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
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
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) 
(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
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
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  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
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.
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Whereas most insurance policies exclude liability arising under contract, insurers can
positively benefit where an insured has limited or excluded its liability under contract.
This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
Last week the Australian Securities and Investments Commission (ASIC) initiated a major inquiry into life insurance claims practices.
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