THIRD PARTY CLAIMS AGAINST AN INSURER
Section 51 of the Insurance Contracts Act 1984 (Cth) (“ICA”) has shown us that third parties who have a claim against an insured, are now provided with an avenue to make a claim directly against the insurer. However, case law has shown that third parties bringing a claim under section 51 of the ICA are not always successful.
Section 51 of the ICA has been implemented for the purpose of providing justice to third parties who have a claim against the insured, in instances where the insured has died or cannot be found.
Section 51 of the ICA allows a third party to recover directly from an insurer where the following three elements are satisfied:
- The insured or a third party beneficiary is liable in damages to the third party under a contract of insurance; and
- The liability is covered under the contract; and
- The insured or third party beneficiary has died, or after reasonable inquiry cannot be found.
In instances where the insured has died, third parties are left with no choice but to bring a claim directly against an insurer. The following case examples illustrate instances in which the insured has died and a third party has had to make a claim directly against the insurer to claim relief. However, as will be discussed below, a third party having a claim against an insured, does not automatically result in success when bringing a claim against the insurer.
Hancock Family Memorial Foundation Ltd v Fieldhouse [No 5]  WASC 121
Hancock Family Memorial Foundation Ltd v Fieldhouse [No 5]  WASC 121 provides an example of a situation in which section 51 of the ICA was raised on the basis that the insured had died.
In this case Mr Fieldhouse provided legal services to Lang Hancock and the companies under his control, which included Hancock Prospecting and the Hancock Family Memorial Foundation Ltd (“the Foundation”). Mr Fieldhouse acted for both Mr Hancock and the Foundation during Mr Hancock’s sale of his shares in Hancock Prospecting to the Foundation for $20 million dollars. Subsequently, the Foundation sought to recover damages from Mr Fieldhouse for breaching his duties to the Foundation by failing to advise them as to the actual worth of the shares at the time of sale.
At the time that Mr Fieldhouse died, the action had still not been resolved. As a result, the Foundation sought to rely upon section 51 of the ICA to recover for loss from Mr Fieldhouse’s insurers.
The foundation first sought to recover the loss from LawCover, who had provided a cover of $1.1 million under a professional indemnity scheme provided by the New South Wales Law Society. However, the Court found there to be no contract of insurance, as was required under section 51 of the ICA. Thus, the Foundation failed to rely upon section 51 of the ICA to bring an action against LawCover.
Thereafter, the Foundation sought to recover the loss from Lloyd’s Syndicates, who had provided Mr Fieldhouse with excess professional indemnity cover. Lloyd’s Syndicates relied upon their policy schedule in defending the claim. As per the policy schedule, there were three conditions that had to be met prior to Lloyd’s Syndicate having to pay the amount of the indemnity. As per the policy, the underlying insurers (LawCover) had to have paid or admitted liability or had to have been held liable to pay. In this instance, as none of the conditions outlined in the policy had been met, the Foundation could not recover indemnity from Lloyd’s Syndicate.
As a result, the Court found that section 51 of the ICA did not apply to the circumstances of the case. This particular case demonstrates a stricter interpretation of section 51 of the ICA by the Court. Despite the loss suffered by the Foundation due to Mr Fieldhouse’s actions, the Foundation was not able to successfully prove this liability relying upon section 51 of the ICA.
Rail Corporation NSW v Vero Insurance Ltd  NSWSC 632
In this case, Phyllis Jeffries, being the insured, was killed instantly when her motor vehicle collided with a train. The incident caused damage to carriages of the train as well as rail infrastructure, which inturn resulted in Rail Corporation NSW (“RailCorp”) incurring expenses in having the carriages of the train repaired and in transporting passengers until the infrastructure was repaired.
Ms Jefferies was insured with Vero Insurance Ltd (“Vero”) against claims for damages to the property of others if she had been negligent.
RailCorp initiated proceedings against Vero for the loss that it had suffered as a result of the incident involving the insured.
The issue considered by the Court in this instance was with regard to whether Vero provided insurance cover to Ms Jeffries with respect to the incident. The Court stated that if RailCorp could prove that Vero did provide cover with respect to the liability, RailCorp would be successful in bringing a claim against Vero under section 51 of the ICA.
The Court ultimately found that the incident was covered by the policy issued by Vero. As such, in this instance RailCorp were able to rely upon section 51 of the ICA to recover damages incurred from the incident directly from Vero.
This case example demonstrates an incident in which the third party has been successful in bringing a claim against an insured relying upon section 51 of the ICA, thereby fulfilling the purpose of the introduction of section 51.
What the above case examples demonstrate is the inconsistent decisions that have resulted from relying upon section 51 of the ICA. Although section 51 was introduced with hopes of providing justice to third parties, having the ability to bring a claim directly against an insurer does not automatically mean that third parties will be successful. Although third parties are provided with an avenue to bring a case directly against the insurer, the Court’s interpretation of section 51 indicates that third parties are required to have concrete evidence to prove that the insured or a third party beneficiary is liable in damages.
Despite the purpose of section 51 of the ICA being intended to bring justice to third parties, the Courts interpretation of section 51 proves that it is difficult for third parties to successfully bring a claim against an insurer.
Although it may seem simple in theory, the above case example indicates the inconsistent results achieved from the Court’s application of section 51 of the ICA. A more consistent approach to the application of section 51 of the ICA is required in order to better understand whether section 51 of the ICA achieves its intended purpose of protecting third parties.
 Australian Law Reform Commission, Insurance Contracts, Report 20 (1982) .
 Insurance Contracts Act 1984 (Cth) s 51.
 Hancock Family Memorial Foundation Ltd v Fieldhouse [No 5]  WASC 121.
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