WHEN IS A CTP INSURER PERMITTED TO ARGUE THAT IT HAS NO OBLIGATION TO INDEMNIFY A DEFENDANT?

Motor Vehicle Directions

Insurance Australia Limited v Dent [2019] NSWCA 134

On 7 June 2019, the NSW Court of Appeal handed down its decision in the matter of Insurance Australia Limited v Dent [2019] NSWCA 134, finding that, in the absence of any persuasive countervailing consideration, a real possibility of a conflict of interest should be sufficient to justify the joinder of the insurer to the proceedings.

Background

In general terms, a compulsory third party insurance policy in NSW requires a licensed insurer to indemnify the owner or driver of a motor vehicle against liability in respect of death or injury to a person, caused by the fault (or in some cases, deemed fault) of the owner or driver in the use or operation of the motor vehicle.

Sometimes the insurer needs to argue whether the policy extends to cover circumstances of a claim. The mechanism in the Motor Accidents Compensation Act (the Act) to facilitate such arguments is s79, which provides:

An insurer may apply to the court to be joined as a party to legal proceedings brought against a defendant who is insured under a third-party policy with the insurer in order to argue that in the circumstances of the case it has no obligation under the policy to indemnify the defendant.

Such a situation arose in this case, which involved an incident on 7 February 2015.

In his Personal Injury Claim Form, the Respondent described the circumstances as follows:

I was driving home from work, from Boggabri to Manilla. About 20km from Boggabri I came across a car on the right hand side of the road. The driver (Williams) was trying to get the car out of a ditch. I stopped, and got out of the car and asked Williams if he needed assistance as the car was also on fire. Williams got out of the car and assaulted me. Williams then got into my car and told me to get in also. As I was getting into the car, the driver took off unexpectedly, and I fell out of the car landing on the ground.

The pleadings made clear that there was a live issue as to whether the Respondent’s injuries were caused by the alleged assault by Mr Williams (the insured driver) or as a consequence of the subsequent driving.

The insurer did not file a defence on behalf of the insured driver. Instead, it filed a notice of motion seeking to be joined under s79 of the Act so as to argue that it had no obligation under the policy because the plaintiff’s injuries were caused by the prior assault by the insured driver, rather than anything that occurred during the driver’s use or operation of the vehicle.

The Respondent resisted the application for the insurer to be joined as a defendant to the proceedings, and the motion was heard and determined by Acting Judge Sorby in the New South Wales District Court, who refused the application while commenting:

[22] The joinder of the (insurer), if granted, would be for the sole purpose of resolving any dispute between the (insurer) and the insured, in this case the owner of the motor vehicle and its driver at the time of the alleged incident. The plaintiff’s claim is against the insured motor vehicle and his dispute is with the owner or driver of the vehicle. This is made clear from the terms of s 79 where it states that the issue to be argued is whether the insurer has an “obligation under the policy to indemnify the Defendant”. That clearly refers to a dispute between an insurer and the insured and not an insurer and a Plaintiff. Any issue between the insured owner of the motor vehicle (I was advised the driver of the motor vehicle is in jail) and the (insurer) was not before me.

The appeal (with leave)

The notice of appeal contained six grounds, asserting the misconstruction and misapplication of s79 of the Act. During the course of argument, however, the principal issue that emerged was whether the insurer should be joined as a party in circumstances where it contended that there was a conflict between its interests as an insurer and the interests of its insured.

Basten JA summarised the key issue at [4], as follows:

In the present case, the insurer is entitled to argue that it has no obligation under the policy because the injuries suffered by the plaintiff were not caused in the accident, but were the result of a prior assault by the driver, Mr Williams. It is not presently known whether Mr Williams will give evidence to that effect. If he does, there may be a unity of interest between the insurer and Mr Williams. If he does not, there will be a conflict of interest and the insurer may wish to cross-examine Mr Williams. A real possibility of a conflict of interest should be sufficient to justify the joinder of the insurer in the proceedings. In the absence of any persuasive countervailing consideration, the insurer should have been joined, on its application.
(Note: emphasis has been added)

Gleeson JA (with whom McCallum JA agreed) outlined the relevant application of the principle at [47], as follows:

[Where] there is a real possibility of a conflict of interest between [the insurer] and the insured driver […] an order should be made under s 79 of the MACA joining [the insurer] as a party to the […] proceedings.

Conclusion

This judgment provides welcome guidance as to what needs to be demonstrated by an insurer seeking to be joined to proceedings under s79. It is not necessary for the insurer to show there is an actual conflict of interest between the insurer and its insured. Where the insurer can demonstrate that there is a real possibility that its interests and those of its insured are not aligned, due to the particular circumstances of the claim, then this decision indicates the onus of establishing why joinder should not occur is then cast upon the plaintiff or the insured. Just what the Court of Appeal would consider amounts to ‘persuasive countervailing considerations’ is not known, but the phrase suggests it would involve matters of real substance, not lightly satisfied.

The industry can call on this judgment in aid of future applications.

Further information / assistance regarding the issues raised in this article is available from the authors, Tom Lyons, Partner and James Gough, Lawyer or your usual contact at Moray & Agnew.


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