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High Court confirms that third-party rights against insurers are restricted
The recent High Court decision in Michael Murphy v Allianz Plc(1) provides further clarification of the scope of Section 62 of the Civil Liability Act 1961 – in particular, the conditions which must be satisfied for its application.
This decision follows a number of similar determinations of the High Court in recent years and confirms the following important principles in relation to Section 62:
- The insured, who has a liability insurance policy, must become bankrupt or die (if an individual), be wound up (if a company) or be dissolved (if a partnership or other incorporated association);
- Liability should be established in the underlying claim against the insured and quantum assessed before the insurer is joined to proceedings or sued; and
- The courts will recognise a valid repudiation by an insurer.
In Dunne v PJ White Construction Company(2) the Supreme Court considered it to be "an inevitable consequence" of Section 62 that it creates a right of action in favour of an injured third party. Chief Justice Finlay held that in such proceedings, the onus of proof is not on a plaintiff to prove that the insurer has rescinded or repudiated the contract; rather, it is for the insurer to establish that there has been a rescission or repudiation.
The decision of Judge Gilligan in Murphy follows the recent High Court decisions in McCarron v Modern Timber Homes Limited and Hu v Duleek Formwork Limited (in liquidation). Each of these cases also concerned an employers' liability claim and an application by the insurer to strike out proceedings on the basis that they disclosed no reasonable cause of action and were bound to fail.
The plaintiff in Murphy suffered an injury on a building site during his employment as a bricklayer and issued proceedings against the main contractor and the subcontractor. The insurer sought outstanding wage declarations from the main contractor's broker under the relevant policy condition and reserved its rights under the policy pending resolution of the outstanding wage declarations and any other issues. Neither the main contractor nor its brokers furnished the insurer with the documents sought and as a result indemnity was withdrawn under the policy. The main contractor was subsequently struck off the Register of Companies.
The court stated that it is clear from the wording of Section 62 that the insured company must be one which has been wound up in order for Section 62 to apply. The insured company in this instance, however, had been struck off the Register of Companies and had not been wound up; therefore, the claim could not lie within the scope of Section 62. On this basis alone, the court stated that the plaintiff's claim was one which was "doomed to failure".
The court went on to consider the position if the insured company had been wound up and observed that, in that event, the plaintiff would still need to satisfy the court that it was entitled to moneys payable to the insured company under the policy. It was held that the claim in this case had been validly repudiated by the insurer and the solicitors for the plaintiff had been aware of this fact since at least January 2010.
The court endorsed the previous High Court decisions in McCarron and Hu. He stated that it has long been established that an insured's right of indemnity under a liability insurance policy does not arise until the existence and amount of the liability to the third party is first established – by either action, arbitration or agreement. A valid claim cannot be so characterised until liability has been established against the employer and the quantum of the claim assessed.
The court held that the plaintiff's claim was unsustainable as it did not constitute a valid claim against the insured in respect of which moneys were payable under the policy of insurance, particularly because the quantum of the insured's liability had not yet been assessed. Moreover, there was no privity of contract between the insurer and the plaintiff such that the defendant would owe a duty at law under contract, statute or in tort; therefore, no claim in damages against the insurer could arise.
The decision in Murphy will be welcomed by insurers, as it confirms yet again that the Irish courts will require strict compliance where an injured third party seeks to rely on Section 62 of the Civil Liability Act 1961.
For further information on this topic please contact April McClements at Matheson .
(1) (2014) IEHC 692.
(2) (1989) ILRM 803.