DLA Piper’s Insurance Team in Sydney acted for Lloyds Underwriters (Lloyds) in resisting an application by Tushita Technologies Ltd (Tushita) to join Lloyds, as the insurer of a named defendant (in liquidation) - MJ Protective Services Limited (MJ) to the proceedings under the Civil Liability (Third Party Claims Against Insurers) Act 2017.
The plaintiff, Tushita, was an operator of physical Cryptocurrency Automatic Teller Machines (CATMs) whereby customers could exchange physical currency into cryptocurrency and vice versa. Tushita operated CATMs in Sydney and Melbourne.
The first defendant, MJ (in liquidation), provided currency collection and handling services. Tushita contracted with MJ to carry out collection of physical currency deposited into its CATMs. MJ subcontracted the cash collection services to two subcontractors, Cobra and Vixon, who were the other defendants in the proceeding.
MJ held an All Risk of Physical Loss or Damage Policy (Policy) with Lloyds. The Policy covered loss or damage to Insured property suffered whilst “in or upon the premises”. The term ‘premises’ was not defined in the policy. The policy also contained two relevant exclusion clauses - the first excluding losses whilst insured property was in the care, custody or control of subcontractors, the second excluding any mysterious disappearance or unexplained loss.
The primary dispute arose in December 2017, when Tushita’s accountant allegedly discovered discrepancies between amounts apparently collected by MJ or its subcontractors from the CATMs and the amounts remitted to Tushita. Tushita commenced proceedings against MJ, Cobra, Cobra’s sole director and Vixon to recover the shortfalls.
MJ entered into liquidation. Tushita then brought an application by way of Notice of Motion for leave to join Lloyds to the proceeding under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (the Act). The Motion attached a draft proposed pleading against Lloyds.
Section 4 of the Act allows a Claimant to puruse an insurer (where the Insured cannot meet payment of the judgment, i.e. by virtue of liquidation or otherwise) if an Insured has an insured liability to the Claimant.
The Act and relevant common law principles provide that, for leave to be granted, the applicant bears the onus of proving:
- there is an arguable case against the Insured;
- there is an arguable case the relevant policy responds to the loss claimed; and
- the Insured is unlikely to be able to meet any judgment against it.
If the Claimant meets these 3 criteria, the insurer must prove beyond argument that it is entitled to disclaim indemnity to the Insured under the policy.
Lloyds defended the application on the basis that the requirement at point 2) above had not been met.
Lloyds argued, in resisted the application:
- Tushita’s pleading did not specify when, where or how the losses had occurred, or how those losses may have triggered Policy response; and
- The Policy does not respond to the losses as:
- on a proper construction of the Policy, the ‘premises’ could only be limited to losses which occurred ‘in or upon’ MJ’s office in Sydney, and Tushita had not pleaded any such losses of this type;
- Tushita’s pleading alleged that the monies were lost after it had been paid to MJ’s bank account, and the definition of ‘Insured Property’ in the Policy did not include non-physical currency;
- the collections were carried out by subcontractors, and thus any losses while in their possession would be caught by the subcontractors exclusion; and
- any unexplained losses would be caught by the mysterious disappearance exclusion.
The Court’s Analysis
The Court held that, in order to make out a claim against MJ, the Insured, Tushita was not required to plead precisely how the losses occurred.
However, the Act requires that in order to pursue an insurer directly, the claimant's pleading must sufficiently demonstrate that there is an arguable case a loss will trigger a response from the Policy.
The Court ultimately refused Tushita’s application to join Lloyds on the basis that it failed to plead sufficient material facts surrounding how its alleged losses occurred to establish an arguable case that those losses might trigger the Policy. In the absence of such pleadings, there was no “Insured liability” and MJ was not an “insured person” within the meaning set out in section 3 of the Act. The Court also awarded costs in Lloyds' favour.
The Court did not need to determine Lloyds’ arguments that it was entitled to disclaim liability. This was because Tushita had not established (on its pleading) an arguable case the relevant policy responded to the losses claimed.