Australia: Reliance on s 54 of The Insurance Contracts Act By Third Parties

Last Updated: 3 August 2010

Article by Craig Hyde and Larissa Peng

Judgment date: 14 July 2010. Gorczynski v W & FT Osmo Pty Ltd [2010] NSWCA 163, NSW Court of Appeal1

In Brief

  • This case involved an application for leave to proceed directly against an insurer under section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (s6). The Insurer argued that leave should not be granted as no claim had been notified to it during the relevant policy period as required by the policy wording.
  • The Plaintiff sought to rely on Section 54 of the Insurance Contracts Act (s 54) which provides that an insurer may not refuse to pay a claim by reason only of an act or omission by the insured or any other person after the policy was entered into and which could not reasonably be regarded as capable of causing or contributing to the loss.
  • The Insurer said only the insured could rely on the provisions of s 54. The Court of Appeal disagreed.


In 1999 W & FT Osmo Pty Ltd (Osmo), a firm of consulting structural and civil engineers, was retained by the Plaintiff's neighbour to prepare certificates in relation to an existing building. In reliance on those certificates, the local Council issued building certificates retrospectively authorising the construction of the building.

The Plaintiff successfully brought proceedings in the Land & Environment Court for orders that the building be demolished.

In May 2006, the Plaintiff commenced proceedings in the District Court against Osmo to recover the cost of legal fees he had incurred from the Land & Environment Court proceedings.

Osmo did not defend the District Court proceedings and in July 2007 the plaintiff obtained default judgment against it. Osmo was unable to meet any award against it.

In December 2008, the Plaintiff filed a Notice of Motion seeking leave to join Osmo's insurer, QBE (Insurer), to the proceedings against Osmo pursuant to s 6. Section 6 creates a statutory charge over insurance monies that would otherwise be payable to an insured in favour of injured third parties.

At first instance in the Supreme Court, Simpson J dismissed the Plaintiff's motion for leave. The plaintiff appealed.

Court of Appeal

It was accepted in the Court of Appeal that Simpson J's decision was factually flawed. The Insurer did not argue otherwise but raised a number of other arguments in its notice of contention.

Of those, the Court was primarily concerned with an argument that s 54 had no application as Osmo never made a claim against it. The Insurer said that there was no 'claim' within the meaning of s 54 and, even if there was, that claim was not made by the Insured but by a third party.

The Court of Appeal considered that the filing of the application for leave was itself a claim against the Insurer. The question was then whether only Osmo could make the claim.

The Court noted that the policy behind s 54 is to limit an insurer's remedies so that they reflect the actual loss the insurer has suffered as a consequence of the relevant act or omission. On that basis, the Court said it was difficult to see why that policy does not apply to a claim made by a third party as much as to a claim made by the insured where the contract of insurance is otherwise engaged.

The Court also considered that the Insurer's submission overlooked the essential nature of the s 6 charge on the insurance moneys. The opening words of s 6(4) provide that every such charge shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured. Further, in respect of any such action the parties have the same rights and liabilities as if the action were against the insured.

The Court concluded that a claim to enforce such a charge against the insurer was essentially the same as a claim upon the insurer by the insured itself.

Despite successfully navigating his way through the insurance issues, the Plaintiff's application for leave was ultimately rejected on the basis his claim was out of time.


This case makes it clear that reliance on s 54 is not restricted to the insured under a policy of insurance. It is also open to a third party making application directly against an insurer pursuant to s 6. By implication, it should also extend to similar applications under other legislation such as s 562 of the Corporations Act.

The decision reinforces the willingness of the Court to look at the policy reasons behind provisions such as s 6 and s 54 in determining the scope of the remedies they provide.

1. Giles JA, Tobias JA and McColl JA

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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