Cobie Ann Moore v Richard McKiernan

1. [1]

   HER HONOUR: By amended notice of motion filed 8 September 2017, the plaintiff/applicant seeks an order pursuant to ss 4 and 5 of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW) granting leave to commence proceedings directly against the first respondent, CGU Insurance Limited. Alternatively, the plaintiff seeks an order pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) granting leave to commence proceedings directly against the first respondent, CGU Insurance Limited.

2. [2]

   The plaintiff/applicant is Cobie Ann Moore (“the plaintiff”). The first respondent is the defendant’s insurer, CGU Insurance Ltd (“the insurer”). The second respondent/defendant is Mr Richard McKiernan (“Mr McKiernan”). Mr McKiernan has indicated that he does not intend to appear or make any submissions in relation to this notice of motion. The plaintiff relied upon the affidavit of Andrew Michael Christopoulos dated 22 May 2017. The insurer relied upon affidavit of Briana Jane Stiff, dated 13 July 2017.

Background

1. [3]

   For the purposes of this application only, the following facts are not in dispute.

2. [4]

   The plaintiff was born in 1990. She is currently 27 years of age.

3. [5]

   On 25 December 2011, the plaintiff attended a family Christmas event at a house owned by the Mr McKiernan. The house and land were known as 600 XXXX Creek Road, Glenreagh (“Celtic Mist”).

4. [6]

   At the property an accident occurred following which Ms Moore fell from a balcony and was rendered tetraplegic. On 22 January 2012, Mr McKiernan sent an email to AON Insurance Brokers where he described the accident as follows:

5. [7]

   The plaintiff sued Mr McKiernan, alleging that his negligence caused her injuries. There were several particulars of negligence, including an allegation that Mr McKiernan was negligent in initiating or participating in the wrestling with his stepson. I shall refer to these allegations in more detail later in this judgment.

6. [8]

   The evidence is that, in the event that the plaintiff succeeded in her claim against Mr McKiernan, she would attract damages of at least $7,000,000, and possibly as much as $11,000,000, Mr McKiernan has some assets and liabilities, but these have a net value of less than $500,000. (Aff, Christopoulos, Annexures A and D).

7. [9]

   At the date of the accident, Mr McKiernan was renting premises at 614 XXX Creek Road, Glenreagh (“the rental property”). He also owned land at 600 XXX Creek Road, Glenreagh and was in the process of completing a residential building on Celtic Mist. From 11 September 2011 and at the time of the accident, Mr McKiernan had been living in a fixed caravan shed at the Celtic Mist property.

8. [10]

   On 30 March 2011, Mr McKiernan entered into a policy of insurance, called the “Rural Insurance” policy (“the policy”), which was underwritten by the insurer. This policy relevantly covered the period of 30 March 2011 to 30 March 2012 and had a policy limit of $20,000,000. The insurance policy covered two properties, the rental property and XX Coramba Road, Glenreagh. (Aff, Stiff, Annexure A). The policy covered Mr McKiernan for any liability arising as owner and occupier of these properties. Both were also insured for domestic contents. The policy did not cover Celtic Mist.

9. [11]

   At the time of the accident, Mr McKiernan had been completing construction work on the property. The value of those works had been insured for the sum of $200,000 but cover had lapsed prior to the accident.

10. [12]

    On 25 December 2011 and 22 January 2012, Mr McKiernan made a claim on the policy in respect of the accident.

11. [13]

    On 13 March 2015, the insurer’s lawyers wrote to Mr McKiernan declining Mr McKiernan coverage under the policy. Reasons were given for declining coverage. I shall refer to these reasons later in this judgment.

Pleadings against Mr McKiernan

1. [14]

   By statement of claim filed 17 December 2014, the plaintiff pleaded:

2. [15]

   The particulars of negligence fall into two broad categories, the first being the “forceful conduct” particulars of [8], [10], [11] and [15] (a) to (c). The second being the “owner/occupier” particulars of [12] and [15] (d) to (i). Particulars [15] (j) and (k) apply to both categories.

