New Bill for Allowing Third Party Insurance Claims Against Insurer in NSW

The Legislative Council in NSW passed the Civil Liability (Third Party Claims Against Insurers) Bill 2017 (NSW) (the Bill) on 9 May 2017. On the same day, the Bill was introduced into the Legislative Assembly and awaits the approval from the Members
of Parliament (MP) in the Legislative Assembly. The Bill will come into action on the date of assent. The Bill was first introduced in the Legislative Council by the NSW Minister for Resources, Minister for Energy and Utilities and Minister
for the Arts - Mr Don Harwin - on 3 May 2017.

Rationale for the Introduction of the Bill

The Bill was introduced to comply with the recommendations made by the NSW Law Reform Commission (the Commissioner) in Report 143: Third party claims on insurance money.

According to the Commissioner, section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act) had caused difficulties in 
relation to claims made on policies and claims for pure economic loss. The general criticisms were that it was obscure drafting and caused problems for interpretation. Section 6 of the Act is no longer required because the modern insurance practice has largely conquered the problems that were originally intended to address by the section.

The Commissioner altogether made 13 recommendations to amend section 6 of the Act:

1. The third party should recover from the defendant's insurer the amount the insurer would have paid to the defendant under the insurance contract ('insurer' means the defendant's insurer);
2. The third party should only sue the insurer with the leave of the court;
3. The insurer should stand in the place of the defendant as if it was an action to recover damages or compensation from the defendant by the third party;
4. The third party may proceed against the insurer although judgment has already been obtained against the defendant for damages or compensation in the same matter;
5. The insurer should not be liable for any greater sum than the insurer is liable to pay the defendant under the relevant insurance contract;
6. Any payment by the insurer to the third party should discharge any obligation the insurer has to the defendant under the insurance contract;
7. Any payment the insurer makes to the defendant does not discharge the insurer’s liability to the third party unless the defendant pays the money to the third party;
8. There shall be no limitation to prevent the plaintiff from  obtaining information about the identity and whereabouts of an insurer under rule 5.2 of the Uniform Civil Procedure Rules 2005 (NSW);
9. The limitation period shall commence when  cause of action accrues to the third party against the defendant and shall end when the third party commences proceedings against the defendant or the insurer;
10. There shall be no effect on the operation of any provision of workers compensation that allows the third party to access insurance money;
11. The recommendations should only be applicable in NSW;
12. The recommendations should not be applicable to reinsurers under contracts of reinsurance; and
13. Section 6 of the Act shall continue to apply to any action that is brought before the commencement of the recommendations.

Amendments to the Current Act

The Bill will enable a third party to bring proceedings directly against the defendant's insurer in respect to damages, compensation or costs against the insured person. 

Currently, section 6 of the Act allows a third party to access proceeds of insurance where proceedings against an insured defendant are not possible or would be pointless because, for example, the defendant is missing or insolvent. A third party
can only access to the proceeds of insurance through a special “charge” that attaches to the money that the defendant's insurer would be required to pay under the insurance contract. The charge attaches “on the happening of the event giving rise to the claim for damages or compensation”.

The Bill will repeal section 6 of the Act and will also amend the Long Title. In the Long Title, the following words will be deleted “to make certain provisions in relation to charges upon insurance moneys payable as indemnity for liability to pay damages or compensation;”.

Related CaseLaw

The key case that led to the recommendations by the Commissioner was the  Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212 (the Case). As summarised by Curwoods Lawyers, there were two main issues arising from the Case. The first issue was whether section 6 of the Act can be applicable to claims made policy. Claims made policy is the indemnity arises by an occurrence giving rise to liability incurred during the period of insurance cover. The NSW Court of Appeal (the Court) held that section 6 of the Act can be applicable to claims made policy. The second issue was whether section 6 of the Act can cover the defence costs incurred by the defendant  prior to judgment or settlement. The Court held that the charge under section 6 of the Act did not extend to monies payable for defence costs before any judgment or settlement.

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Civil Liability (Third Part Claims Against Insurers) Bill 2017 (NSW) and Explanatory Note as reported in the TimeBase LawOne Service

Law Reform (Miscellaneous Provisions) Act 1946 (NSW) as reported in the TimeBase LawOne Service

NSW Law Reform Commission (Report 143: Third party claims on insurance money)

NSW Court of Appeal follows Bridgecorp – No statutory charge over defence costs – Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212 (Curwoods Lawyers)