(d) Accordingly, ALCR 20 reveals that the apparent intent of s 54 was for it to deal only with circumstances arising between an insured and his or her insurer. It was not intended to deal with any claim other than the claim made by an insured under a contract of insurance.
79 In my opinion the foregoing submissions of QBE are without merit. It is true that the paragraphs in ALCR 20 upon which QBE relies speak in terms of claims by an insured upon his or her insurer, which are unquestionably the principal type of claim with which s 54(1) is concerned. On the other hand, there is nothing in those paragraphs which suggests that s 54 was intended to be limited in the manner contended for. Other parts of ALCR 20 discuss claims by third parties and make recommendations to enable them to be made, such as ss 48 and 51.
80 The policy behind s 54 is to limit the insurer's remedies so that they reflect the actual loss the insurer has suffered as a consequence of the relevant act or omission. It is difficult to see why that policy does not apply to a claim made by a third party as much as to a claim made by the insured where otherwise the contract of insurance is engaged.
81 One of the difficulties with QBE's submission as I understand it, is that it seeks to deny the application of s 54 to a claim made by a third party pursuant to s 48. Section 48(3) provides that the insurer has the same defences to an action under s 48 as the insurer would have in an action by the insured. Accordingly, it could refuse to pay a claim by a s 48 claimant by reason of some act not only of the claimant but of the insured, or any other person. It would be odd indeed if in such circumstances s 54 could not be availed of by s 48 claimants.
82 The same comment applies to s 51. It entitles, in the circumstances there referred to, a third party to whom an insured under a contract of liability insurance is liable in damages, to recover from the insurer an amount equal to the insurance liability under that contract in respect of the insured's liability in damages. Although s 51 does not contain a provision such as s 48(3), it would be odd if, when a third party claim against the insurer was made pursuant to s 51, the insurer was disentitled from disclaiming liability as a consequence of some act or omission of the insured or some other person provided that that act or omission occurred after the contract was entered into. Thus, under the general law, the insurer might be entitled to disclaim liability under the policy where an insured, contrary to the terms of the policy, has admitted liability to the third party. There seems no reason why s 54 should not apply in such a case.
83 Some support for the application of s 54 to a s 51 claimant is to be found in Derrington and Ashton, The Law of Liability Insurance, 2nd ed (2005) LexisNexis Butterworths at [2-107] (p. 55) where the learned authors, having in the preceding paragraphs stated that s 54 is expressed in very wide terms and that it applies where the insured omits to comply with a term for the payment of the premium, observe:
"If s 54 operates to relieve an insured from the consequences of non-payment of the premium, it would also seem to have application to a claim made directly against the insurer by a claimant under s 51, because the latter can recover the amount of the insurer's liability under the contract. The same reasoning applies to the case of a claim by a person, not a party to the insurance contract, to whom the cover is extended, for that party has the same obligations as the insured and the insurer has the same defences as to an action by the latter."
84 QBE seeks to meet these responses by submitting that s 54 may apply to a claim by a third party under ss 48 or 51 because such a claim would be one "under the Act". However, its reliance on s 56 does not support its contention. True it is that s 56, which deals with fraudulent claims, refers to a claim under a contract of insurance on the one hand and a claim made under the Act against an insurer by a person who is not the insured under a contract of insurance on the other. But the first claim is not in terms confined to a claim by the insured under a contract of insurance. Provided the claim is one which is made under a contract of insurance, it matters not, if the claim is fraudulent, whether it is made by the insured or by some third party who is otherwise entitled to make a claim under that contract.
85 Nevertheless, QBE submits that even if s 54 is construed as extending beyond a claim by the insured or a claim under the 1984 Act, it cannot apply to what is referred to as a claim made by "automation" by an applicant, who is neither an insured nor a person entitled to make a claim under the Act, for leave under the proviso to s 6(4) of the Law Reform Act which is State legislation to which no reference, express or otherwise, can be found in the 1984 Act or any extrinsic material such as ALCR 20.
86 In my opinion, QBE's submission overlooks the essential nature of the s 6(1) charge on the insurance moneys payable in respect of the liability of an insured where he or she is indemnified against that liability under a contract of insurance. The opening words of s 6(4) provide that every such charge shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured. Further, in respect of any such action the parties have the same rights and liabilities as if the action were against the insured. In light of these provisions it is difficult to conclude otherwise than that a claim to enforce any such charge against the insurer is no different in substance to a claim upon the insurer for payment in respect of the insured's liability in respect of which he or she is indemnified under the contract of insurance.
