CGU Insurance Ltd v Blakeley & Ors [2016] HCA 2

This recent decision by the High Court expands the possibilities for claimants to recover in some circumstances where an insolvent company has potentially applicable insurance, even where the relevant insurer denies indemnity applies.

This decision is critical for both insurers looking to protect their interests, or for creditors who are proceeding against companies in liquidation or directors with limited assets who may have been denied insurance.

The question for consideration by the High Court recently was whether the exercise of the Supreme Court of Victoria's federal jurisdiction extended to joining the insurer - CGU - under Section 562 of the Corporations Act (and Section 117 of the Bankruptcy Act – equivalent). On this occasion, it was not considered with the exercise of the discretion in making the declaration, which had been considered by the trial judge in the Court of Appeal.

The proceeding related to a company in liquidation, seeking to proceed against three (3) former directors and a de-facto director, for breaching their duties under the Corporations Act, specifically in relation to insolvent trading.

The directors were insured in respect of their liabilities under a professional indemnity policy with CGU and sought to claim under that policy. CGU, however, denied indemnity on the basis of certain exclusions under the policy. In circumstances where one of the directors went into liquidation, and another had significantly limited assets, the liquidators sought leave from the Victorian Supreme Court to join CGU to the proceedings, so as to seek a declaration that CGU was liable to indemnify the Directors under the policy.

The question was whether there was a justiciable controversy between the liquidator and CGU, so as to give rise to a cause of action for the third party. The joint judgment of the High Court found the operation of the legislation, the denial of the indemnity and the insured's non-acceptance of that denial, provided the liquidator with a "sufficient interest" to constitute a justiciable controversy. Justice Nettle found it to be a "real interest".

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