The factors to be taken into account when determining an application for leave to proceed directly against an insurer under new legislation in NSW.
Whether leave could be granted to a plaintiff to pursue an insurer directly for damages resulting from personal injury The application of indemnity clauses in insurance policies
In December 2011 Ms Moore suffered personal injury (tetraplegia) after falling from a balcony at premises owned by her partner Mr McKiernan. At the time, the balcony was still under construction & Mr McKiernan was wrestling with his step son. In doing so, he pushed Ms Moore against an unstable balustrade which gave way. The evidence was that, if successful, Ms Moore would be entitled to damages in the range of $7 million to $11 million.
At the time of the incident Mr McKiernan held a policy of insurance (the first policy) with CGU Insurance Limited (CGU) covering the value of the works but it had lapsed at the time of the incident. Mr McKiernan held another policy of insurance with CGU (the second policy) in respect of the domestic contents held at two other properties. This second policy included the provision:
“If you have insured your domestic contents, we will pay the amount you have to pay for any accident that happens anywhere in Australia.”
The policy stipulated, however, that liability would not be covered for any accident that occurred anywhere in Australia to the extent the claim was based on Mr McKiernan being the owner or occupier of the property.
Ms Moore filed a Notice of Motion in the NSW Supreme Court seeking leave to commence proceedings directly against CGU. Leave was sought pursuant to sections 4 and 5 of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW) (CLTPCAI) and alternatively, pursuant to section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (LRMPA).
Section 6(4) of the LRMPA created a statutory charge in favour of an insured over money for which an insurer was liable to pay under an insurance contract following the occurrence of an event which gave the insured a claim for damages.
On 1 June 2017 section 6 was repealed and replaced by sections 4 and 5 of the CLTPCAI. Those sections give an insured a statutory cause of action directly against an insurer to recover the amount of the insured liability under an insurance contract. Section 12 of that Act preserves the effect of section 6 of the LRMPA for existing proceedings where an “action” was brought against an insurer prior to 1 June 2017.
Ms Moore’s Notice of Motion was filed on 22 May 2017. The court determined the Motion was an “action” for the purposes of the legislation and therefore section 6 of the LRMPA applied.
However, the court determined the same considerations arise and the same test applies whether leave is sought under either Act.
Applying those considerations, the court found that there was an arguable case in negligence that the accident was caused by Mr McKiernan engaging in forceful conduct on the balcony where the balustrade was still under construction. In addition, although the property at which the incident occurred was not property specified in the Schedule of the second policy, that policy nevertheless stated it would cover liability arising from any accident that occurred anywhere in Australia. As the accident occurred in Australia, it was arguable the policy covered the accident so long as the liability did not arise from Mr McKiernan being the owner/occupier of the property. The plaintiff’s claim was not reliant on Mr McKiernan being the owner/occupier. Rather, it was pleaded in negligence. Ms Moore argued the actual place of the occurrence was incidental and not relevant to the issue of indemnity. She had therefore sufficiently satisfied the evidentiary burden of proving there was an arguable case that the policy responded.
CGU was not able to counter the argument that because the claim was based in negligence (and not on Mr McKiernan’s role as owner/occupier) the policy did respond. The court held CGU had not sufficiently discharged the burden of proving it was entitled to disclaim liability on the basis of the exception clause.
Taking into account all of these factors, and noting that there was a very real possibility Mr McKiernan would not be able to meet any judgment awarded against him, the court determined Ms Moore had sufficiently satisfied the common law test to justify the exercise of the discretion to grant leave.
Implications for you
The court has confirmed that the test for whether leave should be granted to proceed directly against an insurer is the same under the new legislation as it was under the LRMPA. The new legislation therefore presents no new risks for insurers.
The case also illustrates the far-reaching implications common indemnity clauses can have; here, the plaintiff sought indemnity for personal injury under a Home and Contents insurance policy for an accident that occurred on an uninsured property. Consideration should be given to this when insurers draft and renew insurance policies.