Local and master insurance policies – a relationship considered

  • 8 Nov 2017
  • 8 Nov 2017

Key Points

  • The relationship between “local” policies and associated “master” policies must be carefully considered, particularly whether the existence of certain features of a master policy are automatically incorporated into the local policy.
  • Courts will be slow to rectify insurance policies where they do not include crucial terms.

Hicksons recently appeared for a European insurer that disputed it bore risk under an international master policy.

On 25 April 2015, a severe hail storm in Sydney caused a warehouse owned by Mobis Parts Australia Pty Ltd (Mobis), a subsidiary of Hyundai, to collapse. Mobis sought indemnity under its local policy for the damage, and in the alternative claimed under an international master policy in the event that the local policy did not respond to the claim. It also made a claim under the difference in conditions cover. The quantum of Mobis’ claim was in the order of $62 million and comprised of rectification costs, lost and damaged contents and stock, and business interruption.

Whilst there was no doubt that the storm resulted in the collapse of the warehouse, there was a question as to whether the cause of collapse was the unusual amount of hail which fell during the storm, or the combination of rain and wind. Substantially different limits applied if hail or storm was the primary cause of the collapse. In issue was whether the local policy included a “hail limit” as appeared in the master policy that would have the effect of capping the level of cover available to €10 million, substantially less than the value of the claim. The Australian insurer argued that the local policy should be rectified to include a “hail limit” as it was always intended that the limit be included.

The Court found that the local policy did not include a “hail limit”, and should not be rectified to include one.

The local policy also had a “faulty design” exclusion which, on the Australian insurer’s submission, was triggered so as to exclude Mobis’ claim. Mobis and the Australian insurer called substantial engineering evidence about whether the warehouse had been built in accordance with the Australian Standards. Ultimately the Court found that the Australian insurer had failed to establish that the building had failed due to a design fault, and therefore that Mobis was entitled to indemnity for the building damage under the local policy.

The master policy provided ‘difference in Limits/difference in Conditions’ (DIC/DIL) cover in addition to the coverage under the local policy, and there was a dispute about the extent of any DIC/DIL coverage. However, because the Court found that the local policy did not contain a hail limit and responded to Mobis’ claim, it did not need to consider whether the master policy responded. In any event, the Court found that Mobis had no standing to make a claim on the master policy because, even though it was an insured under that policy, it was only a beneficiary and not a party to the contract. The ICA did not apply to assist it to claim under the policy because the contract was written in Slovakia. The insured party was Mobis Slovakia (as opposed to Mobis), and therefore only Mobis Slovakia had standing to make a claim on the master policy to seek any benefit for Mobis.

Hicksons’ client also argued that it had no exposure under the master policy because it was never intended that it cover losses in Australia. The Court agreed with that argument and found our client free of any exposure under the master policy, if any had arisen.

Hicksons’ client avoided a large potential exposure under an international policy which it said was never intended to cover Australian risks.

Post by Dr Tim Channon and Patrick Hodgetts

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