87 As was pointed out by Spigelman CJ, with the agreement of Mason P, Priestley JA and Handley JA, in Kinzett v McCourt [1999] NSWCA 7; (1999) 46 NSWLR 32 at [102], the use of the words of the proviso to s 6(4) that "no action shall be commenced " is suggestive of a procedural requirement rather than an essential precondition to entitlement to sue. The Chief Justice adopted that suggestion at [106] where he opined that leave under s 6(4) was only a preliminary requirement to, or condition of, enforcement of the cause of action created by the first sentence of s 6(4). A reference to "claim" in s 54(1) is prima facie unrestricted with the consequence that, subject to the submissions from QBE to which I am about to refer, it should not be confined in the manner for which it contends.
88 The second reason advanced for rejecting the suggestions referred to at [74] above, is that ss 54(3) and (4) only apply "where the insured proves" the relevant facts and are thus a clear indication that s 54 as a whole is only intended to apply to a claim upon the insurer by the insured. It is submitted that neither of those subss permit a third party to prove either of the matters to which they refer. Thus ss 54(3) and (4) create a difficulty in the section as a whole applying to a claim made pursuant to s 48 or, for that matter, s 51.
89 That difficulty was recognised by Giles J (as his Honour then was) in Commonwealth Bank of Australia v Baltica General Insurance Co Ltd (1992) 28 NSWLR 579 at 589G-590A where his Honour noted that s 54(3) indicates that a third party is in a worse position than the insured since the insurer may refuse to pay the claim by reason of an act of the third party unless "the insured" proves that no part of the loss was caused by the relevant act. The insured may be dead or otherwise cannot be found. Or just malevolent and uncooperative.
90 Again, in C E Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 at 48B, Clarke JA (with whom Meagher JA agreed) noted that subs (3) and (4) speak only of the insured, thus creating difficulties when seeking to apply s 54 to a s 48 claim and, a fortiori, a s 51 claim: see s 51(1)(b).
91 In Kelly and Ball, op.cit at [6.0030.5] (p. 6246), the learned authors contend that the difficulty created by the fact that ss 54(3) and (4) refer only to disproof of causation "by the insured" can be resolved by interpreting the word "insured" as including a third party in respect of his or her claim against the insurer.
92 QBE submits that this is not an available interpretation as it pays no regard to the distinction between an insured and a third party making a claim under the Act, a distinction to which the learned authors refer earlier in the same paragraph at page 6222. It was submitted that it was sufficient for the purpose of the present proceedings merely to demonstrate that the expression "claim" in s 54(1) only contemplates a claim by an insured without being concerned to rationalise the application of that provision to a ss 48 or 51 claimant.
93 However, if QBE's submissions are accepted then it must follow that s 54(1) could not be availed of by a s 48 third party claimant. In my opinion, the draftsperson of s 54 must have contemplated that, on occasions, a third party would be entitled to make a claim under an insurance contract whether under s 48 or under the general law: see Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107. It is true that Trident had not been decided at the time the legislation was passed. But ALCR 20 at paragraphs 121 and 122 discusses other ways in which third party claims have succeeded on occasions and the fact that, on many occasions, insurers pay such claims.
94 The structure of s 54 is as follows. Sub-section (1) sets out the general principles. Sub-section (2) sets out how that general principle is to apply in a particular case: i.e. where the act or omission "could reasonably be regarded as being capable of causing or contributing to a loss". Sub-section (1) cannot apply if subs (2) does given the words "but not being an act in respect of which subs (2) applies" in subs (1). Sub-sections (3) and (4) set out qualifications to the particular case dealt with by subs (2).
95 It is difficult to see what policy reason there could be for not applying s 54(1) and, for that matter, s 54(2) to third party claims. Those provisions appear to have been deliberately drafted in a manner that does not in terms confine either to claims made by the insured. Section 54(1) refers to "the effect of a contract of insurance" and not to the rights of the insured. If the insurer is entitled to refuse to pay the claim, that is clearly an effect of the contract of insurance. Further, the right of the insurer under s 54(2) to refuse to pay a claim is not dependent upon any particular claimant, whether it be the insured or some third party otherwise entitled to make the claim.
96 Although it was suggested by QBE that subss (3) and (4) are qualifications on subs (1), the question is whether those sub-sections should be limited to claims by the insured or whether "the insured" in those subsections should be interpreted as including third parties who are entitled to the benefit of subsection (1). It would appear that the expression "the insured" is sometimes used loosely in the 1984 Act to mean any insured person under the contract of insurance being a person who is expressly entitled to a benefit under such a contract.