3. [16]

   Three main issues arose for determination. The first issue is which legislation is to apply, the Law Reform (Miscellaneous Provisions) Act or the Civil Liability (Third Party Claims against Insurers) Act. If the latter Act is applicable, the second is what test should be applied by this Court in the exercise of its discretion to grant leave to join the insurer. The third issue is whether in the present circumstances the test has been satisfied for this Court to exercise the discretion.

(1) Which legislation applies?

1. [17]

   Both parties made submissions to this Court as to the whether it is the Law Reform (Miscellaneous Provisions) Act or the Civil Liability (Third Party Claims against Insurers) Act that applies to the plaintiff’s application.

2. [18]

   The insurer submitted that the application could not be brought pursuant to the Civil Liability (Third Party Claims against Insurers) Act due to the combined effect of ss 2 and 12 of that Act.

3. [19]

   Section 2 reads:

4. [20]

   Section 12 reads:

5. [21]

   It was argued that because the historical notes to the Civil Liability (Third Party Claims against Insurers) Act provide that the date of assent was 1 June 2017, a date after the plaintiff’s notice of motion filed 22 May 2017, s 12 was engaged. This provision therefore preserved the application of s 6 of the Law Reform (Miscellaneous Provisions) Act.

6. [22]

   Section 6 of the Law Reform (Miscellaneous Provisions) Act reads:

7. [23]

   The plaintiff submitted that to date, no proceedings have been brought against the insurer. The only application that had been made was the notice of motion on 22 May 2017. The plaintiff argued that this was not an action brought against the insurer within the meaning of s 12 Civil Liability (Third Party Claims against Insurers) Act and that the relevant action was the amended notice of motion filed during the hearing on 8 September 2017. The plaintiff argued that the present circumstances attract the operation of the new Civil Liability (Third Party Claims against Insurers) Act, in particular, ss 4 and 5. These provisions read:

8. [24]

   The Law Reform (Miscellaneous Provisions) Act operated to create a statutory charge in favour of the insured over money for which an insurer was liable to pay under an insurance contract following the occurrence of an event which gave the insured a claim for damages. This provision created significant conceptual difficulties and was criticised by Kirby P in New South Wales Medical Defence Union v Crawford (1993) 31 NSWLR 469 at 479 for being ‘undoubtedly opaque and ambiguous’. See also Chubb Insurance Company of Australia Ltd v Moore (2013) 302 ALR 101 at 113; McMillan v Mannix (1993) 31 NSWLR 538 at 542 (Kirby P).

9. [25]

   On 1 June 2017, s 6 of the Law Reform (Miscellaneous Provisions) Act was repealed and replaced by ss 4 and 5 of the Civil Liability (Third Party Claims against Insurers) Act. These provisions operate to give the insured a statutory cause of action directly against the insurer to recover the amount of the insured liability under an insurance contract.

10. [26]

    The provisions relevant for determining which legislation should apply are ss 2 and 12 of the Civil Liability (Third Party Claims against Insurers) Act, which I have set out earlier in this judgment. In summary, s 12 preserves the effect of s 6 of the Law Reform (Miscellaneous Provisions) Act for existing proceedings where an action was brought against the insurer prior to the commencement of the Civil Liability (Third Party Claims against Insurers) Act. Section 2 provides that this date of commencement for the Act is the date of assent, which according to the historical notes is 1 June 2017. Therefore, the effect of s 12 of the Civil Liability (Third Party Claims against Insurers) Act is to preserve the operation of s 6 of the Law Reform (Miscellaneous Provisions) Act where an action was brought against the insurer prior to the commencement of the Civil Liability (Third Party claims against Insurers) Act.

11. [27]

    The plaintiff’s original notice of motion seeking leave to join the insurer was filed on 22 May 2017 and therefore was filed prior to the commencement date of the Act of 1 June 2017.

12. [28]

    The Civil Liability (Third Party Claims against Insurers) Act does not provide a definition of the word “action” within s 3, the definition provision. Nor is “action” defined within the Dictionary of the Uniform Civil Procedure Rules 2005 (NSW) or s 3 of the Civil Procedure Act 2005 (NSW). However, s 11 of the Limitation Act 1969 (NSW) provides the following definition of “action”:

13. [29]

    In Neetmanski & Child Support Registrar and Neetmanska [2009] FMCAFAM 200, Halligan FM considered at [47] that “action” referred to a “proceeding” and was an ‘inclusive, not exhaustive’ term.

