Third party
Third party S 48: THIRD PARTY BENEFICIARY
Third party beneficiary’s rights A third party beneficiary has right to recover loss suffered, in accordance with the contract, from the insurer, even though it is not a party to the contract: s 48(1).
Who is third party beneficiary Third party beneficiary means a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the cover extends: s 11(1) The fact that the person is defined as an “insured”, does not necessarily follow that the person is a party to the contract, instead, it may only be a third party beneficiary under s 48: ABN AMRO Bank. Whether or not a person is a party to the contract involves an objective construction of the contract: Barroora. Indicia as to a third party beneficiary — considerations include: ABN AMRO Who completed the proposal: ABN AMRO Who negotiated and entered into the contract: ABN AMRO Whether the contractor acted as the agent of the third party: ABN AMRO Who pays the premium: CE Heath Casualty. If the plaintiff’s name is shown on the endorsement, more likely to be a third party beneficiary: Grey. For D&O liability insurance: Green v CGU Insurance Ltd the extent of the directors' knowledge that insurance was being effected for their benefit; the extent of the directors' involvement in carrying out the arrangements under the package proposal; the commercial context of the insurance package; and the obligations under the Policy. Loss must be “in accordance with the contract” — limitation of the right s 48 claimant must take the policy as it is found: General Motors v RACQ. For example, if the policy provide cover only for accident, it does not protect a 3rd party beneficiary for deliberate destruction.
Obligation of a third party beneficiary Subject to the contract, the 3rd party beneficiary has, in relation to his claim, the same obligation to the insurer as if he were the insured, and may discharge the insured’s obligation in relation to the loss: s 48(2). A third party beneficiary only has post-contractual obligation: ABN AMRO. Source of the obligation may come from contract, equity or statute: Waston Estate.
Defences of an insurer Insurer has the same defence as if the claim was made by the insured, either before or after the contract was concluded: s 48(3) Therefore, s 48(3) enables an insurer to rely on a defence of avoidance for breach of the duty of good faith, and the duty of disclosure, as against 3rd party beneficiaries: Grey. Insured’s fraudulent non-disclosure A contract which can be avoided for fraudulent non-disclosure by the insured can also be avoided as against 3rd parity beneficiary: Baltica. Joint or composite, irrelevant. Insured's fraud behaviour Depends on whether the 3rd party beneficiary is covered under the policy severally, i.e., whether it holds identical interests as an insured: VL Credit. If severally, insurer is not able to rely on the fraud made by the insured. In VL Credits, an insurer is not entitled to raise arson by an insured as a defence against a third-party claimant: 1
Third party Breach of a term A term can be an exclusion clause of the policy: GIO v P Ward. An insurer’s ability to rely upon a breach of a policy term by the insured as against s 48 claimant depends: CE Heath. on the terms of the contract, and whether the s 48 claimant is to be fixed with the consequences of the breach according to the contract. S 51: DIRECT ACCESS CLAIMS
Third party’s rights, not third party beneficiary Third parties have the right to proceed direct against the insurer: s 51(1) Elements: Contract of liability insurance Third party beneficiary or the insured is liable in damages to a third party The liability is covered by the policy The insured or the third party beneficiary died or cannot be found after reasonable inquiry The third party then can recover from the insurer an amount equal to the insurer’s liability. No need for a wrong committed by the insured or the third party beneficiary has been determined. A third party may institute the proceedings with a view to establish the insured’s or the third party beneficiary’s liability: Hancock. s 51 can be called in notwithstanding that the insurer has declined the insured’s claim: Vollstedt. Damage refers to the loss suffered by the third party, not restricted to damages for tort or breach of contract: Vollstedt. Effect of s 51 is to place the third party in the shoes of the insured. The third party cannot be placed in a better position than the insured. If the liability is not covered under the policy, s 51 has no application: Bayswater, Webb. Cannot be found extends to the deregistration of a corporate insured: Norsworthy. Consequences of the direct access claims Payment of the insurer to the third party discharges the insurer’s liability under the policy as well as the insured’s or the third party beneficiary’s liability to the third party to the extent of the payment: s 51(2). S 71: INSURER’S DUTY TO NOTIFY WHEN THERE IS AN INSURANCE INTERMEDIARY If the contract is arranged for the insured by an insurance broker as the agent of the insured, the insurer is not to required to give notice as required by the Act to an insured before the contract is entered into: (1). This does not apply to s 58(2). Where the insured’s contract was arranged by an agent of the inured, other than an insurance broker, the notification requirement is satisfied if the insurer gave the relevant notice to the agent: (2). INSURER’S DUTY TO NOTIFY s 22: duty to notify the insured of the duty of pre-contractual disclosure. s 35(2): there is no need for an insurer to pay the minimum amount for standard cover if the duty of notify the insured of the effect of the contract has been performed. s 37: unusual term must be notified before the contract is entered into, otherwise, cannot be relied on. s 40(2): insurer’s duty to notify the insured of the effect of s 40(3) (notification of facts), and whether contract provides cover for pre-contractual claim. s 41: insurer ought to respond to the insured/third party beneficiary for their inquiry about settlement of the dispute, otherwise the insurer may not rely on the breach of the settlement consent provision to refuse the payment and the amount is not reduced. s 58(2): notice need to be given to insured (or its agent) 14 days before the renewable contract expires, otherwise it would be a statutory policy. s 71(1) does not apply to s 58(2) notice. s 59(1): insurer must give written notice of its intention for the proposed cancellation. s 68(1): to rely on the exclusion which excludes or limits an insurer’s liability where there is an agreement between the insured and third party limits the insurer’s rights to subrogation, the effect of the provision must be clearly informed before the contract is entered into. 2
Third party beneficiary’s rights A third party beneficiary has right to recover loss suffered, in accordance with the contract, from the insurer, even though it is not a party to the contract: s 48(1).
