Repeal of outdated Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) has been repealed. It has been replaced by the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (Act), which came into effect on 1 June 2017.

Section 6 had been subject to much criticism, specifically issues regarding the payment of defence costs by insurers and whether these payments were subject to the statutory charge which was imposed by section 6, which arose in Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212.

The new Act resolves the inherent uncertainty and ambiguity created by the wording of section 6.

Key features

The key differences in the new Act are as follows.

• The new Act creates a right for plaintiffs to directly recover from the insurer, without the need to resort to a “charge” over the insurance proceeds. The new Act also limits recovery to the amount the insurer would have paid in respect of the defendant’s liability to the plaintiff – avoiding the possibility that defence costs will be caught within the scope of the section.
• The right to proceed against the insurer is still subject to leave being granted by the court. However, under the new Act, leave must be refused if the insurer can prove that it is entitled to deny liability under the contract of insurance – the discretion previously exercised by the court to grant leave has been removed.
• Leave to proceed against the insurer may be sought in respect of any type of claim that the insured would have been entitled to be indemnified by the insurer, including a claim for pure economic loss of the third party.
• Any proceedings against the insurer must be commenced within the same limitation period that applies to the claim of the claimant against the insured – section 6 contained no limitation of time provisions.
• The new Act does not entitle a claimant to recover any amount from a reinsurer.

What it means for you

The new legislation takes away the uncertainty which existed previously because of outdated provisions in section 6 relating to charges over and priorities to those insurance monies.

Importantly, the maximum liability of an insurer has not been modified under the new Act – with liability capped at what the insurer would have otherwise been liable for under the insurance contract.

Whilst the new Act came into effect from 1 June 2017, section 6 continues to apply to actions brought against insurers under that section before the commencement of the new Act as if that section had not been repealed.