Joinder of insurers and attachment of insurance moneys

[2-3700] Generally

While specific statutory provisions, which are dealt with below, may affect the issue, the joinder of an insurer is governed by the rules and principles discussed above at [2-2050] “Cross-claims generally” and [2-3400] “Joinder of causes of action and parties”.

The joinder of an insurer as a cross-defendant is commonplace, however, it is less usual for an insurer to be validly joined as a defendant on the basis of these rules and principles alone.

Generally, at least, there must be an issue between the insured and the insurer as to liability to indemnify, and the denial of liability must be on grounds that substantially duplicate the factual and legal issues between the plaintiff and the defendant.

Such joinder was allowed in JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432, a decision of the South Australian Full Court. However, joinder, or entitlement to join, was subsequently denied by the South Australian Full Court, differently constituted, in Beneficial Finance Co Ltd v Price Waterhouse (1996) 68 SASR 19. The Court of Appeal of Victoria (CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256) and the Court of Appeal of Queensland (Interchase Corporation (in liq) v FAI General Insurance Co Ltd [2000] 2 Qd R 301) also disallowed joinder.

See S Warne, “Joining the Fence-Sitting Insurer as a Defendant in Liability Proceedings” (1998) 9 Insurance Law Journal 208 and Part II (1998) 10 Insurance Law Journal 29.

[2-3710] Law Reform (Miscellaneous Provisions) Act 1946

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 permits a plaintiff to sue an insurer directly in the circumstances discussed below. It is not itself concerned with questions of joinder and it is not necessary for the insured to be a defendant: s 6(5) and see, for example, Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399.

However, where the insurer is sued, it is not unusual for the insured to be sued also. In such cases, the leave required for the plaintiff to sue the insurer is customarily accepted, impliedly at least, as extending to leave to join the insurer as a defendant or as satisfaction of the requirements of the joinder rules apart from leave: Tzaidas v Child (2004) 61 NSWLR 18 per Giles JA at [2].

Cases from other States should be treated with caution as only the ACT and NSW, in Australia, have s 6-type provisions.

[2-3720] Attachment of insurance moneys under the 1946 Act

If an insured has entered into a contract of insurance by which the insured is indemnified against liability to pay any damages or compensation, the amount of the insured’s liability shall, on the happening of the event giving rise to the claim for damages or compensation, and not withstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability: s 6(1).

Every charge created by the section shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein, the parties shall, to the extent of the charge, have the same rights and liabilities and the court shall have the same powers as if the action were against the insured: s 6(4).

The last mentioned subsection contains a proviso in the following terms:

Provided that … no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.

No insurer shall be liable for any greater sum than that fixed by the contract of insurance between the insured and the insurer: s 6(7).

Nothing in s 6 shall affect the operation of the Workers Compensation Act 1987 or the Motor Vehicles (Third Party Insurance) Act 1942, except that in certain circumstances, the section applies to a policy of workers compensation insurance. The most significant circumstances are where the employer has died or permanently resides outside the Commonwealth and its Territories, or cannot, after due inquiry and search, be found, or was a corporation that has ceased to exist. There are other less common circumstances set out in s 6(9).

Section 6 also makes provision for corporations which are being wound up or are about to be wound up: s 6(2), (4), (9)(d). Leave is not required in respect of such corporations.

[2-3730] Leave applications

The purpose of the leave application is “to protect insurers from unwarranted direct action by claimants upon their insureds”: Tzaidas, above, per Giles JA at [17].

The proviso “is not directing the court that leave be denied only in a case where it is satisfied both of the entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases”: Bailey v NSW Medical Defence Union Ltd, above, per McHugh and Gummow JJ at 448.

Giles JA observed in Tzaidas at [23] that, where the court is satisfied that the insurer is entitled to disclaim liability under the terms of the contract of insurance (as to which see, Andjelkovic v AFG Insurance Ltd (1980) 47 FLR 348 at 354), leave would normally be refused, even though proceedings have not been taken to establish that entitlement, on the basis that, if the insurer is entitled to disclaim liability there can be no moneys payable and nothing upon which the charge under s 6(1) can operate: Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Ins Cas ¶61-515 (NSWCA).

