Australia: Late breaking news for insurance litigators in New South Wales

In the relative calm of the post-Christmas period we bring to your attention two developments that occurred in December 2016.

First, the Expert Witness Code of Conduct contained in schedule 7 of the Uniform Civil Procedure Rules 2005 (NSW) (the Code) was amended as of 9 December 2016. The amendment makes the Code conform with harmonised rules approved by the Council of Chief Justices.

For insurers and solicitors, the main issue is to ensure experts are instructed with the amended version of the Code. From an expert's perspective there are a few key differences in the amended Code, including:

  • Requiring an expert to provide a supplementary report forthwith, if the expert changes their opinion on a material matter.
  • The expert must declare that they have made all the inquiries they believe are desirable and appropriate, save for any matters already expressly identified in the report, and that no matters of significance (that the expert regards as relevant to their knowledge) have been withheld from the court.

Second, on 19 December 2016 the Attorney General released the NSW Law Reform Commission's (NSWLRC) report, which reviews s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). The report includes draft legislation to amend s 6, which aims to clarify some of its uncertainties. The proposed amendments will be of particular interest to claimants and insurers that provide D&O cover and/or write policies on a "claims made and notified" basis.

The key change is that the concept of a statutory charge in s 6 is proposed to be replaced with a provision that allows for a plaintiff to have direct access to an insurer, which follows the approach in s 601AG of the Corporations Act 2001 (Cth) and s 51 of the Insurance Contracts Act 1984 (Cth). The NSWLRC considers that providing for direct access, rather than a charge on insurance monies, will overcome the:

  • Uncertainties around whether insurers can pay defence costs of directors and officers of a company if they come from the same pool of funds that are available to meet the company's liability and the statutory charge has descended. Current NSW Court of Appeal authority is that the statutory charge does not prevent an insurer from discharging its obligation to an insured to pay legal costs (Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212), however, there is New Zealand authority to the contrary (BFSL 2007 Ltd v Steigrad [2013] NZSC 156). A clear resolution of this issue will assist insurers to ensure defences are appropriately funded and run.
  • Uncertainties around when the rights conferred by s 6 arise in cases of pure economic loss.
  • Inability to apply the statutory charge to "claims made and notified" policies where the relevant events giving rise to the liability occurred before a policy commenced. While this amendment will result in greater exposure for insurers, it arguably strikes a fair balance between the interests of claimants and insurers.

To ensure insurers are not exposed to unwarranted action, the draft legislation proposes that leave be required for a plaintiff to obtain direct access to an insurer (as is the case with s 6). Leave is not to be granted if the insurer can establish it is entitled to disclaim liability under the policy of insurance or any relevant law. Interestingly, the draft legislation does not contain the requirement currently under s 6(4) for the prohibition of the granting of leave, that is, that any proceedings necessary to establish that the insurer is entitled to disclaim liability have been taken. The report does not explain why it is proposed that this requirement be dispensed with.

Otherwise, the draft legislation provides for an insurer to retain any defences it could have raised against the defendant, as well as defences the defendant could raise against the plaintiff (as is currently the case with s 6)—that specific provision be made for the limitation period for bringing proceedings against an insurer and that it be made clear that the new provision will not apply to re-insurance.

The NSWLRC strongly advocated for the Commonwealth to enact a general provision to provide for a national approach and it remains to be seen if this call will spur any action. In the meantime, we await with interest the government's response to the report and will keep you updated.

You can view the NSWLRC's report and the draft bill here.

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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