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Double Insurance: Subcontractor’s defence costs included in contribution after its liability settlement

QBE Insurance Australia Limited v Allianz Australia Insurance Limited [2020] FCA 589

Summary

Insurer 1 and Insurer 2 submitted for preliminary determination by the Federal Court of Australia two questions relevant to whether Insurer 1 had rights of contribution in respect of a settlement it had entered into (and its related defence costs) for the liability of a subcontractor it had covered under a broadform liability policy.

The settled claim occurred in litigation arising from damage to a property next to a building site. The builder was covered under a contract works policy issued by Insurer 2 and it successfully defended the litigation brought by the neighbours.

Insurer 1 claimed an entitlement to contribution against Insurer 2 because the contract works policy had cover extending to subcontractors. The dispute concerned interpretation of ‘the extent to which this insurance [the Insurer 2 policy] is required for such interest under the Insured Contract’. In the context of two contracts (the head contract and a subcontract), the dispute centred upon doubts raised by Insurer 2 about precisely what the “Insured Contract” was and about whether Insurer 1’s defence costs should be the subject of any contribution.

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