14. [30]

    A broad definition of the word “action” is provided by the Encyclopaedic Australian Legal Dictionary (Peter Nygh and Peter Butt (eds), Encyclopaedic Australian Legal Dictionary, 2011, LexisNexis):

15. [31]

    The word “proceeding” has been expansively defined in statute. For example, in s 155 of the Civil Proceedings Act “proceedings” is defined as:

16. [32]

    Likewise, the Encyclopaedic Australian Legal Dictionary defines “proceeding” in wide terms as (Peter Nygh and Peter Butt (eds), Encyclopaedic Australian Legal Dictionary, 2011, LexisNexis):

17. [33]

    The definitions of “action” and “proceeding” are broad and inclusive. It is my view that an equally broad definition of the word “action” should be given to s 12 of the Civil Liability (Third Party Claims against Insurers) Act. The notice of motion filed 22 May 2017 therefore falls within the definition of “action” and accordingly the action was brought prior to the commencement of the Civil Liability (Third Party Claims against Insurers) Act. Hence, the present application is to be determined under s 6(4) of the Law Reform (Miscellaneous Provisions) Act.

18. [34]

    In any event, the plaintiff’s amended notice of motion sought an order to grant leave under either s 6 of the Law Reform (Miscellaneous Provisions) Act or ss 4 and 5 of the Civil Liability (Third Party Claims against Insurers) Act. The plaintiff also submitted that irrespective of which Act applies, the same common law test is applicable. The plaintiff cited the Law Reform Commission report 143 titled ‘Third Party Claims on Insurance Money’ November 2016 (“the Law Reform Report”) (extracted later in this judgment) in support for this proposition. (New South Wales, Law Reform Commission, Third Party Claims on Insurance Money, (November 2016)).

19. [35]

    If I am wrong in my conclusion regarding the application of s 6(4) of the Law Reform (Miscellaneous Provisions) Act, I will now consider what test would apply had the Civil Liability (Third Party Claims against Insurers) Act been the applicable Act.

(2) What is applicable test under the Civil Liability (Third Party Claims against Insurers) Act?

1. [36]

   The court has a general discretion to grant leave under s 5 of the Civil Liability (Third Party Claims against Insurers) Act. The statute is silent as to what considerations should be considered in respect of this Court’s decision of leave.

2. [37]

   As previously stated, the plaintiff submitted that the Court should apply the same common law test that was previously applied to the Law Reform (Miscellaneous Provisions) Act. During the hearing, the insurer agreed with the plaintiff’s submission that this Court should apply the same test. (T5.8-14). Both parties agreed this was consistent with the intention of Parliament when it amended the law in accordance with the recommendations of the Law Reform Report.

3. [38]

   The Law Reform Report relevantly sets out at 16-17:

4. [39]

   On 3 May 2017, David Clarke MLC addressed the operation of the Civil Liability (Third Party Claims against Insurers) Act in his second reading speech in the Legislative Council on 3 May 2017. (New South Wales Legislative Council, Parliamentary Debates (Hansard), 3 May 2017 at 14), where he stated:

5. [40]

   Recently in Peterson Superannuation Fund Pty Ltd v Bank of Queensland Limited [2017] FCA 699 (“Peterson”), Yates J stated at [102] to [104]:

6. [41]

   I agree with the approach taken by Yates J in Peterson at [104]. The discretion must be exercised with the purpose for which it was conferred and both Acts can be regarded as having a materially similar purpose, as set out in the Law Reform Report.

7. [42]

   It is my view that if the Civil Liability (Third Party Claims against Insurers) Act is applied to the present application, this court would exercise its discretion in much the same way as if the application had been made pursuant to s 6(4) of Law Reform (Miscellaneous Provisions) Act.

8. [43]

   I turn now to consider the application of this test in the present circumstances.

(3) Whether leave should be granted to join the insurer?

1. [44]

   The plaintiff bears an evidentiary and persuasive onus for the application: see Energize Fitness Pty Ltd v Vero Insurance Ltd [2012] NSWCA 213 at [53] (“Energize Fitness”).

