Under s601AG of the Australian Corporations Act 2001, a third party may recover directly from the liability insurer of a deregistered company where the company was liable and the insurance contract covered the liability immediately before the deregistration.
WFI insurance denied the Plaintiff’s claim1, which arose out of negligent shopfitting work undertaken by the (by now deregistered) insured, on the grounds that the insured was not liable for the alleged loss and damage, that the insured had been in breach of a policy condition (precedent) requiring compliance with plumbing standards Regulations, and that the claim fell foul of a Products exclusion and/or a Workmanship exclusion in the policy. The insured was found to be liable, the first two policy defences failed wholly and the workmanship defence partially succeeded.
Reviewing the principles applying to construction of an insurance contract, the Judge ruled that the plumbing standards condition was not clear enough to amount to a condition precedent to liability, and further that it must be construed as a “take reasonable care to” obligation (rather than a strict obligation), which required the insurer to demonstrate recklessness on the part of the insured, in order to be discharged from liability. On the facts, recklessness was not made out.
Further, the insured’s failure to properly carry out the plumbing work was not a “failure of products sold or supplied” by the insured, so the Products exclusion was of no use, and the Workmanship exclusion applied only to eliminate the cost of re-doing or correcting poor workmanship, and not the consequential damage which this had occasioned, including water damage.