A recent High Court decision provides useful guidance as to claimants’ entitlements to information about defendants’ liability insurance policies, to assist in making claims against insurers.
What happened
Teak Construction Group Ltd, a defendant in arbitration proceedings, was placed into liquidation shortly before an arbitration hearing. The arbitration was stayed by operation of the moratorium preventing continuation of proceedings against a company in liquidation without leave of the court. The plaintiffs applied under s 284 of the Companies Act 1993 for directions requiring the company’s liquidators to disclose its professional indemnity policy wording, schedules, insurer/broker details, and whether indemnity had been accepted or defence costs advanced under reservation.
The liquidators’ report estimated a likely surplus of around NZD6 million after preferential creditors, against unsecured claims of almost NZD8 million, suggesting a material (if partial) recovery was expected regardless of insurance.
Issues arising
Noting that s 284 is not the orthodox route for a request for documents, the Court nonetheless granted leave to bring the application, given the novelty of the point. Substantively, the Court held that insurance is generally irrelevant to liability and damages issues in an underlying claim, and declined to order disclosure on a discovery rationale, noting that the arbitration itself was stayed and any evidential dispute could be managed by the arbitrator if and when arbitration resumed.
The Court did recognise a narrow disclosure obligation: liquidators must confirm the identity of any potentially responsive insurer so a creditor can be satisfied that notice has been given under s 9(6) of the Law Reform Act 1936 to preserve a statutory charge. Other than this, nothing more was required, and no determination of quantum or acceptance of liability was needed for that purpose.
On the facts, the Court found the claimants’ real motive was to obtain a negotiating advantage rather than to assess viability (unlike the Australian cases, where claims might not proceed at all without insurance funds), and inferred this from the fact that most costs of the claim had already been incurred and the estate showed a likely surplus.
The Court also gave a useful description of the interaction between the s 9 statutory charge and Part 16 of the Companies Act: a s 9 charge over prospective insurance proceeds is not “property owned by the company” and does not need to be identified or elected upon in a proof of debt form, since the charge attaches to money still under the insurer’s control, not to any asset in the liquidators’ hands. This confirms that a creditor pursuing a s 9 remedy is not put to an election between proving in the liquidation and pursuing the insurer, and does not need further disclosure to complete a proof of debt.
The future Contracts of Insurance Act regime
The plaintiffs also sought to argue that the policy shift under the not-yet-in-force Contracts of Insurance Act 2024 should be taken into account. CoIA introduces a new regime that governs third party claims against insurers, which is more straightforward than the current s 9 statutory charge process. Under the new regime:
- A person who reasonably believes another is a specified policyholder with an insured liability to them may serve a written notice requesting information under Schedule 3, setting out the facts relied on.
- That person can ask for details such as whether cover exists, the insurer’s identity, policy terms, any dispute over liability, related proceedings, fund payouts, and any security interest over proceeds. The recipient has 28 days to provide the requested information, and if it cannot must explain why not.
- Policy terms that attempt to prohibit or restrict disclosure are ineffective.
- A claimant with an insured liability against a “specified policyholder” may then recover directly from the insurer in court proceedings, subject to first obtaining leave of the court, and stands in the policyholder’s shoes.
Points of interest
Whilst the CoIA will provide a much more direct route than the current s 9 statutory charge mechanism, the Court held that, as this was a future regime, it was not relevant for the present application.
Currently, whilst liquidators must at least confirm the identity of a potentially responsive insurer to enable the charge notice to be given, the Court confirmed that liquidation does not itself dilute an insurer’s interests in keeping its records, such as policy wording, limits, or claims history, confidential.
The analysis of the s 9 charge as attaching to a “prospective payment” rather than to company property is consistent with existing Supreme Court authority and is consistent with the charge being over money still in the insurer’s hands, rather than over an asset controlled by the liquidator. A creditor asserting a s 9 charge is not put to any election in the proof of debt process, and does not need further information from the liquidator to protect that charge.
