Although the Court allowed a direct claim in this case,
it might be less willing to subject an insurer to direct action
under section 601AG where there was no claim, no notification and
no deeming clause.
The fact that a deregistered company's policy was
"claims made" did not prevent a direct claim against the
insurer under section 601AG (Sciacca v Langshaw Valuations Pty Ltd
 NSWSC 1285).
IMP had a claims made PI policy with Vero. IMP was deregistered
in 2009. In 2011, a former client of IMP alleged that IMP had,
before being deregistered, caused it loss. Because IMP had now been
deregistered, the client applied under section 601AG to recover
that loss directly from Vero, under the policy.
Vero applied to have the application struck out. It argued that
section 601AG did not apply in this situation because:
the policy was a claims made policy;
by the time of its deregistration, IMP had not made any
relevant claim under the policy.
The significance of this, according to Vero, was that section
601AG only applied if an insurer owed a liability to pay an amount
to the insured company immediately before deregistration. This was
based on the argument that section 601AG operates differently
between claims made and "occurrence-based" policies:
in the case of "occurrence-based" policies, the
insurer's liability is effectively congruous with the insured
company's, since both liabilities simultaneously arise on the
happening of the occurrence;
in the case of claims made policies, the insurer's
liability only arises when the claim is made, which could be some
time after the event which gives rise to the insured company's
It appears that Vero was contending that "the insurance
contract covered that liability immediately before
deregistration" (section 601AG(b)) effectively means:
"the insurer was liable immediately before
Vero argued that, if a claim had not been made before the
insured company was deregistered, a person to whom the company was
allegedly liable should have to apply to have the company
reinstated to the register and proceed against the company.
Vero's argument rejected
The Court rejected Vero's argument. It held that "the
insurance contract covered that liability immediately before
deregistration" only means that the relevant risk is one
covered by the policy:
"the words 'the insurance policy covered that
liability" mean no more than that the risk that ensued was one
[which] was within the scope of the policy. I read the section as
requiring that the liability of the insured to the claimant fall
within the cover provided by the Policy, as distinct from requiring
that the insurer be liable to the insured prior to the
deregistration by reason of a claim having been made prior to that
time, that would trigger the insured's right to indemnity under
This requires, in my view, a construction of the Policy and an
examination of the plaintiffs' claim to determine whether the
liability created by the claim falls within the Policy. In the
present case, the risk to IMP was the risk of a claim being made
against it for damages for professional negligence, breach of
contract and damages for misleading or deceptive conduct. This risk
was covered by the Policy which was a claims-made policy for
professional indemnity insurance."
The practical implications of this decision may be more limited
than first appears.
That's because, solely for the purposes of argument in the
case, Vero conceded that:
IMP had a liability to the former client for the purposes of
section 601AG(a); and
but for the deregistration, a claim could have been made
against IMP and it would have been entitled to be indemnified in
respect of that (subject always to any relevant exclusions and
other issues to be tried), since the risk fell within the scope of
Since this was a claims made policy and no claim appears to have
been made, the basis for this concession is unclear – as is
the role it played in the Court's conclusion.
It is, therefore, possible that, should the issue arise again
and no similar concession be made, a court may arrive at a
different conclusion. Where there was no claim, no notification and
no deeming clause, a court might be less willing to subject an
insurer to direct action under section 601AG.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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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.
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