Sue who? An insurer can now be sued directly

Articles, Procedure + Litigation

On 1 June 2017 the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Act) came into effect. A key purpose of this legislation is to simplify the process by which parties can seek to join insurers of an insolvent defendant who would otherwise be answerable to a claim. The legislation enables a party to directly pursue the insurer of an insured defendant, rather than the insured defendant itself. This will provide greater certainty for liquidators when deciding whether to bring proceedings against insured third parties who they may have a claim against.

Pursuant to section 4 of the Act, if an insured party owes an insured liability to a proposed claimant, the claimant can, subject to the provisions of the Act, recover the amount of the insured liability from the insurer directly by seeking leave of the court to commence proceedings. The insurer stands in the place of the insured party as if the proceedings were proceedings to recover damages, compensation or costs from the insured party.

The insurer is  entitled to the same rights and liabilities as the insured.  The insurer therefore has the ability to deny liability pursuant to the insurance policy but it also has the right to rely on any defence that the insured party would have had available to it had it been the defendant in the proceedings.

As noted earlier, a party must obtain leave of the court to commence action against an insurer in accordance with the Act. Such leave can be obtained prior to the commencement of any proceedings. Pursuant to section 5, leave will be refused if the insurer can establish that it is entitled to disclaim liability under the contract of insurance. The limitation period applicable to proceedings commenced pursuant to the Act will be the same as the limitation periods applicable under the Limitation Act 1969 (NSW) or other Act to the claimant’s cause of action in ordinary circumstances.

Liquidators will now be able to more easily consider the prospect of an action against the insurer of a potential defendant and obtain leave of the court to commence such action before significant costs are incurred in any proceedings.


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