A DIRECT CLAIM AGAINST AN INSURER OF A DEREGISTERED TORTFEASOR IS NOT AVAILABLE IN A CROSS-CLAIM

Legal Directions

Amaca Pty Limited v AAI Limited (Re: Simpson) [2019] NSWDDT 11

Introduction

This judgment considers the application of ss4 and 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) in the context of contribution proceedings to be pursued against deregistered entities.

The effect of the decision is that a party seeking statutory contribution based on the fact that the deregistered entity was a joint and severally liable tortfeasor is not entitled to a grant of leave to pursue the insurer liable to indemnify but rather, will be required to make an application for reinstatement of the deregistered entity to the register of companies under s601AH of the Corporations Act 1991 (Cth).

Background

The plaintiff allegedly developed mesothelioma as a consequence of inhalation of asbestos dust and fibre in the course of employment by Wentworthville Florist & Nursery Pty Limited (deregistered) (Wentworthville Florist) as a bystander while tradesmen undertook work cutting, handling and fitting asbestos cement building products manufactured by Amaca Pty Limited (Amaca). The plaintiff sued Amaca in the Dust Diseases Tribunal of NSW, alleging it was in breach of the duty of care it owed as a manufacturer and supplier of asbestos cement building products. She sought damages.

Amaca identified Wentworthville Florist as a joint and severally liable tortfeasor allegedly in breach of the duty of care it owed the plaintiff as her employer. Except for its deregistration, Amaca could have pursued the company directly for contribution under s5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). The right to contribution is created by statute and is a different class of relief to a claim for damages, compensation or costs.

AAI Limited (AAI) was the relevant insurer of Wentworthville Florist. Amaca sought a grant of leave under the 2017 Act to commence and maintain proceedings against AAI. Had leave been granted, Amaca was ‘in time’ to file a cross-claim joining AAI to the proceedings as a cross-defendant.

The law

Section 4 (being the operative provision of the 2017 Act) provides, subject to a grant of leave, a mechanism whereby a claimant who has an entitlement from an ‘insured person’ who has an ‘insured liability’ may recover the amount of the ‘insured liability’ from the ‘insurer’ in proceedings before a court.

Section 3 of the 2017 Act defines ‘liability’ as a liability to pay damages, compensation or costs’.

Analysis

Judge Russell considered that a statutory claim for contribution, being the foundation of the liability Amaca relied upon its proposed case against AAI, did not constitute either ‘damages’ or ‘compensation’ as contemplated by s4. His Honour held that ‘damages’ amounted to a direct claim for common law damages, flowing from a breach of contract, or for breach of a statutory obligation. His Honour further held that ‘compensation’, in the context being considered, meant no-fault workers compensation benefits. Noting that the claim by Amaca did not seek relief of either ‘damages’ nor ‘compensation’, His Honour held that the legislation did not provide him power to grant leave to Amaca to pursue the insurer.

In the circumstances, Judge Russell dismissed the application with costs.

Comment

In considering Amaca’s application, Judge Russell examined the predecessor section to s4 of the 2017 Act, being s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), the reading speech of Parliament relevant to the replacement of s6 of the 1946 Act with the 2017 Act, and the Law Reform Commission report leading to the replacement of the 1946 Act with the 2017 Act. Nothing in that material identified a clear intention to permit a case to be brought against an insurer in the circumstances of Amaca’s claim.

It is fair to say that, at least in toxic tort litigation in NSW, a common practice had developed both under both s6 of the 1946 Act and then the 2017 Act whereby cross-claimants sought leave to pursue insurers of deregistered contributing tortfeasors and those insurers did not oppose being joined to the proceedings. That pragmatic approach was preferred by ‘cross-defendant insurers’, as it avoided the incurring of substantial costs and disbursements of reinstatement of deregistered companies which would otherwise frequently be incurred in toxic tort litigation, given the long latency period between exposure to dusts and fibres and the onset of diseases giving rise to proceedings and numerous claims against deregistered companies. This decision operates to require the cross-claimant to incur those costs which, at least in some situations, will be ultimately recoverable from the insurer of the deregistered company and, if not, may impact on the commercial viability of recovery proceedings.

In addition, due to the quite accelerated and inflexible claims management protocol enforced in respect of asbestos-related claims in NSW (where cross-claims are often required to be filed within 10 business days of service of the Statement of Claim), on occasions there will be insufficient time to prepare the necessary application to have a company reinstated, and file and serve a cross-claim so as to have the contribution proceedings determined in the same litigation as the plaintiff pursues against the defendant / cross-claimant in a significant number of cases. Thus the claim will necessarily be maintained after completion of the plaintiff’s action, which will cause the incurring of additional costs.

As this decision will have significant consequences generally, particularly in cases litigated in the Dust Diseases Tribunal, we anticipate that an attempt will be made in coming months to persuade the NSW Parliament to amend the 2017 Act to permit leave being granted to sue insurers in contribution claims.

Moray & Agnew acted for AAI Limited in the above matter.

Further information / assistance regarding the issues raised in this article is available from the author, Stephen Taylor-Jones, Partner or your usual contact at Moray & Agnew.


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