Insolvency in the construction sector and the right to claim directly from an insurer

When it comes to insolvency, the construction sector has more insolvencies than any other. It’s true!

Even if the company goes under…there can be cash - in other words:

“Blair - Show me the RECOVERY!”

Right this way - but you need to have 3 prerequisites and the ‘know how’

Let me explain - if you want to bypass the impecunious defendant company and go straight to the insurer?

YES

1st - when a company in Australia is deregistered it ceases to exist and it ordinarily can’t be sued.

the section 601AG says:

“A person may recover from the insurer of a company that is deregistered an amount payable to the company under the insurance contract if:

(a) the company had a liability to the person; and

(b) the insurance covered that liability immediately before deregistration.”

So you need deregistration and this doesn’t always happen straight away…plus 2 more things - (1) Liability and (2) Policy cover. That means:

2nd - Liability

A claimant must show that immediately before the registration the company was liable for the loss.

The term ‘liability’ was considered in Hutchins v ASIC [2001] VSC 465 where it was found that a claimant was required to prove a “fully constituted cause of action against the company”.

The cause of action does not need to be in the sense of certainty but rather that the claim could succeed in default of a defence being filed; and

Where a company had a defence available, that defence is a matter that went “directly to the existence and quantum of liability”

3rd - Policy cover

The relevant policy must respond to the liability. In other words the insurer still preserves its rights to policy defences and exclusions.

Here comes the kicker folks:

For claimants, this is a new cause of action against the insurer to pursue the underlying cause of action against the company SO legal liability AND insurance contract BOTH need to be considered.

So here are my tips:

• Gather insurance information and consider 601AG as early as possible - this is absolutely critical especially with claims made insurance such as professional indemnity. Ie, you don’t leave the work till later!

• Track the registration status to preserve recovery options. If you don’t know how to do this, we can show you on InfoTrack AU.

• Don’t overlook timing, when a company goes under there can often be many claims and claimants - get started early.

• Getting the policy can take time and steps but remember an insurance specialist lawyer will typically know what a policy will and won’t cover from the type and nature of an underlying claim.

Get advice early so you can pursue recovery.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• building law