97 Thus the first sentence of paragraph 233 of ALCR 20 speaks in terms of "an insured person" rather than "the insured". The latter is by definition a party to the contract of insurance whereas the former may be a third party who is entitled to make a claim under the contract but is not a party thereto. It would be consistent with the object of s 54(1) to interpret the expression "the insured" in subss (3) and (4) as referring to an insured person, thus including a third party claimant.
98 There is no rational reason why the rights conferred by subss (3) and (4) should only be available to insureds (in the strict sense) but not to third party claimants. Moreover, if subss (3) and (4) are read literally so that they are limited in the manner for which QBE contends, they produce very odd results.
99 Thus, for example, suppose that a contractor takes out a contractors all risk insurance policy for the contractor's own benefit and the benefit of all subcontractors (who are therefore entitled to claim under s 48). Suppose proceedings are brought against both the contractor and a subcontractor who then seek to join the insurer. Suppose the insurer relies on an act to which s 54(2) applies (for example, there may be some term in the policy requiring the contractor to carry out regular safety inspection of machinery and it is faulty machinery that has caused the loss in respect of which contractor and subcontractor are sued). If the insured contractor proves that no part of the loss was caused by the failure to carry out regular inspections (because, for example, the inspections would not have revealed the fault), who would be entitled to succeed against the insurer? On the strict wording of subs (3), it would seem to be both. The insured would have proved what is required by subs (3) and it would be odd in those circumstances if the insured contractor succeeded but the (third party) subcontractor did not. If the foregoing is accepted, then it would also be odd if s 54(3) could not be relied upon if only the subcontractor sued the insurer but was otherwise able to prove that no part of its loss was caused by the relevant act.
100 Accordingly, in my opinion subsections (2) and (3) should not be construed as requiring a "claim" to which reference is made in subsection (1) to be one made only by the insured.
101 The third reason advanced by QBE is that where the legislature intended the 1984 Act to apply to a claim other than by the insured, it expressly said so, such as in s 56. The fact that s 54(1) does not follow this course is a further indication that the intent was that the section was to deal with only one type of claim, being that of the insured.
102 In my opinion this submission should be rejected. The 1984 Act uses various grammatical structures to achieve its goals. The structure of s 54, broadly speaking, is similar to the structure of s 28 (which is concerned with the remedies for misrepresentation and non-disclosure). There is no reason why s 28 would not apply to a claim by a third party. Section 28(3) speaks of the liability of the insurer "in respect of a claim" and, like s 54(1), does not confine such a claim to one made by the insured. It would be odd if it did. There is no reason why the liability of the insurer should not be reduced in the manner contemplated by subs (3) where the claim is made by a third party as distinct from the insured. This is particularly so as s 33 provides that the remedies set out in Division 3 of Part IV which commences with s 28 are exclusive of any right that the insurer would otherwise have in respect of a misrepresentation or non-disclosure. If s 28 were limited to claims by an insured, the insurer would have no remedy where the claim was made by a third party under s 48 as on QBE's construction s 28 would not apply when a claim is by a third party. But if s 28 applies to such claims, why should not s 54 as well? In my view it should. Section 55, which is the equivalent in Division 3 of Part V to s 33, supports such a conclusion.
103 The fourth reason advanced by QBE in support of its contention that s 54 applies only to a claim by an insured is founded upon the statement of the plurality in FAI Insurance to which I have referred at [63] above and which I would reject for the reasons articulated at [64] and [65] above. FAI Insurance was not concerned with third party claims and the remarks of the High Court are directed to the usual case of which that was one, namely, a claim by the insured.
104 The fifth reason advanced by QBE is little different from the first, namely, s 54, even if it is not confined to a claim by the insured, is confined to a claim under the 1984 Act. However, the submission is based upon a false premise.
105 The 1984 Act is not concerned only with claims by insureds under contracts of insurance and claims by third parties under the provisions of the Act. As ALCR 20 makes clear, it was drafted in the context where other types of claims by third parties were possible and, indeed, where insurers often pay such claims. Many of its provisions in one way or another seek to deal with such claims. Thus, a claim under s 6(4) of the Law Reform Act is a claim against the insurer. Further, it is a claim in respect of "insurance moneys": i.e. a claim to moneys that are payable under a contract of insurance. QBE is seeking to resist that claim because of what it says is the effect of a term of the policy as a result of the omission of Osmo to notify it of the plaintiff's claim. There is no reason as a matter of policy why s 54(1) should not apply in those circumstances.
106 For the foregoing reasons, in my opinion QBE's first ground of contention should be rejected and it should be held that s 54(1) applies to a claim by a third party including, in the present case, the plaintiff. The primary judge so held at [53] of her reasons and in my opinion she was correct to so find.