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Dividing up the spoils: How should a settlement sum be apportioned between the insured and its insurer?

  • TurkAlert
  • Published 20.04.2023
QBE Insurance (Australia) Limited v The Grape House Group (FCA 2022)

Key Takeaways

  1. Definitions of ‘recoveries’ in policies are often very broad. If an insurance claim has been paid out insureds will almost always be required to account (at least in part) to their insurer for monies they recover from third parties.
  2. Insurers should review their policy wording to ensure it deals comprehensively with the apportionment of recoveries for insured and uninsured losses;
  3. Insureds who continue to seek recovery from third parties after being paid their indemnity:
  • Must act with utmost good faith and with due regard to the interests of the insurer;
  • Should (in the absence of guidance under the policy) apportion recoveries between insured and uninsured losses;
  • Should seek the consent of their insurer before releasing or prejudicing the insurer’s rights.

Brief Facts

The dispute concerned a trade credit insurance policy entered into by the respondent, The Grape House Group Pty Ltd (the Insured), and the applicant QBE Insurance (Australia) Ltd (the Insurer). The policy provided cover for unpaid trade debts up to a specified percentage. The policy also provided that:

  • by way of an endorsement, the insurer would reimburse the insured for its legal costs in respect of claims against third parties, to a maximum cap of $8,000; and,
  • recoveries made by the Insured from third parties were to be shared between the Insurer and the Insured.

The Insured entered into an agreement with Southern Produce Traders (SPT) for the supply of export quality grapes. Following the supply, SPT withheld payment on the basis that the grapes were of poor quality. The Insured commenced proceedings against SPT and its sole director / guarantor for the value of the invoices which SPT had refused to pay. The Insured registered a caveat on a property jointly owned by the sole director of SPT.

The Insured lodged a claim under their contract of insurance and was paid the specified percentage of the unpaid insured debt. The Insured was also paid $8,000 by way of reimbursement for its legal costs (which at that time substantially exceeded the capped amount).

SPT later agreed to pay a settlement sum to the Insured in consideration for the withdrawal of the caveat and the dismissal of the proceeding. The parties entered into a deed of settlement to document the arrangement.

Following receipt of the settlement sum, the Insured refused to share its recovery with the Insurer. The Insured refused to do so on the basis that its recovery was:

  • solely in respect of uninsured losses, being the interest on the insured debt and its costs incurred in its proceeding. At the date of the deed of settlement these uninsured losses were said to exceed the settlement sum; and/or alternatively,
  • in consideration for the withdrawal of the caveat, not the dismissal of the proceeding.


The Court found in favour of the Insurer, confirming that the Insured did have an obligation to remit a portion of the settlement sum to the Insurer. The Court did however allow priority for the Insured’s legal fees in respect of its claim against SPT.

The Court considered that while the Insured was under a duty to act in the utmost good faith to the Insurer in relation to their settlement of its proceeding, this duty did not require the Insured to specifically apportion the recovery as between the insured and insurers’ respective interests in its deed of settlement. The Court found that in these circumstances, and also because of the construction of the policy that the Court adopted, the contract of insurance sufficiently apportioned the parties’ respective interests in the settlement sum.

Turks acted for the Insurer, QBE Insurance (Australia) Limited in the matter.  


Insureds must act with caution when settling third party claims and remember their bona fide duties to their insurers.

Insureds who make recoveries post receipt of an insurance payout must:

  • Carefully analyse their policy of insurance as to how recoveries are to be apportioned;
  • Establish at an early stage whether the insurer will exercise its subrogation rights in respect of their claim;
  • Be aware that duty of good faith to their insurer remains even if the insurer declines to subrogate; and,
  • Keep their insurer informed of the progress of their claim and seek their approval of any settlement.

For insurers:

  • Review your policy wording and consider if it satisfactorily deals with:
    • recoveries, both when the insured makes the recovery and when you do so on a subrogated basis; and,
    • any cap on or priority for the insured’s legal costs when it has conduct of a recovery proceeding;
  • Review your standard correspondence with insureds to make the above matters clear.