Requirements to Proceed Against an Insurer Pursuant to S6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - Eastern Creek Holdings Pty Limited v Axis Speciality Europe [2010] NSW CSC840

Requirements to Proceed Against an Insurer Pursuant to S6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)

Judgment date: 30 July 2010

Eastern Creek Holdings Pty Limited v Axis Speciality Europe [2010] NSW CSC840M

NSW Supreme Court¹

In Brief

• In determining whether leave is granted pursuant to section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (Act) a Court will consider whether :-
  1. There is an arguable case against the Insured;
  2. There is an arguable case that the policy responds to;
  3. There is a real possibility that if judgment is obtained the Insured would not be able to meet it.
• With regard to requirement (b) above, the Court does not need to conclusively determine that the policy will respond, just that it arguably may do so.

Background

On 2 August 2006 Eastern Creek Holdings Pty Limited (plaintiff) as principal entered into a design and construction contract (contract) with Seana Constructions Pty Limited as contractor (Insured).

The Insured was responsible for carrying out design and construction of a hotel at Eastern Creek, NSW.

During the period from September 2007 to April 2008 the Insured carried out works pursuant to the contract.

The Insured held a professional indemnity insurance policy (policy) with Axis Speciality Europe (defendant) for the period 11 September 2007 to 11 September 2008.

Clause 1.1 of the policy provided:-

Clause 6.14 of the policy provided that:-

The schedule to the policy describes the Insured's professional business as "Project/Construction Managers".

On 2 September 2008 the plaintiff notified the Insured of a claim based on design defects in respect of the hotel.

The Insured went into liquidation and by summons the plaintiff sought leave pursuant to s6(4) of the Act to file and serve an Amended Technology and Construction List Statement proceeding directly against the defendant.

Decision

Section 6(4) of the Act provides that:-

Justice Hammershlag noted that to obtain leave the plaintiff must show that:-

1. Firstly, there is an arguable case against the Insured;
2. Secondly, there is an arguable case that the policy responds; and
3. Thirdly there is a real possibility that if judgment is obtained, the Insured would not be able to meet it (see Bete Polding College v Limit (No 3) Limited [2008] NSW SC87).

It was accepted by the parties that the first and third requirement were satisfied. However, the defendant argued that the plaintiff did not satisfy the second requirement, namely that the policy arguably responds.

The defendant argued that:-

1. By virtue of Clause 1.1, the policy responds only to claims arising from acts, errors or omissions committed by the Insured in the conduct of the Professional Business;
2. Professional Business means "Project/Construction Managers" as described in the schedule;
3. The alleged "failure" of the Insured pleaded in the proposed Amended Technology and Construction List Statement did not arise out of project/construction management;
4. Accordingly, the policy does not respond to the claim as framed.

The defendant also argued that no claim was made or circumstances notified during the "Period of Insurance".

Justice Hammershlag stressed that the plaintiff must do no more than show that it is arguable that the policy responds. Whether it in fact does so is a matter for the final hearing.

His Honour noted that at an interlocutory stage it is neither possible nor appropriate to determine whether the conduct complained of in the proposed Amended Technology and Construction List Statement amounts to activities in the conduct of the business of the project/construction management, within the meaning of those words in the policy.

His Honour noted that it is sufficient that the activities of the Insured out of which the claim against it arose are capable of being viewed as part of the conduct of carrying out the business of project/construction managers. His Honour considered that it is undoubtedly arguable that the Insured's conduct complained of was in the course of what may fairly be described as managing the project or its construction and therefore conduct which may be viewed as that of the business of "Project/Construction Managers".

With regard to the failure to notify, His Honour held that the defendant's submission that the Insured had no claim because it did not make one within the policy period was not one that the policy does not respond, but rather one that the plaintiff has no arguable answer to a defence which the defendant might in future raise. He considered that it was not necessary that the plaintiff must show that it has an arguable reply to a defence which may be available to the defendant and which may or may not one day be raised.

His Honour therefore considered that the plaintiff met the required threshold and it is arguable that the policy on its wording responds to the risk.

His Honour also commented that section 54 of the Insurance Contracts Act 1984 might operate to preclude the defendant from refusing to pay the claim as a result of the omission by the Insured to make a claim within the policy period.

Implications

The decision demonstrates that it is very difficult for an Insurer to defend an application joining them pursuant to section 6(4) of the Act at an interlocutory stage.

A plaintiff must do no more than show that it is arguable that the policy responds and does not need to definitively establish that the policy will do so.

1. Justice Hammershlag

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.