Key Points
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The NSW Parliament recently passed legislation making it easier for a claimant to make a claim directly against liability insurers.
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The Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) brings in a new regime for claiming against liability insurers.
As foreshadowed in our blog regarding the NSW Law Reform Commission’s (NSWLRC) Review in April 2016 of section 6 of the Law Reform (Miscellaneous Provisions) Act 1946, legislation has now come into effect making it easier for a claimant to bring a claim directly against an insurer.
On 1 June 2017 the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) was passed which purports to clarify and simplify the circumstances under which a claim can be made directly against an insurer.
The new legislation is a result of the NSWLRC’s report which levelled criticism at section 6 of the Law Reform (Miscellaneous Provisions) Act, describing it as ambiguous and unclear. The NSWLRC recommended that the general aim of section 6 be retained (which allowed a claimant to make a claim directly against a insurer under certain circumstances), however that it be re-drafted in a contemporary style and with greater clarity regarding the rights it confers.
The former regime created a “statutory charge” over insurance monies and left a degree of confusion regarding such things as the scope of the statutory charge, when it came into existence and when it attached to the third party insurance monies. The new Act does away with the concept of a “statutory charge” entirely.
The key elements of the new Act are:
- If an insured person has an insured liability to another person (the claimant), the claimant may recover from the insured person’s insurer directly in a proceeding brought before the Court;
- The insurer’s liability to the claimant is the amount of the indemnity payable pursuant to the contract of insurance, and any amount in excess of this cannot be recovered; and
- The insurer essentially ‘stands in the shoes’ of the insured person as if the claim had been brought directly against the insured, and may rely on the same defences as if the claim had been brought directly against the insured.
Importantly, the new Act retains the “leave requirement” of the old Act, however it remains to be seen under what circumstances the Court will grant leave to bring a claim directly against a insurer. An example of the circumstances that may give rise to leave being granted is where an insurer has denied indemnity to an impecunious third party, and a claimant seeks to challenge the denial of indemnity and claim an amount pursuant to the third party’s insurance policy. This requirement will undoubtedly be tested in the near future.
The new Act creates greater certainty and clarity for both insurers and claimants regarding actions to be brought directly against insurers. The legislation streamlines the mechanism to proceed directly against an insurer, while retaining the “leave” requirement and it remains to be seen whether there will be a significant increase in such proceedings.
Post by Patrick Hodgetts