WSP STRUCTURES PTY LTD V LIBERTY MUTUAL INSURANCE CO AND OTHERS

[2023] FCA 1157, Federal Court of Australia, Justice Colvin, 28 September 2023

Insurance – Meaning of "subcontractor" – Whether promise of indemnity precluded claim from other insurers – Election – Whether right to claim against insurers waived by an earlier claim – Recoupment – Indemnification

WSPS structural engineers incurred liability in respect of their work on a residential building in Sydney.

Following a settlement, WSPS's professional indemnity insurers undertook to pay both damages and legal costs. WSPS's parent company, WSPA, funded payment of both. WSPS then claimed under a liability policy procured by the head contractors. The policy consisted of a primary and an excess layer, and provided cover for "sub-contractors" and also "professional consultants, but only in relation to their manual on-site activities …". The primary and excess layer insurers raised a series of defences, although they took different views on them.

It was held by Colvin J that the insurers were liable to provide indemnity.

(1) The liability policy covered WSPS on the basis that it was a "subcontractor", as that word was not confined to those undertaking only construction work and applied to any person performing duties delegated by the head contractor. The fact that there was express coverage for professionals but limited to manual activities did not detract from the generality of coverage for subcontractors.

(2) The fact that WSPS had been promised indemnification by its professional indemnity insurers did not amount to the receipt of an indemnity. Actual payment was required. A claim under liability policy was therefore not precluded. Further, the making of a claim under the professional indemnity policy by WSPS did not amount to an election not to claim under the liability policy.

(3) The correct claimant was WSPS and not WSPA even though the sums that WSPA had paid were due from the liability insurers. WSPA may have had a recoupment claim, but it was not against the insurers it was against WSPS.

(4) The payment by WSPA had not reduced WSPS's insured loss. The payments were by a parent to meet the obligations of a subsidiary. WSPA had no responsibility to make the payments or to take on the burden of the consequences of the conduct of WSPS. WSPA was simply the source of the funds that were used to make the payments, and the only available inference was that the payments were made as a means of putting WSPS in funds to meet its liabilities. WSPS had not been indemnified by WSPA.