Introduction
The New South Wales Court of Appeal recently found in favour of a liability insurer who resisted an application that the insurer be joined to legal proceedings under section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (section 6)1.
Section 6(1) operates to create a charge on insurance proceeds that are or may become payable to a third party on the happening of an event giving rise to the claim for damages or compensation. That charge is enforceable by way of a direct action against the insurer provided the Court grants leave under section 6(4). Two of the threshold issues which a Court relevantly considers are:
- whether there is an arguable case that the insured entity is liable to the claimant
- whether there is an arguable case that the policy of insurance responds.
In recent years, the judicial trend has been in favour of joining insurers to proceedings. The judgment in Energize goes against this trend.
Brief facts
The factual background in Energize can be briefly summarised as follows:
- the defendants were the operators of a gym and they were being sued by a third party who sustained a serious injury while working out at the gym
- the defendants in turn brought cross claims against the "manufacturers" of the gym equipment on the basis that the equipment was defective
- the "manufacturers" were de-registered and the defendants subsequently sought leave to join the manufacturers' insurer.
The decision
The Court held that the defendant applicants failed:
- to prove that the insured party manufactured the defective gym equipment which allegedly caused the injury to the third party
- to establish that the insurer had insured one of the manufacturers.
Justice Campbell (with whom Allsop P and Meagher JA agreed) said that it could not be right that all an applicant for leave need do is proffer a pleading that:
- alleges facts that, if true, would show that the insured had a liability to the applicant
- such liability fell within the scope of an insurance policy issued by the insurer regardless of whether there was any arguable basis upon which those facts might be true.
In the circumstances, the Court refused to grant the applicants leave to join the insurer.
Conclusion
While the threshold to establish an arguable case is relatively low, the decision illustrates the importance of requiring an applicant to establish the basal facts underpinning a joinder application under section 6. It is a timely reminder that claimants need to establish that they have an arguable case against the insured party based on an evaluation of the available evidence supporting the pleaded case. Failure to do so will prove fatal.
Insurers should also be aware that there are other potential avenues for claimants to pursue direct actions against insurers, namely:
- under the Court's rules – where there is a common question of law or fact and the relief claimed is in respect of, or arises out of, the same transaction or series of transactions – see, for example, Ashmere Cove Pty Limited v Beekink (No 2) [2007] FCA 1421 and CGU Insurance Limited v Bazem Pty Limited [2011] NSWCA 81
- under section 51 of the Insurance Contracts Act 1984 (Cth) – where the insured has died or cannot, after reasonable enquiry, be found
- under section 601AG of the Corporations Act 2001 (Cth) – where a person may recover from the insurer of a deregistered company an amount that was payable to the company under the policy if the company had a liability to the person and the policy covered that liability immediately before deregistration.
Footnotes
1 Energize Fitness Pty Limited v Vero Insurance Limited [2012] NSWCA 213 delivered on 19 July 2012.
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