Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212

On 11 July 2013, the New South Wales Court of Appeal delivered its judgment as to whether section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act) applied to defence costs payable under a D & O insurance policy. Section 6 creates a statutory charge on all insurance monies that become payable in respect of a liability for which an insured has insurance which indemnifies the insured for the liability.

After the collapse of the Great Southern Group, proceedings were commenced in the Supreme Courts of Victoria and Western Australia. The claimants in those proceedings sought damages from 8 former directors and executives of companies in the Great Southern Group, and from Great Southern Managers Australia Limited (“GSMAL”) for contraventions of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth), the Fair Trading Act 1999 (Vic) and the Fair Trading Act 1987 (WA).

The defendants in the Victorian and Western Australian proceedings were insured persons under D & O insurance policies. The policies covered the liability that the defendants may be found to have in the Victorian and Western Australian proceedings. The policies also covered legal expenses incurred by the defendants in those proceedings. A dispute arose between the defendants and insurer on the one hand and the claimants on the other hand as to whether the charge created by section 6 prevented the insurer from paying the defence costs of the defendants. Separate proceedings were commenced by way of summons in the Equity Division of the Supreme Court of New South Wales and a judge ordered that the proceedings be removed to the Court of Appeal for the determination of a number of separate questions on the basis of a statement of agreed facts.

The New South Wales Court of Appeal unanimously held that section 6 is limited in its operation only to proceedings in a Court in New South Wales and does not apply to a claim brought in a Court in another State or Territory. Other factors such as the circumstances of the claim or the entry into the contract of insurance are irrelevant to this position. Therefore, payments with respect to defence costs for proceedings in other states may be made under insurance policies, regardless of any potential third party claim against the insurance monies.

The Court of Appeal also followed the New Zealand Court of Appeal decision in Steigrad v BFSL 2007 Ltd [2012] NZCA 604 (the Bridgecorp case), holding that the statutory charge created by the Act does not extend to insurance monies payable for defence costs, legal representation expenses, or costs and expenses that are paid by the insurers in accordance with the policies in respect of a claim for damages. This aspect of the judgment can probably be regarded as obiter dicta given the decision regarding the limited territorial operation of the Act.

It is worth noting that there are no similar legislative provisions in Queensland. However, the decision is of importance in those States where there are similar statutory provisions which create a charge over insurance monies.

The decision largely confirms the manner in which liability insurance companies have operated historically. It is also consistent with a common sense approach to the issue. Liability insurance rarely covers only liability, it invariably provides cover for defence costs. Those defence costs can never be payable to claimants, and an interpretation of section 6 that the statutory charge created by that section could apply to prevent the payment of defence costs would allow claimants’ access to insurance monies which they would otherwise have no rights to under the terms of the policy.