NSW moves to allow third-party claims on insurance money

The NSW Parliament is considering new laws to allow third party claimants to recover directly from insurers in certain circumstances.

A bill is currently before the State Parliament to repeal section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 to give effect to the recommendations of the NSW Law Reform Commission (NSWLRC) Report 143: Third party claims in insurance money.

The bill provides:

  • a claimant can recover an insured amount directly from an insurer under certain circumstances
  • the insurer is entitled to rely on any defence or any matter in answer to or in reduction of its liability to the claimant
  • payment to the claimant discharges any liability of the insurer to make payment to the insured under the contract of insurance in respect of the liability.
  • the claimant cannot recover any amount from a reinsurer.

If passed, the new laws will provide greater clarity to insurers, say lawyers from international law firm Clyde & Co. However, they argue it is unlikely to stop ‘forum shopping’ as claimants could elect to bring claims against insurers in NSW for the sole purpose of joining an insurer.

“Hopefully this reform will also be the catalyst for other states and territories to introduce similar legislation to create a uniform regime, or for the Commonwealth to consider its own law reform in this area.”

The NSWLRC had noted the same thing in its review, but had recommended NSW go ahead and legislate anyway to provide “a clearer, more effective provision than the current s6”.

NIBA welcomes the introduction of the bill and would support a more consistent approach on this issue across the country.