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On 1 June 2017 a new law came into effect in New South Wales relevant to liquidators’ rights to directly pursue the insurer of a proposed defendant, taking away significant uncertainty which existed previously because of antiquated provisions in a 1946 act relating to charges over and priorities to those insurance monies.
The new law now provides greater certainty for liquidators in deciding whether to bring proceedings directly against the insurers of directors and officers or indeed of other third parties against whom the liquidators may have claims.
The result of these amendments will permit liquidators to more confidently make decisions about whether or not to pursue insurers directly without the worry of speculating as to whether there are other competing claims (including unknown claims) that may have priority to the insurance monies. The only matters a liquidator now has to consider in this regard are what amount of the policy limit is left and to be wary of the resolution by settlement or judgment of other known claims that may occur before resolution of the liquidator’s claim. It becomes simply a race to settlement or judgement, not an analysis about when the priority ”charge” under the Old Act arose or descended.
Previously, section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (Old Act) created the concept of what was called a “statutory charge” over insurance monies, which in theory could be enforced by a third party / liquidator taking action directly against the insurer of a proposed defendant. There were difficult concepts in the Old Act which generated much litigation including as to when the “statutory charge” came into existence, when it “descended” upon the insurance monies, how that timing was to be worked out and then critically who had priority to those insurance monies when there were competing claims.
There were a number of decisions in Australia which considered the Old Act, most recently in the New South Wales Court of Appeal in Chubb Insurance. The New South Wales courts took a different view to that which was adopted by the New Zealand courts about exactly the same legislation. This created confusion for both liquidators and insurers especially in terms of priorities to the insurance monies.
Indeed, the liquidators / receivers of Dick Smith recently lost an application to join 11 insurers to their claims against certain directors because of uncertainty surrounding the operation of the Old Act and the priorities possibly created by virtue of the ”statutory charge”.
This has all now been clarified by the passing of the Civil Liability (Third Party Claims Against Insurers) Act 2017(NSW) (New Act).
Many of the concepts in the New Act are the same but the statutory charge has been abandoned and so much of the confusion and uncertainty removed.
The New Act allows a claimant / liquidator to bring proceedings to recover damages directly against the insurer of a proposed defendant (instead of or in addition to that claim). This is most useful if the insured or proposed defendant is bankrupt or in liquidation but that is not a necessary requirement.
The relevant elements are that:
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