An injured plaintiff was unable to recover compensation from the company which he alleged was liable for his injuries because it had gone into liquidation. The plaintiff sought leave to proceed directly against that company's insurer (Calliden Insurance) pursuant to the provisions of the Law Reform (Miscellaneous Provisions) Act (NSW). Like section 51 of the Insurance Contracts Act (ICA), the relevant provisions allow plaintiffs to pursue insurers directly where a claim cannot be pursued against the insured in certain circumstances.

Calliden resisted the application on the basis that the insured company had not paid the applicable excess of $25,000, which it argued was a condition precedent to the indemnity provisions being triggered in the public liability policy.

Excess was defined in the policy wording as 'the amount the Insured first bears in relation to each claim caused by an Occurrence'.

Condition 3 of the policy provided that:

'Where an Excess is shown in the Schedule or within Your Policy wording... you must first bear the amount of the Excess for each and every claim arising out of the one event or occurrence before becoming entitled to cover under Your Policy.'

Calliden relied on condition 3 which they argued meant that until the insured paid the excess there is no entitlement to indemnity. The judge hearing the application rejected Calliden's position. The Court found that the excess provisions relieved the insurer of liability to pay the first $25,000 of a claim, but did not require the insured to pay that $25,000 before Calliden had a liability to indemnify it.

The appeal court also gave Calliden's argument short shrift. It noted that the insured's obligation to 'first bear' the excess component of a claim does not mean that the insured must 'first pay' the excess before becoming entitled to indemnity. It was found that the commercial purpose of the policy and other provisions in the policy wording were inconsistent with Calliden's construction of the policy.

The judgment leaves open the possibility that excess provisions may be drafted in a manner so that the indemnity provisions in the policy are not triggered until such time as the excess is actually paid. If it is intended that an insurer is relieved from liability under a policy whenever an insured is unable to pay the excess, that needs to be made crystal clear in the policy wording. But section 54 of the ICA might nullify such a condition anyway.

Calliden Insurance Ltd v Chisholm [2009] NSWCA 398