2. [45]

   The common law test in relation to s 6(4) of the Law Reform (Miscellaneous Provisions Act was set out by Hammerschlag J in Eastern Creek Holdings Pty Limited v Axis Specialty Europe Limited [2010] NSWSC 840. His Honour stated at [20] that for leave to be granted pursuant to s 6(4), the plaintiff must show firstly, there is an arguable case against the liability of the insured; secondly, there is an arguable case that the policy responds; and thirdly, there is a real possibility that if judgment was obtained, the insured would not be able to meet it. See also Energize Fitness; AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398; and Guild Insurance Ltd v Hepburn [2014] NSWCA 400.

3. [46]

   In applying this test, it is necessary for the Court to bear in mind that the purpose of the statute is to ensure that insurers are not exposed to “unnecessary”, “inappropriate” (Oswald v Bailey (1987) 11 NSWLR 715 at 717F-G) or “unwarranted” claims (Tzaidas v Child (2014) 61 NSWLR 18 at [17]). The legislation provides “a filter against insurers being unjustifiably made parties in litigation that, apart from the grant of leave, they would be free to stay out of”: see Energize Fitness at [59].

4. [47]

   Leave will not be granted, however, if the insurer can establish that it is entitled to disclaim liability under the contract of insurance: see s 6(4) of the Law Reform (Miscellaneous Provisions) Act and s 5(4) of the Civil Liability (Third Party Claims against Insurers) Act. The onus is on the insurer to establish that it has a right to disclaim liability. The insurer submitted that the insurance policy does not respond to the Mr McKiernan’s liability.

5. [48]

   I consider that the most contentious issue is whether the plaintiff can satisfy that there is an arguable case that the policy responds to Mr McKiernan’s liability.

6. [49]

   In Energize Fitness, Campbell JA (with whom Allsop P and Meagher JA agreed) adopted what was said in AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398 in relation to what constitutes an arguable case at [48]:

7. [50]

   Campbell JA in Energize Fitness continued at [58]:

8. [51]

   It is my view that an arguable case against Mr McKiernan in negligence exists on the evidence before me. This is due to the accident being caused by Mr McKiernan engaging in forceful conduct when he was wrestling his stepson on a balcony where the veranda rail and balustrade were still under construction. Both parties conceded during the hearing that, for the purposes of this application, there was an arguable case of liability against Mr McKiernan. (T5.45-50; T6.1-9). This issue is satisfied.

9. [52]

   The plaintiff must prove an arguable case exists that the policy issued by the insurer responds to the insured’s liability. In other words, it is required that she prove that the insurance policy taken out by Mr McKiernan would cover his liability arising from a common law action in negligence.

10. [53]

    It is common ground that Mr McKiernan had insured his domestic contents. The plaintiff submitted that the accident was an “accident” within the terms of the definition of “accident” under the policy and the accident occurred in Australia.

11. [54]

    On 30 March 2011, the parties entered into the policy. The policy identified CGU as the insurer of all cover under the policy and Mr McKiernan as the insured. The policy also provided that other people are also insured under the policy “as long as they normally live with you.” (Aff, Stiff, Annexure A).

12. [55]

    The policy defined the term “Schedule” as “the most current document we give you which sets out the details of your insurance cover”. It also defined the term “Situation” as “the place where the property insured is located”. The “Situation” is specified in the schedule as:

13. [56]

    The policy provided cover in respect of different risks which an insured could be exposed to, as owner of rural property. Each risk is covered under different sections of the policy.

14. [57]

    The coverage summary sets out the areas of coverage as follows:

15. [58]

    Relevant to the plaintiff’s application are areas of coverage “1” (domestic buildings and contents) and “5” (business liability).

16. [59]

    The wording of the policy in respect of domestic buildings and domestic contents is:

17. [60]

    Under the section titled “Liability”, the policy provides:

18. [61]

    On 2 January 2012, the insurer was notified of the claim. On 13 March 2012, the insurer issued a declinature notice. (Aff, Stiff, Annexure E). In providing its reasons for declining coverage under the provision, the insurer gave only one reason. It claimed that a subsequent provision excluded the liability. That provision reads:

19. [62]

    In its letter declining coverage to Mr McKiernan, the insurer made two points relating to the exception clause (Aff, Stiff, Annexure E). The first was that coverage under the insuring clause did not extend to liability which arose because Mr McKiernan was the owner or occupier of Celtic Mists. The second was that the claim against Mr McKiernan was clearly a claim which arose because Mr McKiernan was the owner or occupier of Celtic Mists. Accordingly, cover “was not available”.

