth, these proceedings involve a dispute between two large [insurers] about which should bear the primary responsibility," he said.

The court heard Lambert and Saab sold a commuter aircraft to an Australian partnership of Mackellar Mining Equipment Pty Ltd and Dramatic Investments Pty Ltd in 2003.

The Global policy was in the name of Saab AB, the parent company of Lambert Leasing and Saab Aircraft Leasing. When the aircraft was sold to the Australian partnership, the QBE policy was procured as part of the sale agreement.

The insured was the lessee of the aircraft and additional insureds included Lambert and Saab Aircraft.

The aircraft was leased to Lessbrook Pty Ltd, trading as Transair, when it crashed into a mountain near Lockhart River on 7 May 2005, killing all 13 passengers and two pilots.

Global accepted liability and settled for $US7million after US trials. Lambert and Saab then lodged a claim with QBE, which deferred a decision on liability until it examined 24 underwriters' reports.

Lambert and Saab claimed privilege on the documents, refused to supply them and asked the NSW Supreme Court to compel QBE to accept liability. They argued a new deed signed with Global after the US settlement converted the payment into a loan, to be repaid from the QBE claim.

On June 12, 2015, Justice Nigel Rein ruled Lambert and Saab's case was premature because it was impossible for QBE to determine liability without examining the documents.

Lambert and Saab then asked the Appeal Court to order QBE to indemnify them.

The issues on the appeal were:

(1) Whether the appellants started the proceedings prematurely.

(2) Whether s45 of the Insurance Contracts Act 1984 (Cth) rendered the QBE "other insurance" clause void.

(3) If not, whether the two "other insurance" clauses cancelled each other out.

(4) Whether the payments made to or on behalf of the Saab companies by Global provided an indemnity that prevented Saab from claiming indemnity under the QBE policy.

(5) Whether the Saab companies were entitled to indemnity from the aircraft's lessees arising out of their "use of operation" of the aircraft.

Justice Payne said the Saab companies did not establish that the underwriters' reports were the subject of a valid claim for legal professional privilege in Australia or the United States.

It was not an error to conclude the proceedings were premature and the Saab companies failed to make out special grounds for admission of the underwriters' reports.

Justice Payne said s45 of the Insurance Contracts Act required the "insured" to have "entered into" both contracts of insurance but the Saab companies did not "enter into" either policy.

He said the "other insurance" clauses cancelled each other out and the Saab companies were entitled to elect which insurer they required indemnity from, but could not claim indemnity from one insurer if they have previously been indemnified by the other.

Global was obliged to indemnify and did so. The deed's attempt to re-characterise that indemnity as a loan did not alter that conclusion, so QBE was not liable to indemnify. Global's rights to contribution from QBE were not the subject of the appeal.

Justice Payne said the word "use" had no particular or special meaning under Virginian law (the law of the purchase agreement). "Use" required a sufficient degree of control, which was not satisfied by either leasing the aircraft or paying for its maintenance.  The aircraft's owners were not "using" the aircraft when it crashed.

"The responsibility to pay for maintenance is too remote or tenuous a connection to amount to use of the aircraft in the commercial context."

Justice Payne said Global did not seek reimbursement until after US lawyers discovered the QBE policy during the trials. Global was conducting "forensic manoeuvring" to try to shift its responsibility. The Saab companies asserted, once they became aware of the QBE policy, that the Global policy operated as an excess policy only and the QBE policy was the primary policy of insurance.

He ordered costs against the Saab companies.

Lambert Leasing Inc v QBE Insurance (Australia) Ltd [2016], NSWCA 254, 09/09/2016