Third Party Claimants - Greater Access to Insurance Policies
By Nicole Tyson, Partner
27 August 2010
Summary
The usual course of action by third party claimants who have suffered loss or damage is to sue the wrongdoer directly. An insured wrongdoer would then have to sue their insurer to obtain insurance coverage. If the wrongdoer is insolvent, the claimant can sometimes sue the insurer direct under s6(4) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("LRMP").
Wrongdoers sometimes rely on s54(1) Insurance Contracts Act 1984 (Cth) ("ICA") when the wrongdoer, in breach of their ‘Claims Made and Notified' policy, has not made a claim (or notified circumstances) to the insurer within the time limits specified in the policy.
In Gorczynski v W and FT Osmo Pty Ltd [2010] NSWCA 163 ("Gorczynski"), the NSW Court of Appeal (the "Court") considered whether third party claimants could rely on s54(1) ICA when seeking leave under s6(4) LRMP to sue insurers directly. The Court held s54(1) ICA applies to s6(4) LRMP proceedings.
Facts of Gorczynski
A firm of engineers ("Osmo") issued building certificates allowing certain works to occur to a building ("Building"). The Building was attached or adjacent to another building located on Mr Gorczynski's property (the "Plaintiff").
The Plaintiff successfully sued his neighbour (as Building owner) in the Land and Environment Court ("LEC Proceedings"), obtaining orders for demolition of part of the Building and costs. On 5 May 2006 the Plaintiff commenced proceedings against Osmo suing for costs of the LEC Proceedings ("Costs"), obtaining default judgment against Osmo.
Osmo was impecunious and unable to meet any award of damages made against it. Osmo held a ‘Claims Made and Notified' type insurance policy with QBE Insurance Group Limited ("QBE"). On 16 December 2008 the Plaintiff filed a Notice of Motion seeking leave under s6(4) LRMP to commence proceedings directly against QBE.
Judgment
Under s6(4) LRMP third party claimants must obtain leave to sue insurers directly, unless the insured is a company in liquidation in which case leave is not required.
QBE argued that leave should be refused as a matter of discretion under s6(4) LRMP as QBE would be entitled to disclaim the Plaintiff's claim anyway due to failure of Osmo to notify QBE of the claim. This would therefore render grant of leave under s6(4) LRMP futile. The Plaintiff argued s54(1) ICA should be available to third party claimants seeking leave and bringing proceedings against insurers under s6(4) LRMP.
The Court agreed and held s54(1) ICA should be available to third party claimants seeking leave and commencing proceedings against insurers under s6(4) LRMP. The Court also held application of s54(1) ICA to the facts should be a relevant consideration for courts exercising discretion to grant leave under s6(4) LRMP. This protects third party claimants from loss of insurance monies due to minor breach of the policy, such as failure of the insured to give required notice of a claim to the insurer.
The Plaintiff was afforded the benefit of s54(1) ICA, however the insurer succeeded on other grounds and the Plaintiff was refused leave under s6(4) LRMP.
Implications
Gorczynski has significant implications for both third party claimants who may be able to directly sue insurers, and for insurers with increased exposure to third party claims. Following Gorczynski, third party claimants have recourse to s54(1) ICA and are therefore more likely to obtain leave under s6(4) LRMP to sue insurers directly. This is particularly important when the insured is in financial distress (short of liquidation), or otherwise has insufficient funds to meet an award of damages made against it.
In circumstances where the insured wrongdoer cannot afford to sue the insurer on the indemnity, suing the insurer directly under s6 LRMP may be the only practical means for a third party claimant to recover insurance monies.