20. [63]

    The plaintiff submitted that it is clearly arguable the policy responds to the incident. Under the liability section of the policy (extracted above), CGU had agreed with the insured, Mr McKiernan, to pay any amount that he is liable to pay following an accident if his liability were to arise in any of the provided circumstances. For the purposes of the present case, this included where Mr McKiernan had insured his domestic contents and an accident happened anywhere in Australia. It was common ground between the parties that Mr McKiernan had insured his domestic contents, the accident was an accident as defined by the policy and that the accident occurred in Australia. The plaintiff argued that she had established an arguable case that the policy responds on this basis and, in all of the circumstances, an order should be made allowing the plaintiff to proceed directly against the insurer.

21. [64]

    The plaintiff also submitted that the burden imposed upon the plaintiff is only to demonstrate that it is arguable that the policy responds. Once this is established, the burden passes to the insurer. The insurer’s burden is more onerous as it requires the insurer to establish that it is entitled to disclaim liability under the contract of insurance pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act and s 5(4) of the Civil Liability (Third Party Claims against Insurers) Act. The plaintiff suggested that this required a greater level of certainty when compared to mere arguability.

22. [65]

    Based upon this, the plaintiff argued that the liability of Mr McKiernan could have arisen anywhere in Australia and the insurer would remain bound under the liability provision. The actual place of the occurrence, being 614 XXXX Creek Road, Glenreagh (Celtic Mist), was therefore purely incidental and was not relevant to the issue of indemnity.

23. [66]

    The insurer submitted that the liability cover provision in the policy does not respond to the accident. This argument was based upon two reasons. First, the liability cover provision covered Mr McKiernan’s liability as owner or occupier of the domestic buildings identified in the situation in the Schedule. This did not include the domestic buildings at Celtic Mist. Second, if Mr McKiernan insured his domestic contents and lived in a rented building, the policy also covered his liability as owner of the domestic contents or occupier of the building arising from any accident occurring anywhere in Australia. While the insurer conceded that Mr McKiernan did have domestic contents insurance per the Schedule (Aff, Stiff, Annexure A), this cover was subject to an exception clause which excluded its liability for any amount that Mr McKiernan would have to pay as the owner or occupier of the domestic building. The exception clause was operative because the plaintiff’s claim against Mr McKiernan was based upon him being the owner and occupier of the premises. Accordingly, the policy was argued to exclude liability.

24. [67]

    In response, the plaintiff submitted that the insurer’s reliance upon the exception clause was flawed on four bases. These were:

    1. (1)

       It was far from clear that the exception clause was intended to operate in the manner in which the insurer was attempting to rely upon it. The words do not support the insurer’s argument and, at the very least, are ambiguous.

    2. (2)

       The exception clause does not appear to provide for an exception for coverage but is directed at other issues.

    3. (3)

       The premise of the insurer’s reasoning was unsound because the insurer assumed that the only basis for the plaintiff’s claim against Mr McKiernan is a liability based upon him being the owner or occupier of Celtic Mists. This is incorrect because the claim was also made on the basis that Mr McKiernan was negligent in engaging in forceful conduct, namely the wrestling match with his stepson at a time when he was aware that the veranda rail was not finished.

    4. (4)

       CGU owed an onus for establishing that the exception clause applies to the current circumstances.

25. [68]

    I will now consider these submissions.

26. [69]

    It is only required the plaintiff prove that it is arguable the policy responds. Once this threshold has been meet, the onus shifts to the insurer to satisfy the higher burden that it is entitled to disclaim the policy pursuant to either s 6(4) of the Law Reform (Miscellaneous Provisions) Act, or in the alternative, s 5(4) of the Civil Liability (Third Party Claims against Insurers) Act.

