Third Parties Suing Insurers Directly
The Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) permits third parties to prosecute their claims against insurers directly if they have the court’s permission beforehand.
The Federal Court of Australia has recently handed down a decision which represents a useful reminder of the factors which need to be established to the court’s satisfaction before permission will be given.
The context of the proceedings before the Federal Court was a complaint about the supply of improper cladding in the construction of two high-rise residential buildings in New South Wales. The supplier of that cladding had been placed into administration leaving the building’s owners with no recourse other than the supplier’s professional indemnity insurers.
In giving the owners leave to proceed against the insurers, the Federal Court articulated the factors to be established as:
an arguable claim against the insured;
an arguable case that the relevant policy will respond to the arguable claim; and
a real possibility that the insured will not be able to meet any judgment against it.
Even if these factors exist, there is a residential discretion whether to grant leave to proceed.
As a side note, the Federal Court observed that even though the relevant legislation is State legislation (in this case New South Wales), the Federal Court had jurisdiction to entertain applications for leave to proceed and the power to give leave to proceed.
Breach of Professional Duty and Damage
It is one thing (and often the easier thing) to establish that a professional person has breached his or her obligations to act in the manner that a reasonable person in that profession would act.
But that is not enough. The claimant must link the damage claimed to the breach. Causation is the vehicle which makes good that link.
The issue of causation recently came before the New South Wales Court of Appeal. In this case an insurance broker failed to advise his client that the policy being purchased carried an exclusion for damage arising from the shift in swimming pools (Pool Exclusion). There was no Pool Exclusion in the expiring policy.
As can often be the case (Murphy’s Law), the insured’s pool lifted causing property damage. The insurer denied the client indemnity, relying upon the Pool Exclusion. A challenge to AFCA was unsuccessful.
The breach of the broker’s duty was accepted but did that breach cause the claimant’s loss?
The NSW Court of Appeal unanimously held that it did not. The Court accepted that had the insured been properly advised, she could have obtained a policy on similar terms without the Pool Exclusion but even that hypothetical policy would not have responded to the claim.
The pool’s movement was due to a defect in the pool (excluded under the hypothetical policy) and the insured had not taken reasonable precautions to prevent the damage from occurring (also excluded under the hypothetical policy).
Causation not being established, the insured’s claim against her broker failed notwithstanding the accepted breach of duty.
When is a Vehicle a Tool of Trade?
Transporting your heavy equipment from a client’s site back to your depot can be challenging and require detailed planning. What happens if you still damage your client’s property in the process.
This is the very situation which presented itself before the Federal Court. The Insured owned a very large excavator which it attached to the back of its Prime Mover and Trailer to transport it back to its depot from a client’s site. On the way the Prime Mover and Trailer struck and damaged the underneath of the client’s bridge.
The insurer denied the insured indemnity asserting that this was just damage caused by the use of a vehicle hence attracting the policy’s exclusions.
The Court disagreed. The Prime Mover and Trailer were not simply carrying goods (in this case the excavator) from one location to another. Attaching the excavator to the Prime Mover and Trailer rendered them a tool of trade and therefore rendered the exclusion upon which the insurer sought to rely, inoperable.
The Court directed the insurer to indemnify the insured for the damage caused to the bridge.
Mark Sheller
Principal | Sheller
SHELLER | Clarence Chambers | Level 13 | 111Elizabeth Street | Sydney NSW 2000 | Australia
Insurance & Commercial Law contact@shellerlegal.com | www.shellerlegal.com
DISCLAIMER
This newsletter is intended to provide a general summary only and does not purport to be comprehensive. It is not, and not intended to be, legal advice.
© Sans Limitations Services Pty Limited
Edition 7 - July 2023