QBE Insurance (Australia) Limited v NSW Self Insurance Corporation

HIS HONOUR: On 11 June 2007 Jason Mannall ("Mannall"), a member of the NSW Police Force ("the Police Force") was injured in the course of his employment when a motor vehicle owned by his employer, in which he was travelling and which was being driven by another police officer, was involved in an accident. The accident was caused by the negligence of the driver.

The plaintiff ("QBE") was the insurer of the vehicle under a policy issued by it in the form prescribed by the Motor Accidents Compensation Act 1999 (NSW).

Mannall lodged a damages claim against the Police Force and the driver. QBE granted indemnity under the policy to the Police Force and on 3 August 2010 Mannall and QBE entered into a written settlement agreement under which QBE paid him the sum of $1,175,000. It is not in dispute that the settlement sum was reasonable.

Section 9(1) of the Workers Compensation Act 1987 (NSW) provides that a worker who has received an injury shall receive compensation from the worker's employer in accordance with the Act. Mannall was entitled to receive such compensation from his employer in respect of his injury.

Section 3(5) of the Workers Compensation Act provides:

The Crown was thus the employer of Mannall.

Part 7 of the Workers Compensation Act is entitled "Insurance". It requires an employer, other than a self-insurer, to obtain from a licensed insurer and maintain in force a policy of insurance for the full amount of the employer's liability under the Act in respect of all workers employed by the employer and for an unlimited amount in respect of the employer's liability independently of the Act for any injury to any such worker.

Section 3(1) defines self-insurer relevantly to mean any Government employer covered for the time being by the Government's managed fund scheme (as provided by s 211B).

Section 211B provides:

At this point it is apt to observe that the Police Force does not have separate corporate existence. It is established by s 4 of the Police Act 1990 (NSW) which provides that:

By s 212 of the Police Act, the Act binds the Crown in right of New South Wales and, in so far as the legislative power of Parliament permits, the Crown in all its other capacities.

No provision of the Police Act gives the Police Force corporate existence. The Police Force is no more than a structure within an emanation of the Crown.

The defendant is established by s 4 of the NSW Self Insurance Corporation Act 2004 (NSW) which provides:

At the material time, s 3 of the NSW Self Insurance Corporation Act provided relevantly that:

Section 8 provided relevantly that:

Section 11 provided relevantly that:

Before 1989 the NSW Government owned and operated the Government Insurance Office ("GIO") which managed claims made against NSW Government agencies in respect of workers compensation and motor vehicle accidents.

In 1988 a decision was made by the Treasury to vary the scheme to manage the claims itself. According to Mr Peter English, the defendant's "manager of contract performance", this lead to the creation of the Treasury Managed Fund (or TMF), which came into operation on 1 July 1989. Mr English describes it as an indemnity scheme which provides security in relation to the liability risks of "budget dependant agencies of the NSW Government".

The definition of Government managed fund scheme requires there to be "an arrangement". QBE called on the defendant to produce the instrument embodying the arrangement described as the TMF. The proceedings were adjourned to permit time for it to be produced. Surprising as it may sound, the only document produced is the one referred to below, the legal status of which is unclear and which may be no more than advertising material. However, the parties proceeded on the footing that it embodies an arrangement and I will proceed on the basis that the TMF is a Government managed fund scheme referred to in s 8(1) of the NSW Self Insurance Corporation Act and the Government management fund scheme referred to in s 211B(2) of the Workers Compensation Act. I will refer to the document as "the instrument" although this may not be an apt description.

The instrument was apparently published by GIO General Ltd (perhaps on behalf of the NSW Government) and is entitled:

The following are extracts of passages under the headings shown:

The instrument contains, as a separate section, the following:

Included in the instrument is Appendix 2 which contains information about the funding mechanism for the TMF. This is achieved by way of a budget for claims being allocated to a particular agency and premiums paid by the agency being set which will enable that budget to be met. Appendix 2 states that if an agency's budget allocation exceeds its premium this indicates that the agency has performed better than its benchmarks, or not as well if the premium is greater than the allocation. It states however that:

On 1 July 2005 the defendant became the manager of the TMF.

QBE contends that under the TMF the defendant had a common monetary obligation with QBE to indemnify the Police Force in respect of the Police Force's liability to Mannall. QBE claims that the defendant is obliged to make contribution to QBE of half the settlement sum paid to Mannall.

QBE puts that:

The defendant puts that:

The principles of contribution are designed to adjust the rights of co-obligors when one of them, voluntarily or involuntarily, discharges their common obligation. Only a community of interest will make it inequitable for the party against whom the contribution is sought to keep the benefit which arises from the claimant discharging its obligations: Burke v LFOT Pty Ltd (2002) 209 CLR 282 at [38] and [42] per McHugh J; see too HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72 at [36] and following.

Whilst the TMF is replete with insurance terms such as "coverage" and "premiums" and is undoubtedly intended to mimic insurance, it is no such thing. There is no contract between a relevant agency (or for that matter any individual) and the defendant. So much was conceded on behalf of QBE. A contention that QBE and the defendant were co-insurers of the same risk was correctly abandoned.

There is no (or no sufficient) community of interest between QBE and the defendant so as to engage the principles of contribution. The defendant is not an indemnifier. But if it is, its obligation is not common with QBE in the sense that they have a community of interest.

Under s 11(1) of the NSW Self Insurance Corporation Act the money constituting the fund is in the Special Deposits Account.

Section 4 of the Public Finance and Audit Act 1983 (NSW) provides relevantly that:

The same section defines Consolidated Fund to mean:

Section 39 of the Constitution Act 1902 (NSW) provides as follows:

The fund which underlies the TMF has no separate legal existence. The monies in it belong to the State and are managed by the defendant on its behalf. Under s 8(1)(d) of the NSW Self Insurance Corporation Act, the defendant acts for the State, or an authority of the State, in dealing with claims. It does so out of the fund established by s 11, which is in the Special Deposits Account. By s 211B of the Workers Compensation Act, the fund is used to discharge the obligations of a Government employer as self-insurer.

The "arrangement", if it is one, does no more than establish a fund which is managed by the defendant and out of which liabilities incurred by Government agencies, in the present case an agency which is in the right of the Crown, are directly met.

The premiums for which the TMF provides are not premiums at all in the conventional sense. They come out of and go back into consolidated revenue. They are merely components of an accounting mechanism by means of which the fund is disbursed to meet claims of Government agencies, their performance is measured and improved performance is sought to be encouraged.

As disturbing as it may be for those who might think otherwise, the TMF provides no risk cover in the nature of insurance to anyone. It might aptly be described as an insurance phantasm.

The defendant's obligation is to manage the fund by meeting claims made against Government agencies. This obligation is in no way co-ordinate with that of QBE under its motor-vehicle policy which rendered it liable in respect of Mannall.

QBE and the State have no more a community of interest than an insured has with its insurer. The defendant is even one step further removed from such community.

The proceedings must be dismissed.

The exhibits are to be returned.