In a recent significant decision for both insurers and insureds, the NSW Court of Appeal delivered its decision in Chubb Insurance Company of Australia Limited v Moore  NSWCA 212, a lengthy judgment which deals with important principles of law in relation to the operation of the provisions of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ('Section 6'). The case was ultimately decided on issues relevant to the territorial application of the legislation. However, the court also made some important statements on other matters of note, notwithstanding such matters were not determinative of the final result.
Section 6 creates a statutory charge on insurance moneys (that would otherwise be payable to an insured) in favour of third parties.
Key matters arising from the decision are:
- Section 6 has no extra territorial operation in the sense that if a case is brought in a court other than a NSW court then section 6 cannot apply.
- Section 6 is not capable of applying to insurance moneys that are or may become payable under a policy in respect of a liability where the alleged conduct of the insured giving rise to the claim occurred before the policy’s inception. In practical terms, this means that a statutory charge will rarely attach to moneys payable under a "claims made" policy.
- Even if Section 6 imposes a charge, such a charge does not extend to insurance moneys payable in respect of defence costs and similar entitlements that are paid by insurers if such an entitlement arose before judgment is entered or settlement is agreed in respect of the claim the subject of the charge.
The latter point in particular is the first definitive statement of any appellate court in Australia on the issue arising from the New Zealand case of Steigrad v BFSL 2007 & Ors ("Bridgecorp"). If an insurer is liable to advance defence costs to its insureds under the terms of its policy, where the policy limit is inclusive of defence costs, can a statutory charge apply to the policy limit as a whole, and can the insurer thus be prevented from discharging its contractual obligation to advance those defence costs?
The court answered that question in the negative. The statutory charge cannot extend to insurance moneys payable in respect of defence costs and expenses, even though such payments will erode the limit of insurance moneys available under the policy. The finding is likely to be of most relevance to those insureds seeking payment of defence costs under the advancement of costs provisions of Directors' and Officers' and Management Liability Policies. It remains to be seen whether leave to appeal will be sought by the unsuccessful parties.