Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act) provides a legislative vehicle by which a third party claimant can seek to obtain a statutory charge over the proceeds of a defendant’s policy of insurance.

The Act is, however, notoriously confusing and confused - having been described by the NSW Court of Appeal in Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212 as “at best opaque” and in need of being completely redrafted in an intelligible form, so as to achieve the objects for which it was enacted.”

In December 2016, the New South Wales Law Reform Commission (NSWLRC) released its report titled “Report 143 - Third party claims on insurance money” (the Report). The Report recommends a number of amendments to the Act, aimed at replacing the current right to obtain a statutory charge with an avenue for direct access to policies of insurance by third parties.

Whilst the NSWLRC concludes that the objectives and intent of section 6 of the Act have merit, the Report suggests that the uncertainty surrounding the provisions could be remedied by a number of amendments, such as:

  • establishing a legislative entitlement for third parties to recover directly from an insurer, without the need to obtain a charge over the proceeds of insurance;
  • limiting the amount which a third party can recover under such a policy of insurance to the amount which the insurer would have been otherwise liable in respect of the defendant’s liability to the plaintiff;
  • making it clear that the Act will not apply to policies of reinsurance; and
  • specifying that any proceedings commenced pursuant to the Act must be commenced within the same limitation period applicable to the claimant’s cause of action against the insured.

If these proposed amendments to the Act are ultimately adopted, there will be some clear benefits to insurers, insureds and third parties by removing the uncertainty surrounding the current section 6 charge process.

The proposed amendments would also remove any final nagging concerns that directors and officers might have that they will find themselves unable to access insurance monies to fund their defences, once a section 6 charge has descended. Although the Court of Appeal has unanimously ruled on the issue, we expect some level of uncertainty to persist pending a decision by the High Court. Legislative amendments of the kind proposed by the NSWLRC would put this issue to bed once and for all.