While it is for the insurer to satisfy the court of the entitlement to disclaim liability under the proviso, the existence of an arguable case that the insurer is obliged to provide indemnity is part of the plaintiff’s case on the exercise of the general discretion.

In relation to the general discretion, the existence of an arguable case has been held to be sufficient: Tzaidas at [21], see the cases there cited and Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213. See also Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) v Stevens [2014] NSWSC 659.

The plaintiff is entitled to rely upon the provisions of s 54 of the Insurance Contracts Act 1984 (Cth) in relation to the issue of entitlement to disclaim: Tzaidas in which FAI General Insurance Co Ltd v Jarvis (1999) 46 NSWLR 1 was not followed.

One consideration in granting or refusing leave is whether the insured is available to be sued and solvent: Kinzett v McCourt (1999) 46 NSWLR 32 per Spigelman CJ at [76]. A claimant’s disinclination to bring proceedings against the insured, for example, because of personal or business relationships, is not a proper basis for granting leave: National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400 at 403, 409.

If proceedings are taken against the insured within time, including any extension granted under the Limitations Act 1969, an insurer cannot rely upon a limitation defence. However, if the limitation period expires before any proceedings have been brought against either the insured or the insurer, the expiry of the period will bar any claim against the insurer and leave should be refused: Kinzett v McCourt, above.

The section does not apply in respect of “claims made and notified” contracts where the event giving rise to the claim for damages occurs before the period of the policy: The Owners - Strata Plan No 50530 v Walter Construction Group Ltd (in liq) (2007) 14 ANZ Ins Cas ¶61-734 (NSWCA).

[2-3740] Other statutes

Section 51 of the Insurance Contracts Act 1984 (Cth) provides that where an insured under a contract of liability which provides relevant cover is liable in damages to a third party and the insured has died or cannot, after reasonable enquiry, be found, the third party may recover from the insurer an amount equal to the insurer’s liability under the contract in respect of the insured’s liability in damages. See Morris v Betcke [2005] NSWCA 308; Tatterson v Wirtanen [1998] VSC 88 and C McCarthy, “Third Party Access to Insurance Policies and Joinder of Insurers” (1999) 11 Insurance Law Journal 46.

Section 117 of the Bankruptcy Act 1966 (Cth) provides that where a bankrupt is or was insured against liabilities to third parties and a liability against which he or she was so insured has been incurred (whether before or after he or she became a bankrupt), the “right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not been satisfied, be paid in full forthwith to the third party to whom it was incurred”.

Section 562 of the Corporations Act 2001 (Cth) provides that, where a company is insured against liability to third parties, under a contract of insurance, entered into before it is wound up, then, if such a liability is incurred by the company (whether before or after the winding up) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount shall, after deducting any expenses of and incidental to getting that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred in priority to all payments in respect of debts mentioned in s 556. Expenses are to be deducted. Payment is to made to the extent necessary to discharge the liability.

Separate provision is made for contracts of reinsurance (s 562A) and in relation to injury compensation: s 563.

The relief afforded by the provisions of the three last mentioned statutes is of a more limited nature than that provided by the Law Reform (Miscellaneous Provisions) Act 1946. See the discussion in McCarthy, above, especially at p 71.

Legislation

  • Law Reform (Miscellaneous Provisions) Act 1946, s 6(1), (2), (4), (7), (9)(d)

  • Insurance Contracts Act 1984 (Cth), s 51

  • Bankruptcy Act 1966 (Cth), s 117

  • Corporations Act 2001 (Cth), ss 556, 562, 562A, 563

Further references

  • S Warne, “Joining the Fence-Sitting Insurer as a Defendant in Liability Proceedings” Part I (1998) 9 Insurance Law Journal 208

  • S Warne, “Joining the Fence-Sitting Insurer as a Defendant in Liability Proceedings” Part II (1998) 10 Insurance Law Journal 29

  • RD Giles, “Reflections on Section 6” (1996) 7 Insurance Law Journal 152

  • C McCarthy, “Third Party Access to Insurance Policies and Joinder of Insurers” (1999) 11 Insurance Law Journal 46.