With the enactment of the Civil Liability (Third Party Claims Against Insurers) Act 2017 ('the Act'), comes the ability of parties to issue or maintain proceedings directly against the insurer under section 4 of the Act in circumstances where there is an insured person with an insured liability.
Whilst the legislation is still relatively new, the tests which sit behind the courts discretion to allow proceedings directly against an insurer were thought to have been informed by the previous tests applied to (the now repealed) s.6 of the Law Reform (Miscellaneous Provisions) Act 1946 NSW.
Well settled criteria
The required considerations for a prospective claimant to issue directly against the insurer were neatly packaged into the 'well settled criteria', referred to in Zaki v Better Building Constructions Pty Ltd  NSWSC 1522.
Campbell J outlined three issues that the court will consider in allowing a claimant to proceed:
- That there exists "an arguable case of liability against the defendant",
- "[T]hat there is an arguable case that the insurer's policy responds to that liability"
- "[A] real possibility that, if the plaintiff obtains judgment against the defendant, the defendant will not be able to meet it".
Reinforcing the 'well settled criteria'
In the recent decision of Ritchie v Advanced Plumbing and Drains Pty Ltd  NSWSC 1028, the court reinforced the 'well settled criteria' by framing their decision in light of the Zaki case.
In this matter, the court turned its mind to whether the insurer had an "entitlement to disclaim liability under its contract of insurance or under any act or law in accordance with the provisions of s 5 (4) of the Act" [ Para 66]. In this instance, the court made clear that the onus is on the insurer to satisfy the court of any entitlement to disclaim liability.
Ultimately, The Court of Appeal was only required to address the second issue of "policy response", specifically whether an exclusion clause relating to "spark producing equipment" had been triggered. The court read down the exclusion Contra Proferentem by finding that the exclusion clause had applied to specific types of equipment that produced sparks as part of their ordinary usage, but that it did not apply to equipment that only produced sparks incidentally.
This subsequently led to the finding that the policy did in fact respond to the liability.
Interestingly, however, the court did explicitly refer to its residual power to decide whether to grant or refuse leave more generally, despite a claimant satisfying the 'well settled criteria'. This reference implies that claimants cannot expect a rubber stamp approach in direct proceedings against an insurer, and that in some instances, even despite satisfying the criteria to proceed, the court may still decline to grant leave to proceed.
- Parties should prepare their case having regard to the 'well settled criteria', and work through each step sequentially;
- Leave to proceed can be sought either before or after proceedings have been commenced, but cannot be continued without leave;
- Given the interlocutory nature of the motion seeking leave, the threshold for applicants seeking to proceed directly against the insurer is relatively low;
- Leave may be refused despite parties satisfying the 'well settled criteria', if the court is presented with sufficient reasons; and
- Despite an interlocutory grant of leave it will still be open to an insurer to contend at hearing that their policy does not respond.
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.