Australia: Claiming Against the Insurer of a Deregistered Company

Insurance Update

The NSW Supreme Court recently considered the proper construction of section 601AG of the Corporations Act 2001 (Cth), which can allow a claim to be made against the insurer of a deregistered company.

A medial negligence action was brought by a child and his parents (the plaintiffs) in May 2001 against two doctors and a hospital following the child's birth in November 1996. In July 2002, the plaintiffs sought and were later granted leave to join the hospital's insurer, CGU Insurance Ltd (CGU), pursuant to section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMPA), which enables a person to enforce a charge on insurance moneys arising under section 6(1) of the LRMPA.

On 24 May 2005, the hospital was deregistered. The doctors filed cross-claims against the hospital and CGU as joint tortfeasors seeking contribution under section 5 of the LRMPA on 19 May 2006. The Court of Appeal then gave its decision in Owners - Strata Plan 50530 v Walter Construction Group Ltd (in liq) [2007] (Walter Construction), which held that no charge arises under section 6(1) of the LRMPA where the policy in question was not in existence at the time of the events giving rise to the claim.

The decision in Walter Construction was timely for the plaintiffs as they sought to rely upon the hospital's 1999/2000 CGU professional indemnity policy, despite the events giving rise to the claim occurring in November 1996.

On 14 May 2008, CGU sought declaratory relief and orders striking out the doctors' cross-claims following Walter Construction. The doctors then sought leave to amend their cross-claims against CGU to include a claim under section 601AG of the Corporations Act, on the basis that they were entitled to recover insurance moneys payable by CGU to the hospital.

Section 601AG provides that:

A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:

  • the company had a liability to the person, and
  • the insurance contract covered that liability immediately before deregistration.

CGU argued that neither subsection (a) nor (b) were satisfied on the basis that since no liability has been established by the plaintiffs against the doctors or the hospital, they did not have a liability immediately before deregistration. The doctors contended that it is sufficient if the determination that a liability existed immediately before deregistration is made at the hearing of the claim under section 601AG.

In considering the construction of section 601AG, McCallum J held that the section is remedial and creates a new cause of action to recover an amount that was payable to the deregistered company under the relevant insurance contract, with no requirement for leave needed to bring an action under the section, as compared to section 6(4) of the LRMPA.

McCallum J relied upon the authority in National Mutual Fire Insurance Co Ltd v Commonwealth [1981] that the liability of one tortfeasor includes their "secondary liability" to contribute to the damages payable by another and under section 601AG(a) it must be proved that as at the time of the hearing, the deregistered company was a joint tortfeasor immediately before deregistration.

While the plaintiffs had not obtained judgement against the doctors prior to the hospital's deregistration, McCallum J accepted that if it is established at a final hearing that the hospital and doctors are liable to the plaintiff and entitled to recover contribution from each other, those findings will establish that the hospital "had a liability" to the doctors immediately before deregistration pursuant to section 601AG.

With respect to section 601AG(b), CGU submitted that the hospital "shall become" liable only when established by "judgement, award or settlement". However, the doctors submitted that the question was whether the insurance policy covered their liability.

McCallum J was in agreement with the doctor's submissions and held that if the hospital is found to have had a liability to the doctors and the doctors establish that the policy, when properly interpreted, responds to that liability, the doctors will have shown that the policy "covered that liability" immediately before deregistration of the hospital.

This case highlights an alternative avenue for claims to be made against insurers of deregistered companies, rather than attempting to have a deregistered company reinstated.

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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