NSW Supreme Court reminds plaintiffs of requirements for claiming directly against liability insurers

Key Points:

• Plaintiffs seeking leave of the Court to commence directly against a liability insurer need to establish that the policy would respond to a claim by its insured.

• Plaintiffs’ pleadings need to consider the defendant’s policy exclusions, as this can provide solid ground for Court to refuse leave.

In Count Financial Limited v Pillay [2021] NSWSC 99, Stevenson J of the Supreme Court of NSW examined whether leave under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (the Act) should be granted to a plaintiff seeking to join an accountant’s professional indemnity insurer to proceedings.
 
The plaintiff, Count Financial Limited (Count), is an Australian Financial Services Licensee. The defendant, Mr Inderasan Subramoney Pillay (Pillay), was an Australian Chartered Accountant and an authorised representative of Count under its Australian Financial Services Licence.  
 
Pillay provided accounting services and taxation advice with respect to strategies for reduction of tax liabilities, including accounting and tax aspects of identified agribusiness products. A number of clients entered into the products and suffered loss when the products failed. Count paid $15.3 million in compensation to Pillay’s clients.  Count was liable as a licensee for its representative Pillay’s conduct pursuant to sections 917A and 917B of the Corporations Act 2001 (Cth).
 
Count commenced proceedings against Pillay in the Supreme Court of NSW to recover the amount it paid out to Pillay’s clients, alleging that Pillay failed to exercise reasonable care and skill in conducting his accounting and taxation practice to avoid economic loss to Count. Count then sought leave of the Court to pursue Pillay’s professional indemnity insurer (the Underwriters) directly to recover those amounts.
 
Stevenson J noted the elements which need to be satisfied for the Court to grant leave to join an insurer directly, being:

1. Count has an arguable case against Pillay;
2. there is a real possibility that if judgment were entered against Pillay, he would not be able to meet it; and
3. Count has an arguable case that the Policy responds to its claim against Pillay.[1]

If those elements are satisfied, the Court still has the discretion to refuse leave, to protect an insurer from untenable claims and to ensure that insurers are not exposed unnecessarily to claims against them[2].  However, Section 5(4) of the Act provides that the Court must refuse leave if the insurer establishes it is entitled to deny liability under the policy.
 
Counsel for the Underwriters did not deny that Count had an arguable claim against Pillay and accepted that Pillay would unlikely be able to meet a judgment against him. The crucial issue was whether Pillay’s insurance policy with the Underwriters would respond to the claim, in light of exclusions in the policy wording, including at clause 4.12(e): “…where the Insured has given advice in respect of any investment…”
 
Counsel for the Underwriters argued that if Count’s case against Pillay – including that Pillay gave the clients advice with respect to accounting and tax aspects of the products – succeeded, then it must follow that indemnity under the policy is excluded under clause 4.12(e).

The Court noted that the wording of Count’s Commercial List Statement mirrored the terms of the exclusion and accepted the submissions of the counsel for the Underwriters. The Court denied leave to Count to join the Underwriters to the proceedings as the Underwriters established they were entitled to deny indemnity.