We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our cookie policy. Learn more here.Close Me
The New South Wales Court of Appeal recently found in favour of
a liability insurer who resisted an application that the insurer be
joined to legal proceedings under section 6 of the Law Reform
(Miscellaneous Provisions) Act 1946 (NSW) (section
6)1.
Section 6(1) operates to create a charge on insurance proceeds
that are or may become payable to a third party on the happening of
an event giving rise to the claim for damages or compensation. That
charge is enforceable by way of a direct action against the insurer
provided the Court grants leave under section 6(4). Two of the
threshold issues which a Court relevantly considers are:
whether there is an arguable case that the insured entity is
liable to the claimant
whether there is an arguable case that the policy of insurance
responds.
In recent years, the judicial trend has been in favour of
joining insurers to proceedings. The judgment in Energize
goes against this trend.
Brief facts
The factual background in Energize can be briefly summarised as
follows:
the defendants were the operators of a gym and they were being
sued by a third party who sustained a serious injury while working
out at the gym
the defendants in turn brought cross claims against the
"manufacturers" of the gym equipment on the basis that
the equipment was defective
the "manufacturers" were de-registered and the
defendants subsequently sought leave to join the manufacturers'
insurer.
The decision
The Court held that the defendant applicants failed:
to prove that the insured party manufactured the defective gym
equipment which allegedly caused the injury to the third party
to establish that the insurer had insured one of the
manufacturers.
Justice Campbell (with whom Allsop P and Meagher JA agreed) said
that it could not be right that all an applicant for leave need do
is proffer a pleading that:
alleges facts that, if true, would show that the insured had a
liability to the applicant
such liability fell within the scope of an insurance policy
issued by the insurer regardless of whether there was any arguable
basis upon which those facts might be true.
In the circumstances, the Court refused to grant the applicants
leave to join the insurer.
Conclusion
While the threshold to establish an arguable case is relatively
low, the decision illustrates the importance of requiring an
applicant to establish the basal facts underpinning a joinder
application under section 6. It is a timely reminder that claimants
need to establish that they have an arguable case against the
insured party based on an evaluation of the available evidence
supporting the pleaded case. Failure to do so will prove fatal.
Insurers should also be aware that there are other potential
avenues for claimants to pursue direct actions against insurers,
namely:
under the Court's rules – where there is a common
question of law or fact and the relief claimed is in respect of, or
arises out of, the same transaction or series of transactions
– see, for example, Ashmere Cove Pty Limited v
Beekink (No 2) [2007] FCA 1421 and CGU Insurance Limited v
Bazem Pty Limited [2011] NSWCA 81
under section 51 of the Insurance Contracts Act 1984 (Cth)
– where the insured has died or cannot, after reasonable
enquiry, be found
under section 601AG of the Corporations Act 2001 (Cth)
– where a person may recover from the insurer of a
deregistered company an amount that was payable to the company
under the policy if the company had a liability to the person and
the policy covered that liability immediately before
deregistration.
Footnotes
1Energize Fitness Pty Limited v Vero
Insurance Limited [2012] NSWCA 213 delivered on 19 July
2012.
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.
Middletons has been awarded a 2012 EOWA Employer of Choice for
Women citation acknowledging our commitment to workplace
diversity.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Australian Stock Exchange Listing Rules 3.1, 3.1A and 3.1B, and Guidance Note 8 concerning continuous disclosure obligations came into effect on 1 May 2013.
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.
