An engineer firm WSP Structures was liable to make payment of damages arising from its professional negligence. The debt was paid by the parent company WSP Australia. Despite this payment the insurers of WSP Structures were not relieved of the liability to indemnify the insured on the basis that WSP Structures debt had been discharged.

The policy required the insurers to indemnify the insured in respect of “all amounts which the insured shall become legally liable to pay”. The payment by WSP Australia discharged the liability to make payment to those entitled to receive the payments under the terms of a settlement. That did not alter the fact that it was WSP Structures that was legally liable to pay the amount and therefore that amount was covered by the policy indemnity. WSP Australia could look to WSP Structures for recoupment and was not the “proper plaintiff” in the claim against the insurers as alleged.

Similarly where WSP Australia had paid the legal costs incurred by WSP Structures, the parent had satisfied the subsidiary’s liability after it had been incurred by making payments for its subsidiary. There was no suggestion that WSP Structures was thereby relieved of that liability so that it suffered no insurable loss. The lawyers had been retained by WSP Structures which incurred liability to pay the fees. The legal fees were therefore insured as “expenses incurred for defence of claims and suits” under the insuring clause and were indemnifiable by the insurers.

The principle is that if an insured has in fact received payments which are in the nature of indemnification for the same loss for which indemnification is sought from an insurer under a policy by way of indemnity, then no further indemnity may be sought from the insurer because the nature of insurance is that of a promise to insure full indemnity but not more than full indemnity. The payments made by WSP Australia were not indemnity payments. WSP Australia was simply the source of the funds that were used to make the payments. The insurers were obliged to pay the indemnity therefore.

This same result would follow in South Africa on those facts.

[WSP Structures v Liberty Mutual Insurance Company t/as Liberty Specialty Markets [2023] FCA 1157]