Declaration of interest: Colin Biggers & Paisley acted for the proponent of the DOCA in the case discussed in this article.

In brief - Courts recognise that granting access to insurance policies violates a private relationship

There is a widening trend in the circumstances in which courts will grant third parties access to insurance policies. However, the recent case of Commonwealth Bank of Australia v ACN 076 848 112 Pty Limited demonstrates that courts recognise that orders granting such access violate a private relationship and must be contained within narrow guidelines.

Third parties seeking to obtain access to a company's insurance policies

Insurers and insolvency practitioners will be familiar with the long line of authorities in which third parties (including third party claimants) seek to obtain access to a company's insurance policies, often when the company is in financial distress.

Those cases include:

These cases exemplify a widening trend in the circumstances in which courts will grant outsiders access to insurance policies. However, a recent case shows that courts recognise that orders granting access violate a private relationship and must be contained within narrow guidelines.

Third party claimant seeks access to insurance policies of company in administration

In Commonwealth Bank of Australia v ACN 076 848 112 Pty Limited [2015] NSWSC 666, a third party claimant sought access to an insurance policy where the defendant was in administration and the creditors had approved a Deed of Company Arrangement (DOCA).

Echoing Kirby, the court refused the third party claimant access to the insurance policy, principally on the basis that the only conceivable use to which the third party claimant could put the policy was forensic/settlement advantage. The case provides useful pointers to both insolvency practitioners and insurers.

At a glance

For insolvency practitioners

For insurers

The mechanism of requiring leave to proceed against a company in liquidation, administration or subject to a DOCA is to ensure the company not waste limited resources on unnecessary court proceedings, particularly where the proof of debt process should be applied.

The existence of an insurance policy may be relevant to the issue of granting of leave, but this should not be confused with the issue of a party that claims to be a creditor considering whether to pursue the claim or how much it might settle for.

The decision supports the position commonly taken by insolvency practitioners that the confidentiality provisions in insurance policies should be maintained and it is a matter for the party seeking access to prove why it is needed.

While shareholders may have grounds entitling them to inspect insurance policies, the same cannot be so confidently said for third parties.

The court's powers may not assist unless the insurance policies are discoverable according to the established criteria, including in relation to the grant of leave to proceed against company in liquidation.

If indemnity is not in issue, the third party may struggle to show why it should be granted access to insurance material.

The court may not permit access to allow one party merely to gain a forensic advantage over the other in the context of negotiations and mediations.

Lender seeks access to insurance policies and leave to proceed against valuer

The lender commenced proceedings against the valuer of a holiday resort, claiming it lost almost $98 million after lending on the basis of the defendant's valuation.

After proceedings were commenced, the defendant entered into voluntary administration and the creditors approved a DOCA. Under the terms of the DOCA:

  • the lender was limited to recovering its loss from the proceeds of any professional indemnity policy the valuer held in respect of any liability it may have to the lender; and
  • the valuer's defence costs of the proceedings were to be paid from defence costs available under any such policy.
The lender filed a motion seeking:
  • leave under section 444E(3) of the Corporations Act to proceed against the valuer; and
  • access to documents disclosing the details of the valuer's professional indemnity insurance.

The lender also served a notice to produce and subpoena seeking those same documents, both of which the defendant sought to have set aside.

Lender's reasons for seeking access to professional indemnity policy documents

The lender submitted various reasons why it ought to be entitled to the documents, including that:

  • The court usually requires production of insurance policies relevant to a claim in respect of which leave was sought.
  • Production of insurance policies is usually ordered at the same time as leave is granted, so the "underlying rationale" of the leave requirement includes that the lender should not be made to incur costs only to find out that any amount available had been exhausted by defence costs.
  • Access is required to determine whether the lender should exercise the grant of leave.
  • It is in the interests of justice that the documents are produced, because without them the lender cannot know whether its claim is worth pursuing.

Court sets aside subpoena and notice to produce

The court was not persuaded by the lender's arguments. It dismissed the lenders' motion and set aside both the subpoena and notice to produce. The court observed that:

  • The purpose of the requirement for leave to proceed against a company subject to a DOCA is to protect the company and its creditors (and the company's limited resources) from unnecessary court proceedings, not to assist the lender in determining whether it should pursue the proceedings or protect it from unwisely choosing to do so.
  • In this case, the lender knew that the defendant was insured, that indemnity in relation to the lender's claim had not been denied and that the administrators had consented to the grant of leave for the lender's claim to proceed. In these circumstances, and in particular given that the policy appeared to respond to the claim, any payment in relation to legal costs, settlement or judgment would have no effect on any other creditors. The court would not grant the lender leave to proceed against the valuer. The terms of insurance policies were not relevant to any fact in issue and thus not discoverable and it would not bring about a "just, quick and cheap" resolution of the proceedings.
  • It was not in the interests of justice that the lender know the extent of the defendant's insurance, as such knowledge would be a considerable tactical advantage to the lenders in any settlement negotiations.
  • It was doubtful that the lender's principal motive was to determine whether or not to pursue the claim, given that the insurers had not denied indemnity, the claim was being defended and the lender was at pains to preserve its rights to pursue the claim under the DOCA.
  • It could be inferred that the lender did not see the claim as pointless and the real relevance of the insurance policies was to determine at what point the lender should settle, and for how much.

On 2 October 2015, the NSW Court of Appeal granted leave to CBA to appeal this decision. We will publish a further update once we know the outcome of the appeal.

This article first appeared in Butterworth's Corporation Law Bulletin, Issue 14, July 2015.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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