Who is third party beneficiary Third party beneficiary means a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the cover extends: s 11(1) The fact that the person is defined as an “insured”, does not necessarily follow that the person is a party to the contract, instead, it may only be a third party beneficiary under s 48: ABN AMRO Bank. Whether or not a person is a party to the contract involves an objective construction of the contract: Barroora. Indicia as to a third party beneficiary — considerations include: ABN AMRO Who completed the proposal: ABN AMRO Who negotiated and entered into the contract: ABN AMRO Whether the contractor acted as the agent of the third party: ABN AMRO Who pays the premium: CE Heath Casualty. If the plaintiff’s name is shown on the endorsement, more likely to be a third party beneficiary: Grey. For D&O liability insurance: Green v CGU Insurance Ltd the extent of the directors' knowledge that insurance was being effected for their benefit; the extent of the directors' involvement in carrying out the arrangements under the package proposal; the commercial context of the insurance package; and the obligations under the Policy. Loss must be “in accordance with the contract” — limitation of the right s 48 claimant must take the policy as it is found: General Motors v RACQ. For example, if the policy provide cover only for accident, it does not protect a 3rd party beneficiary for deliberate destruction.
Obligation of a third party beneficiary Subject to the contract, the 3rd party beneficiary has, in relation to his claim, the same obligation to the insurer as if he were the insured, and may discharge the insured’s obligation in relation to the loss: s 48(2). A third party beneficiary only has post-contractual obligation: ABN AMRO. Source of the obligation may come from contract, equity or statute: Waston Estate.
Defences of an insurer Insurer has the same defence as if the claim was made by the insured, either before or after the contract was concluded: s 48(3) Therefore, s 48(3) enables an insurer to rely on a defence of avoidance for breach of the duty of good faith, and the duty of disclosure, as against 3rd party beneficiaries: Grey. Insured’s fraudulent non-disclosure A contract which can be avoided for fraudulent non-disclosure by the insured can also be avoided as against 3rd parity beneficiary: Baltica. Joint or composite, irrelevant. Insured's fraud behaviour Depends on whether the 3rd party beneficiary is covered under the policy severally, i.e., whether it holds identical interests as an insured: VL Credit. If severally, insurer is not able to rely on the fraud made by the insured. In VL Credits, an insurer is not entitled to raise arson by an insured as a defence against a third-party claimant: 1
Third party Breach of a term A term can be an exclusion clause of the policy: GIO v P Ward. An insurer’s ability to rely upon a breach of a policy term by the insured as against s 48 claimant depends: CE Heath. on the terms of the contract, and whether the s 48 claimant is to be fixed with the consequences of the breach according to the contract. S 51: DIRECT ACCESS CLAIMS
Third party’s rights, not third party beneficiary Third parties have the right to proceed direct against the insurer: s 51(1) Elements: Contract of liability insurance Third party beneficiary or the insured is liable in damages to a third party The liability is covered by the policy The insured or the third party beneficiary died or cannot be found after reasonable inquiry The third party then can recover from the insurer an amount equal to the insurer’s liability. No need for a wrong committed by the insured or the third party beneficiary has been determined. A third party may institute the proceedings with a view to establish the insured’s or the third party beneficiary’s liability: Hancock. s 51 can be called in notwithstanding that the insurer has declined the insured’s claim: Vollstedt. Damage refers to the loss suffered by the third party, not restricted to damages for tort or breach of contract: Vollstedt. Effect of s 51 is to place the third party in the shoes of the insured. The third party cannot be placed in a better position than the insured. If the liability is not covered under the policy, s 51 has no application: Bayswater, Webb. Cannot be found extends to the deregistration of a corporate insured: Norsworthy. Consequences of the direct access claims Payment of the insurer to the third party discharges the insurer’s liability under the policy as well as the insured’s or the third party beneficiary’s liability to the third party to the extent of the payment: s 51(2). S 71: INSURER’S DUTY TO NOTIFY WHEN THERE IS AN INSURANCE INTERMEDIARY If the contract is arranged for the insured by an insurance broker as the agent of the insured, the insurer is not to required to give notice as required by the Act to an insured before the contract is entered into: (1). This does not apply to s 58(2). Where the insured’s contract was arranged by an agent of the inured, other than an insurance broker, the notification requirement is satisfied if the insurer gave the relevant notice to the agent: (2). INSURER’S DUTY TO NOTIFY s 22: duty to notify the insured of the duty of pre-contractual disclosure. s 35(2): there is no need for an insurer to pay the minimum amount for standard cover if the duty of notify the insured of the effect of the contract has been performed. s 37: unusual term must be notified before the contract is entered into, otherwise, cannot be relied on. s 40(2): insurer’s duty to notify the insured of the effect of s 40(3) (notification of facts), and whether contract provides cover for pre-contractual claim. s 41: insurer ought to respond to the insured/third party beneficiary for their inquiry about settlement of the dispute, otherwise the insurer may not rely on the breach of the settlement consent provision to refuse the payment and the amount is not reduced. s 58(2): notice need to be given to insured (or its agent) 14 days before the renewable contract expires, otherwise it would be a statutory policy. s 71(1) does not apply to s 58(2) notice. s 59(1): insurer must give written notice of its intention for the proposed cancellation. s 68(1): to rely on the exclusion which excludes or limits an insurer’s liability where there is an agreement between the insured and third party limits the insurer’s rights to subrogation, the effect of the provision must be clearly informed before the contract is entered into. 2
