The New South Wales government’s decision to review insurance laws that could prevent directors and officers from accessing their personal liability insurance has received warm welcome from insurers.
In several submissions to the NSW government, the Insurance Council of Australia (ICA) argued Section 6 of the Law Reform [Miscellaneous Provisions] Act 1946 created uncertainty for insurers, businesses and consumers, and should be repealed.
The law was originally intended to protect third-party beneficiaries in situations where, even if they obtained a verdict against an insured wrongdoer, they may not be able to recover any money from the insured.
ICA CEO Rob Whelan says the comprehensive regulatory regime now in place to safeguard insurance policyholders meant the 70-year-old law was no longer necessary.
“The modern insurance industry is closely regulated by the Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority, and consumers enjoy the protection of a number of federal, state and territory laws,” Whelan says.
Whelan adds that reforms to the Insurance Contracts Amendment Act 2013 mean there are also strong protections for third-party beneficiaries, including the possibility that ASIC will act on their behalf.
“The law in its present form creates uncertainty over its impact on the ability of company directors and officers to access insurance policy funds for their legal defence,” he says.
Whelan notes that repealing Section 6 had been supported by the NSW Court of Appeal, which stated in the matter of Chubb v Moore: “Section 6 should be repealed altogether or completely redrafted in an intelligible form so as to achieve the objects for which it was enacted”.
The ICA’s comments come after NSW Attorney-General Gabrielle Upton asked the NSW Law Reform Commission to review the law.
Law firm King & Wood Mallesons has also recently released a report which found more directors are facing the risk of being sued personally for corporate debts, particularly in resources and mining services companies that are being hit by volatile market conditions.
The insurance laws Upton wants reviewed were initially designed to protect consumers where directors or officers attempted to escape financial obligations.
Upton says the provisions no longer align with modern insurance, particularly directors and officers insurance, and federal consumer laws.
“Company directors need certainty about whether their insurance can fund their costs to defend a claim,” she told Fairfax Media.