Mutuality

The equitable principle of contribution, as it applies to insurance, ensures that if there are two insurers both liable for the same claim then payment by one insurer can be recouped from the other so that they bear their loss in respective proportions. Contribution has a number of anomalies, and certain issues remain unresolved, but recent decisions, particularly from the Australian courts, have made it clear that contribution applies as long as both policies are required to respond to the loss even though the policies are different in nature and scope. The decision of the High Court of Australia in HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31 recognises a restriction on contribution, and that is that each party must have a contribution claim against the other: if for whatever reason, one insurer is immune from a contribution claim, then the mutuality requirement is a bar to its own contribution claim.

HIH: the facts

As is well known, the HIH Group, at the time Australia’s second largest insurer, was placed into provisional liquidation on 15 March 2001, and it was wound up by the Supreme Court of New South Wales in August 2001. Consumers and businesses alike were, overnight, left without insurance. The government was forced to intervene, and on 21 May 2001 the Minister for Financial Services and Regulation announced a relief package for ‘policyholders suffering financial hardship as a result of the HIH collapse’. The scheme was implemented by the Appropriation (HIH Assistance) Act 2001 (Cth), and set aside AUS$640m to provide financial assistance to policyholders and other eligible persons. The scheme was placed in the hands of a trustee, HIH Claims Support Ltd.