9 May 2017
2nd Reading Speech
The Hon. ADAM SEARLE ( 15:03 ): I lead in this place for the Opposition on the Civil Liability (Third Party Claims Against Insurers) Bill 2017. The Opposition does not oppose the bill. The object of the bill is to give effect to the New South Wales Law Reform Commission’s recommendations in report No. 143 entitled “Third party claims on insurance money”. This report was the result of a review of the now 70-year-old provisions of section 6 of the Law Reform (Miscellaneous Provision) Act 1946. That 1946 legislation provides for a comparatively complex scheme to allow a third party to enforce a statutory charge over insurance money payable under a contract of insurance to a person indemnified under the contract of insurance in relation to a liability of the insured person to pay damages or compensation to the third party concerned. This bill removes that mechanism and enables the third party to proceed directly against the insurer for their claims for damages or compensation.
The Law Reform Commission report helpfully provided a draft bill. I note that the commission’s bill has been adopted almost completely in relation to its substantive terms; the only differences being in relation to the title and other non-essential aspects. The commission received a reference on 22 February 2016 to review and to report on this issue. The report was dated November 2016, and this legislation is a result. In record time, the commission has provided a useful solution to a significant problem. Paragraph 1.2 of the report states:
… this reference has been given against a backdrop of general dissatisfaction with the drafting of s 6 and the problems that this has presented for interpretation generally. The section has also presented particular problems in light of changes to the insurance market since it was enacted 70 years ago. Over the past 25 years, the courts have resolved some, but not all, of the uncertainties about the interpretation of s 6.
The commission points in particular to the uncertainties attaching to section 6 around instances where the defence costs of directors and officers of a company are funded from the same pool of funds as for the company’s liability to plaintiffs and whether the change prevents insurers paying defence costs. The aim of the section 6 scheme is to provide a plaintiff with a way to obtain the proceeds of insurance directly from the insurer of a defendant. Without such a scheme, a common law plaintiff cannot directly recover from an insurer, even where the insured defendant has disappeared, does not exist or is not worth pursuing. As the Law Reform Commission points out, at common law, if a defendant was bankrupt, the insurance proceeds would go to the trustee in bankruptcy, and the plaintiff merely becomes an unsecured creditor to receive possibly only a partial payment and perhaps not even that, despite insurance moneys having been paid.
Despite the undoubted desirability of something like the section 6 scheme, the Law Reform Commission report records a series of judicial criticisms of the section, including Justice Kirby’s reference to it being “undoubtedly opaque and ambiguous”. There are also particular criticisms because of the currently different legislative and insurance context. According to the commission, there is a lack of clarity concerning section 6 and directors and officers insurance policies, claims made and notified policies, liability for pure economic loss, and contracts for reinsurance. This is hardly surprising when the original second reading speech seem to have as its main target collusion between defendants and insurers. There are also some conceptual difficulties with the idea and use of a special statutory charge. The Law Reform Commission raises a series of other issues, including priority between charges where there are multiple plaintiffs, where the person covered did not enter the contract, and issues surrounding limitation periods, among other things. The commission argues for a provision such as section 6 because of the undesirable alternatives. Paragraph 4.1 of the report states:
Without a provision such as s 6, successful plaintiffs might be unable to recover from a defendant where, for example:
•the defendant does not have sufficient assets to meet a judgment but has not yet been declared bankrupt or insolvent,
•the defendant is bankrupt but the trustee does not pursue the defendant’s entitlement to insurance, or
•the insurer refuses to indemnify the defendant and the defendant is unwilling or unable to enforce its rights against the insurer.
The commission correctly rejects the alternative of vacating the field and relying on Commonwealth legislation because the present provisions are not adequate. This rejects the position of the Insurance Council and the Australian Institute of Company Directors. The commission does say that the best option might be uniform legislation, but that would have to be in the form significantly improved Commonwealth provisions. The present provisions have difficulties because they do not cover all cases of insolvency and can require additional steps in litigation and the involvement of additional parties. There is no present sign of the Commonwealth taking the necessary steps to improve the law in this area. Recommendation 10 of the report, reflected in clause 14 of the draft bill and clause 11 of this bill, ensures that it does not affect the rights conferred under the provisions of workers compensation and third party motor vehicle legislation, which I believe is a prudent step. With those brief observations and as I indicated, the Opposition does not oppose the bill.