Clarification of section 601AG of the Corporations Act 2001 (Cth) for claims made policies

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On 10 September 2013, in Sciacca v Langshaw Valuations Pty Ltd [2013] NSWSC 1285, the Supreme Court of New South Wales held that, in relation to claims made policies, the threshold test of section 601AG of the Corporations Act 2001 (Cth) can be satisfied even if an insured did not make a claim upon that policy before (the insured's) deregistration.

The Plaintiff lenders loaned $490,000 to borrowers, secured by a mortgage.  The borrowers defaulted and the lenders suffered a shortfall on the loan.  In proceedings to recover the balance outstanding under the loan, the lenders joined various defendants including the finance broker in the transaction.  The broker was later deregistered and, after deregistration, the lenders made a claim directly against the broker's (previous) professional indemnity insurer pursuant to section 601AG of the Corporations Act 2001 (Cth).

The insurer filed a Notice of Motion for summary dismissal of the lenders' claim.  The main thrust of its submission was, given that (i) the subject policy was a claims made policy, and (ii) the broker had not made a claim on the insurer prior to its deregistration, the insurer could not be liable to the lenders pursuant to section 601AG of the Corporations Act 2001 (Cth).  However, the Court ultimately held that the threshold for section 601AG was satisfied because "the risk that ensued was one with [sic, which] was within the scope of the policy".  In that way, section 601AG merely required that "the liability of the insured to the claimant fall within the cover provided by the Policy, as distinct from requiring that the insurer be liable to the insured prior to the deregistration by reason of a claim having been made prior to that time, that would trigger the insured's right to indemnity under the Policy."

Published In: Business Organization Updates, General Business Updates, Finance & Banking Updates, Insurance Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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