The Victorian Court of Appeal recently considered the question of whether a claimant can join a non-contracting insurer to a proceeding. The proceeding was brought by the liquidators of a company against the company’s former directors for insolvent trading.

Two of the directors, who were by this stage personally insolvent, were covered by a professional indemnity policy. They had previously made a claim on the professional indemnity policy, which had been denied by the insurer. Both of the former directors had indicated that they did not intend to challenge the insurer’s denial of indemnity.

The liquidators of the company brought an application to join the insurer to the proceeding as a co-defendant. They sought a declaration that the insurer was liable to indemnify the former directors under the policy in respect of any judgment which the liquidators might obtain against them.

The insurer opposed the joinder application on the basis that the court did not have jurisdiction at the suit of the liquidators to make a declaration in relation to the insurance policy. The policy of insurance was between the insurer and the former directors. The liquidators were not parties to that contract of insurance.

The Court of Appeal rejected the insurer’s argument that the court lacked jurisdiction to grant declaratory relief. The question was instead one of power, and whether granting the declaratory relief sought in the circumstances came within the power of the court.

Whilst the Court of Appeal accepted that as a general proposition only contracting parties have an interest in the contract to which they are parties, they also considered that once an insured becomes insolvent leaving behind an unpaid claimant in respect of whose claim an insurance policy responds, the situation becomes different from an ordinary private contract. The insured no longer has any practical interest in the insurance contract. It is only the claimant that has an interest in the insurance contract.

Having been satisfied that the liquidators had a sound basis for seeking declaratory relief against the insurer, the order joining the insurer to the proceeding was upheld.

The Court of Appeal was clearly of the view that the declaration would not just be an advisory opinion, but would have the practical effect of resolving the issue as between insured and insurer. They were also clearly driven by the desire to ensure all interested parties and claims were dealt with in the one proceeding.

CGU Insurance v Blakeley

This decision provides grounds for an insurer to be joined to a proceeding by a non-party to the insurance contract, in circumstances where the insured is insolvent.

The insurer in this case has sought leave to appeal the decision to the High Court.