Want to directly join an insurer to a proceeding in NSW?

By Sam Blackman

Published: 21 November 2021

 Updated: 25 October 2023

First published as “Want to sue someone else’s insurer? Read this first.” as a article on LinkedIn by Sam Blackman

Introduction

Imagine that your client has a claim against a penniless defendant who has an insurance policy that would respond to the claim. Provided the defendant isn’t actually bankrupt or in liquidation, one option would be to sue the defendant and hope they claim on their policy. In NSW there is another option, you can file a notice of motion to directly join an insurer pursuant to the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the Act).

History

This option was introduced in NSW by virtue of section 6 (now repealed) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMPA). The LRMPA case law is still relevant and should be considered where contentious issues arise. However, there are differences and care should be taken as outlined in the next section.

Recent developments in the law

In Zurich Insurance Company Ltd v Koper [2023] HCA 25, the High Court considered the Act. In that case, the insured was a resident of New Zealand and the Insurer was based in Australia. However, the underlying claim was filed and concluded in the High Court of New Zealand. The appellant was unable to recover the majority of the judgment with the Insured company going into liquidation. Consequently, the appellant wanted to claim against the insurer directly to recover the outstanding funds.  Relevant, the relevant professional indemnity policy included a clause nominating the Commonwealth of Australia as the exclusive jurisdiction.  The key issues related to whether the insured had a notional claim that could be brought in NSW and the constitutionality of service of state court proceedings under the Trans-Tasman Proceedings Act 2010 (Cth) (TTPA). 

 

The case ultimately turned on the questions relating to the constitutionality of the TTPA. However,  at [52]-[56] Gordon, Edelman and Steward JJ noted that there was a difference between how under s.6 LRMPA had been interpreted. The Court contrasted the decision of Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212) and the Act. Ultimately, it was enough to directly join an insurer where: (1) the policy named Australia as the exclusive jurisdiction and (2) where one of the insurers was resident in NSW. In other words, it did not matter that the underlying claim had no connection to NSW and was entirely located within New Zealand. Consequently, this is an expansion on who could potentially bring a claim under the Act in NSW. 

Leave required to join an insurer

Section 5 of the Act requires that a plaintiff obtain leave of the Court before it can directly join an insurer. This is done by filing a notice of motion, either before or after, filing a claim. The motion will be determined in the applicant’s favour provided the following criteria are established (see Avant Insurance Ltd v Burnie [2021] NSWCA 272 at [8]):

  1. There must be an arguable case against the defendant who is the holder of the insurance policy;
  2. There must be a reasonable possibility that the defendant, who is the holder of the insurance policy, will be unable to satisfy any judgment; and
  3. That the holder of an insurance policy [the defendant] would be entitled to indemnity under the insurance policy from the insurer if the defendant was liable to the plaintiff.

However, if the Insurer can establish that it is entitled to disclaim liability then leave must be refused (s5 the Act).

Other things to consider

1. What is the extent of the coverage under the policy? The plaintiff can only recover what would have been received had the defendant been indemnified (see Avant at [9]).

2. What is the Excess/deductible? Following on from (1), if there is a high excess/deductible it may not be commercial to directly join an insurer.

3. Is the claim within time? If not, is it at least arguable that the claim could be within limitation? See Zaki v Better Building Constructions Pty Ltd [2017] NSWSC 1522.

4. Is it a “claims made and notified” policy (common in professional negligence liability coverage)? If so, which insurer (if any) did the defendant notify? 

Practical considerations

1. Put the defendant on notice of the claim and ask them to notify their insurer.  This is particularly important if it is a “claims made and notified” policy.

2. Try to obtain copies of all relevant documents from the defendant and the insurer. These include the financial records of the defendant and copies of all insurance documents. 

3. If the insured has denied indemnity, seek an explanation from the insurer and request copies of any relevant documents including correspondence.

4. If there is an impending limitation period, consider filing proceedings against the defendant immediately. By filing the underlying claim within time, the insurer cannot rely on a limitation defence (see s 6(2) the Act).

5. Make sure you consider the financial status of the defendant. If the defendant is bankrupt or insolvent then it would be easy to establish that it cannot satisfy a judgment. However, if the defendant is solvent, then care will be needed to establish that the defendant is not able to satisfy any judgment.

Caselaw relating to attempts to directly join an insurer to proceedings

  1. An insurer can be joined even where the underlying claim has no nexus to NSW.  However, a nexus is required and it depends on circumstances. Having said that, it is sufficient that the policy nominates Australia as the jurisdiction and the insurer resides in NSW. See  Zurich Insurance Company Ltd v Koper [2023] HCA 25
  2. A decision primarily about the interaction between the limitation of actions defence and the Act. see Zaki v Better Building Constructions Pty Ltd [2017] NSWSC 1522 at [27]-[28].
  3. Where the Insurance policy is a “claims made and notified policy” and the defendant made no notification during the relevant period. This decision considered the Act against an attempt to rely on s54 of the Insurance Contracts Act 1984 (Cth) to cure the lack of notification by the Insured. See  Avant Insurance Ltd v Burnie [2021] NSWCA 272.
  4. The standard of “arguable” is a low standard for a plaintiff to overcome (at [40]). See Guild Insurance Ltd v Hepburn [2014] NSWCA 400.
  5. The examination of a policy responded and was not excluded by an exclusion clause. See Wigge v Allianz Australia Insurance Ltd [2020] NSWSC 150.
  6.  It is difficult to appeal a grant of leave on the basis that an insurer can disclaim liability. An insurer will need to establish that the entitlement is “beyond argument”. See Chubb Insurance Australia Ltd v Giabal Pty Ltd; Catlin Australia Pty Ltd v Giabal Pty Ltd [2020] NSWCA 309.

Disclaimer

The contents of this article is of a general nature only and is not a substitute for legal advice from a qualified legal practitioner. Check the date of publication and any update as the contents may have been superseded by changes in law.