Inviting an Insurer to the Party in New South Wales

Introduction


Over the last few years, I have written occasionally about plaintiffs accessing a defendant’s insurance policy or (following a potentially longer path) seeking the court’s leave to join a defendant’s insurer to the proceedings between the plaintiff and the defendant.


A couple of years ago the regime in New South Wales for joining an insurer to such proceedings in New South Wales, changed radically upon the introduction of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).


The old way[1] of attaching a charge to the policy’s proceeds and freezing everything was abandoned in 2017 for a more streamlined process of applying to join the insurer to the proceedings.


We are a few years down the track since the implementation of this new regime and I thought that in light of some recent court cases and the economic environment generally, now was the time to revisit how the Courts have approached this Act.


The Change


The repeal and replacement of s 6 of the 1946 Act was driven by Report 143 of the New South Wales Law Reform Commission, Third Party Claims on Insurance Money; review of s 6 of the Law Reform (Miscellaneous Provisions) 1946 of November 2016 (“NSWLRC report”).


The idea proposed by the authors of the NSWLRC report was that a grant of leave to join an insurer to proceedings will be determined by reference to what they called “well settled criteria”: that there is an arguable case of liability against the defendant; that there is an arguable case that the insurer’s policy responds to that liability; and there is a real possibility that, if the plaintiff obtains judgment against the defendant, the defendant will not be able to meet it.


In short, unless there were clear reasons why a claim against the insurer could not succeed, leave would be granted and any on-going dispute between the plaintiff/defendant and insurer determined as part of the process of determining the wider proceedings.

The Relevant Provisions


The relevant provisions of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) are as follows:-


4 - CLAIMANT MAY RECOVER FROM INSURER IN CERTAIN CIRCUMSTANCES


(1) If an insured person has an insured liability to a person (the "claimant" ), the claimant

may, subject to this Act, recover the amount of the insured liability from the insurer in

proceedings before a court.


(2) The amount of the insured liability is the amount of indemnity (if any) payable

pursuant to the terms of the contract of insurance in respect of the insured person's

liability to the claimant.


(3) In proceedings brought by a claimant against an insurer under this section, the

insurer stands in the place of the insured person as if the proceedings were

proceedings to recover damages, compensation or costs from the insured person.

Accordingly (but subject to this Act), the partieshave the same rightsand liabilities,

and the court has the same powers, as if the proceedings were proceedings brought

against the insured person.


(4) This section does not entitle a claimant to recover any amount from a re-insurer

under a contract or arrangement for re-insurance.


5 - LEAVE TO PROCEED


(1) Proceedings may not be brought, or continued, against an insurer under section 4

except by leave of the court in which the proceedings are to be, or have been,

commenced.


(2) An application for leave may be made before or after proceedings under section 4

have been commenced.


(3) Subject to subsection (4), the court may grant or refuse the claimant's application for

leave.


(4) Leave must be refused if the insurer can establish that it is entitled to disclaim

liability under the contract of insurance or under any Act or law.


7 - MATTERS ON WHICH INSURER MAY RELY


In proceedings brought under section 4, the insurer is entitled to rely on any defence or

any other matter in answer to the claim or in reduction of its liability to the claimant:


(a) that the insurer would have been entitled to rely on in a claim made by the insured

person under the contract of insurance, or


(b) that the insured person would have been entitled to rely on in proceedings brought

by the claimant against the insured person in respect of the insured liability.

The Process


Since its introduction, the Courts have approached the process under the broad umbrella of the notion that the Act’s purpose is to insulate insurers from exposure to untenable claims.


With that in mind, the Courts have grouped the process as follows: -


Issues for the Plaintiff (Applicant)

  • establish that an arguable case against the defendant exits;

  • establish that there is an arguable case that the relevant insurance policy responds to the claim; and

  • establish that if the plaintiff obtained judgment against the defendant, the defendant would be unable to meet the claim.

Issues for the Insurer (Respondent to the Application)

  • demonstrate that the policy does not respond; or

  • persuade the Court that as a matter of its residual general discretion, it should not grant leave.

Generally


A survey of the cases in which applications to join the insurer have been determined, reveals that they usually turn on the strength of the plaintiff’s claim against the defendant and the policy’s response.


While the steps may appear simple, the approach is a little more sophisticated. In Ritchie[2] the Court wrote as follows: -


Section 5 of the Act clearly imposes the onus on CGU to establish that it is entitled to disclaim liability under the insurance policy. If successful leave must be refused. If unsuccessful the Court must still consider whether cover is arguably available. In Zaki (at [28]) I ventured that the onus imposed on the insurer by s 5(4) of the Act requires it to demonstrate beyond argument an entitlement to decline indemnity. I also ventured that General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 applies given the Court is asked to make this decision without affording the parties the opportunity of a trial. Naturally, frequently the question will depend upon a pure question of law, such as a point of construction of the policy, which may be confidently decided without the benefit of findings of contested fact: eg, Wickstead v Browne (1992) 30 NSWLR 1 at 15-17. This may be so even if extensive legal argument is necessary before a decision may be made: General Steel at [130]; Wickstead at [5]. However, where in truth the question is one of mixed fact and law, the existence of unresolved contestable questions of fact will usually demonstrate the existence of an arguable case.’


The burden on the insurer will be a difficult one to discharge other than in the most obvious cases.


Key Point


There is a simply expressed process in New South Wales[3] to join insurers to proceedings but all parties must approach that process carefully. That is the approach which the Courts are taking.


The most recent decision is Count Financial Limited v Pillay [2021] NSWSC 99 (17 February 2021).







_________________________________ [1] Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) [2] Ritchie v Advanced Plumbing and Drains Pty Ltd [2019] NSWSC 1028 (16 August

2019) [3] The position in other the other jurisdictions of Australia is less well defined.

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