The Supreme Court of NSW in Eastern Creek Holdings Pty Limited v Axis Speciality Europe Limited  NSWSC 840 granted leave for proceedings to be commenced directly against an insurer, as opposed to its insured. Leave was granted pursuant to ss 4 and 5 of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW) and, in the alternative, pursuant to section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).
On 25 December 2011, the plaintiff attended an event at a house owned by the defendant. The plaintiff fell from the property’s balcony and was rendered tetraplegic. The plaintiff commenced proceedings against the defendant alleging that his negligence had caused her injuries.
On 30 March 2011, the defendant had entered into a policy for insurance for the period 30 March 2011 to 30 March 2012. This policy covered the defendant for liability up to $20,000,000.00 arising as owner or occupier of the property.
Shortly after the incident, a claim for indemnity was made under the policy.
Proceedings were commenced on or around 17 December 2014.
The main issue before the Court was whether leave ought to be granted to join the insurer to the proceedings.
The plaintiff carried the onus of convincing the Court that it was appropriate to pursue the defendant’s insurer in proceedings, as opposed to maintaining the proceedings as against the insured defendant.
In considering section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946, and section 5(4) of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW), the Court cited comments made by Hammerschlag J in Eastern Creek Holdings Pty Limited v Axis Specialty Europe Limited  NSWSC 840 that in order to pursue an insurer directly under the sections the insured must show that:
- it can bring a case with merit against the insurer;
- the insured is entitled to make a claim under an active policy for insurance; and
- there is a real possibility that the insured would not be able to pay a judgment debt.
Supreme Court Decision
The Court was satisfied that as the plaintiff sought damages in excess of $7,000,000.00, and the defendant had assets of less than $500,000.00, there was a real possibility that the defendant would not be able to meet a judgment debt.
The Court also considered whether the defendant’s policy responded to the incident. The insurer relied on an exception under the contract for insurance, which provided that if the accident occurred at a property that was not specified in the policy Schedule the defendant would not be covered. The Court did not accept this position and found that the policy provided coverage for any incident occurring in Australia so long as the defendant is an owner or occupier of that property.
For these reasons, the Court granted leave to the plaintiff to commence proceedings directly against the insurer.
The Court has affirmed the test for whether leave should be granted to proceed directly against an insurer. When drafting a contract for insurance, insurers must be specific in defining the circumstances upon which an insured would be covered as this may give rise to proceedings being commenced directly against the insurer.
It should also be noted that if an insured defendant is not able to meet the judgment debt, there are grounds to commence proceedings directly against their insurer.