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Client Update: What limit of liability applies when the policy documents are lost?

22 April 2009

In brief: Recently, the New South Wales Court of Appeal confirmed that being unable to identify the limit of liability under a policy does not require an insurer to provide unlimited cover. Partner Michael Quinlan (view CV) and Senior Associate Mark Lindfield explain.

Background

In our 2008 Annual Review of Insurance and Reinsurance Law, we reviewed the decision of the Dust Diseases Tribunal in Stewart v QBE Insurance (Australia) Limited & Anor [2008] NSWDDT 6. In that case, QBE had assumed the liabilities of Mr Stewart's employer's indemnity insurer. QBE agreed that Mr Stewart had the benefit of an insurance policy but, some 40 years later, the original policy documents could not be located. In the absence of any evidence about the actual limit of liability under the policy, QBE noted that legislation at the time required that all employer's liability policies provide a minimum of $40,000 cover. QBE argued that its liability under the policy should therefore be limited to $40,000. Justice Kearns disagreed, ruling that once Mr Stewart had discharged the onus of proving the existence of the insurance policy, QBE bore the onus of establishing any relevant policy limit. His Honour found that QBE had not discharged that onus and that it could, for example, have adduced evidence of typical policy limits from individuals who worked in the insurance industry at the relevant time. In the absence of any evidence of a policy limit, no inference about QBE's limit of liability could be drawn and so his Honour found that the policy that covered Mr Stewart was unlimited.

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The appeal

Justice Kearns' decision was appealed on a number of grounds, which relevantly included an appeal from the finding that QBE's liability was unlimited.

Justice Gyles, with whom Justice Ipp agreed, found that the onus of proving the policy limit rested with Mr Stewart and not with QBE. Their Honours ruled that QBE's defence had squarely put the limit of liability in issue and so it was for Mr Stewart to prove that cover was not limited to the $40,000 minimum required by statute. Mr Stewart had not proved that the cover provided by the insurer was open-ended and so QBE's liability was limited to $40,000.

Justice Brereton dissented, taking the view that the limit of liability was tantamount to an exclusion and therefore the party relying on it, here QBE, bore the onus of proving it. His Honour thought that once QBE had admitted the existence of the policy, it was for QBE to prove any limitation on its obligation to indemnify.

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Comment

Although the Court of Appeal judges were not unanimous, the decision will be a relief for insurers who have assumed liabilities under very old insurance policies for which the original documentation may be lost. However, it does not resolve the question of what limit of liability applies when there is no statutory minimum level of cover to which the court may have regard.

Published 22 April 2009

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