Key Points:

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 [2013] 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 liability.

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 deregistration".

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 the Policy.

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 the policy.

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. Persons listed may not be admitted in all states and territories.