The High Court Decision in the case of CGU Insurance Limited v Blakeley & Ors (2016) HCA2 details the circumstances in which a Liquidator as a third party claimant can directly pursue the insurers of insolvent defendants.
In these proceedings, the Liquidators applied to the Court to join CGU as a Defendant and to amend the Statement of Claim to include a declaration that CGU was liable to indemnify the Directors under the policy. The joinder application was made on the basis of the person’s relationship with the party to the proceeding. CGU appealed that the Court had no jurisdiction to entertain the claim of Liquidators to a contract between CGU and the former Directors concerning the meaning and effect of the contract.
The Appeal was dismissed based on the Australian Case Law supporting the proposition that in exceptional circumstances a Court will permit a plaintiff who is not a party to a Contract to seek a declaration as to rights existing under the Contract. The Court placed emphasis on the practicality of joining the insurer and resolving the matter in which the plaintiff had a real interest.
CGU was granted special leave to appeal to the High Court on the grounds that the Court lacked jurisdiction to entertain the claim the Liquidators against CGU. The ultimate question arose whether that claim was part of the matter in which the Liquidators claimed against the Directors. The resulting decision was that if the Liquidators made claim against the Directors and establish the liability of CGU to indemnify the insured Directors, the proceeds of the policy becomes payable to the Liquidators as a result of the operation of Section 562 of the Act and Section 117 of the Bankruptcy Act. As such the Liquidators stood to benefit from the outcome given their potential entitlement to the proceeds of the policy and could not be seen as outsiders in these proceedings. This Case opens the door for certain third party claimants to directly pursue the insurers of insolvent and potential insolvent insured defendants.
As a principal, this has broadened application by Appointees in respect of seeking to challenge determinations made by insurers to deny liability under policies of insurance to which the company in liquidation is not a party and where the policy may adapt for the benefit of Creditors.