27. [70]

    In relation to the first basis of liability cover under the policy, that is where Mr McKiernan has insured a domestic building and is liable as the owner or occupier of that domestic building, it appears that the policy cover does not respond. As previously stated, the properties identified as being covered in the Situation in the Schedule did not include the domestic buildings at Celtic Mist. It would have required the accident to have occurred on either of the two insured properties listed within the Schedule and not at Celtic Mist for liability to arise on this basis. However, the plaintiff has not confined Mr McKiernan’s liability solely to that arising from being the owner or occupier.

28. [71]

    The second basis of liability provides that the policy will respond to liability that arises from an accident occurring anywhere in Australia where Mr McKiernan had insured his domestic contents and lives in a rented building. Mr McKiernan had taken out a domestic contents insurance for two properties – the rental property and XX Coramba Road, Glenreagh (Aff, Stiff, [5]). Despite Celtic Mists not being a property specified in the Situation of the Schedule, the policy states that it would cover liability arising from any accident that occurred anywhere in Australia. As the accident occurred in Australia, it is arguable that the policy covers the accident that occurred at Celtic Mists for which Mr McKiernan is liable, so long as the liability does not arise from him being the owner or occupier of the property.

29. [72]

    I do not consider the exception clause to be ambiguous. The provision stipulates that liability will not be covered for an accident that occurs anywhere in Australia to the extent that the claim is based on Mr McKiernan being the owner or occupier (My emphasis).

30. [73]

    The plaintiff’s claim against Mr McKiernan is not reliant upon him being either the owner or the occupier. Rather, it arises from his forceful conduct of wrestling with his stepson which caused the rail to dislodge and the plaintiff to fall and suffer personal injury. The particulars of negligence in paras 15 (b) and (c) of the statement of claim do not rely upon the occupation or ownership of Mr McKiernan. In my view, there is an arguable case of negligence arising from Mr McKiernan’s conduct and not one that arises as owner or occupier.

31. [74]

    On this basis, the plaintiff has sufficiently satisfied the evidentiary burden of proving that there is an arguable case the policy responds. It is also my view that the insurer has not sufficiently discharged the burden of proving that it is entitled to disclaim liability on the basis of the exception clause.

32. [75]

    The plaintiff submitted that the quantum of damages being sought were in excess of $7,000,000 and that Mr McKiernan has assets of less than $500,000. A real possibility therefore existed that Mr McKiernan would be unable to meet the judgment.

33. [76]

    During the hearing neither party made submissions regarding the financial position of Mr McKiernan. A statement of Mr McKiernan’s financial position shows that he has assets with a net value of $399,901. (Aff, Christopoulos, Annexure A). If the plaintiff is successful, the judgment debt is also likely to be high given the permanent injuries she has suffered. Dr Monica Ling, a consultant physician in rehabilitation medicine, opined that the plaintiff will have a reduced life expectancy of approximately 77% of the mean life expectancy of the general population; a significantly reduced working capacity, and that she will incur substantial future medical and care expenses. (Aff, Christopoulos, Annexure B). Mr Peter Semmler QC provided an opinion on quantum dated 17 May 2017. He was of the view that the plaintiff, if successful, would “undoubtedly be very substantial” and in the range of $7,000,000 to $11,000,000. (Aff, Christopoulos, Annexure D).

34. [77]

    It is my view on the evidence before me that there is a real possibility Mr McKiernan would be unable to meet the judgment debt if the plaintiff was successful in her action.

Conclusion

1. [78]

   The plaintiff has sufficiently satisfied all three issues set out in the common law test to justify the exercise of this Court’s discretion to grant leave. The plaintiff has established that there is an arguable case of negligence against Mr McKiernan, that it is arguable the insurance policy responds, and, if the plaintiff’s action were successful, that Mr McKiernan would be unlikely to meet it. In these circumstances, in the exercise of my discretion, I grant leave to the plaintiff to commence proceedings directly against CGU Insurance Limited.

2. [79]

   Costs are discretionary. Costs usually follow the event. CGU Insurance Limited is to pay the plaintiff’s costs of her notice of motion filed on 8 September 2017.

   1. (1)

      Leave is granted to the plaintiff to commence proceedings against CGU Insurance Limited.

   2. (2)

      An amended statement of claim joining CGU Insurance Limited as second defendant is to be filed and served within 28 days.

   3. (3)

      GGU Insurance Limited is to pay the plaintiff’s costs of the notice of motion filed 8 September 2017.