The New South Wales Supreme Court has given an expansive construction of section 601AG of the Corporations Act 2001. This section allows recovery direct from an insurer of a deregistered company if:
the deregistered company had a liability to the person suing; and
the insurance contract covered that liability immediately before deregistration.
This case involved lenders who lost money on a property deal. The lenders’ interest was secured by a second mortgage arranged through a now deregistered mortgage broking company which had a PI policy with Vero. The lenders sued Vero under section 601AG. The claim was first made by the lenders directly against Vero after the mortgage broker was deregistered.
Vero made an application for summary dismissal of the action on the basis that it was a ‘claims-made’ policy and, because no claim had ever been made by the mortgage broker during the relevant policy period, the second limb of 601AG was not satisfied. In other words, Vero argued that it did not have any liability to indemnify to the mortgage broker immediately before deregistration.
The court rejected this argument and noted that section 601AG was remedial legislation intended to enable a person to bring proceedings directly against the insurer of a deregistered company without having to go to the trouble and expense of seeking orders to have that company reinstated. In that context the court gave the section a broad construction such that it was only necessary to establish that the policy covered the risk in question immediately before deregistration.
It was not necessary for the insurer to have an actual liability to indemnify the insured immediately before deregistration. In this case, it was enough that the Vero policy covered the mortgage broker for the risk in question, being professional negligence, breach of contract and misleading and deceptive conduct, immediately before deregistration of the company.