On 9 December 2011, the New Zealand High Court held in Ruscoe v
Canterbury Policy Holders HC WN CIV 2011-485-1535 that a charge
under section 9(1) of the Law Reform Act 1936 (the
LRA) applied so as to give Canterbury first charge over
the proceeds of reinsurance. This follows the earlier New Zealand
High Court decision in Bridgecorp1, where it was held
that section 9 of the LRA prevented directors who were insured
under a D&O policy from accessing defence costs because a
charge had been placed over those proceeds.
The Applicants, the Liquidators of Western Pacific Insurance
Limited (Western Pacific) applied to the Court for
orders regarding the distribution of proceeds of reinsurance. The
Liquidators submitted that the proceeds were available to all
claimants and unsecured creditors. The Respondent, Canterbury
Policy Holders (Canterbury) contended that section
9(1) of the LRA applied so as to give them first charge over the
proceeds of reinsurance.
Western Pacific went into liquidation on 1 April 2011. Unsettled
claims totalled approximately $60 million. An estimated two thirds
of the value of those claims were said to relate to claims arising
from the Christchurch earthquakes.
The earthquake claims triggered Western Pacific's
catastrophe reinsurance treaty for both 2010 and 2011. The maximum
cover available for both years was $33 million. The treaties
provided that the money was payable even if Western Pacific (the
reinsured) became insolvent. Canterbury contended that the proceeds
of reinsurance were available just to those whose claims triggered
For section 9(1) of the LRA to apply, Western Pacific must have
entered into a "contract of insurance", by which it was
"indemnified against liability to pay any damages or
The Liquidators submitted that the requirements section 9(1)
were not met because:
The reinsurance was of the original subject matter and not an
insurance of Western Pacific's liability in relation to the
The liability of Western Pacific to the original insured was
not a liability to pay damages or compensation.
The New Zealand High Court held that reinsurance contracts were
included within the meaning of "contract of insurance" on
the basis that they had not been expressly excluded from the ambit
of the LRA. His Honour noted a tendency for legislation to
expressly exclude reinsurance if there was to be "a special
rule"2. Further, there was nothing in legislative
history that would support the interpretation that section 9(1) of
the LRA did not apply to reinsurance.
France J determined that liability to pay compensation was broad
enough to apply to this reinsurance situation on the basis that
Western Pacific agreed to indemnify its policyholders for loss they
suffered within the terms of the original policy, which was
considered to be an obligation to compensate them.
His Honour held that the reinsurance treaties were triggered by
Western Pacific's liability to pay compensation to Canterbury
and section 9(1) of the Act says that those policy holders have a
charge on the reinsurance money that had become payable in respect
of that liability.
Application to Australia
There is no authority in Australia on the NSW equivalent
legislation (section 6 of the Law Reform (Miscellaneous Provisions)
Act 1946 (NSW)) applying to contracts of reinsurance.
However, in Ruscoe v Canterbury, France J referred to a number
of Australian decisions that support the position that, in the
absence of any express exclusions, legislation referring to
insurance contracts applies also to reinsurance contracts: see Re
Dominion Insurance Co of Australia Limited  1 NSWLR 271.
Further, in HIH Casualty & General Insurance Ltd (in liq) v
Wallace (2006) 68 NSWLR 603, Justice Einstein held the term
"contract of insurance" in section 19 of the Insurance
Act 1902 (NSW) included contracts of reinsurance. Therefore,
although it is untested, it appears that section 6 of the Law
Reform (Miscellaneous Provisions) Act 1946 (NSW) may apply to
reinsurance contacts as well as to insurance contracts.
1Steigrad v BFSL 2007 Limited  NZHC
1037 2Ruscoe v Canterbury Policy Holders HC WN CIV
2011-485-1535 at 24 (9 December 2011)
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