A Recovery Option in New South Wales Which Should Not Be Overlooked

Written by Kirsty Henshall

Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW)

In New South Wales, you may have a possible option for recovery against a third party insurer which you had not previously considered.

The Supreme Court of New South Wales recently considered the provisions of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (“the Act”) in the decision of 374, 376 New South Head Road Pty Ltd v SMLXL Projects (NSW) Pty Ltd [2025] NSWSC 886.¹

Background

The Plaintiff was the owner of a property in Double Bay, New South Wales.

The First Defendant, SMLXL Projects (NSW) Pty Limited, undertook design and construction works at the property pursuant to a contract.

The Second Defendant, Chubb Insurance Australia Limited (“the insurer”) issued three design and construct professional indemnity policies in the name of the First Defendant.

The First Defendant commenced work at the property in December 2020, went into liquidation in July 2023 and then abandoned the site. 

The Plaintiff wished to bring an action for various claims for alleged breach of the contract.  The Plaintiff submitted if the First Defendant was liable, then it would arguably be entitled to be indemnified by the insurer under one of the three policies which had been issued.

The Plaintiff brought an application to commence and continue proceedings against the insurer pursuant to section 5 of the Act.

Justice Williams handed down her decision on 30 July 2025 and dismissed the application, holding the Plaintiff “has failed to establish an arguable case that SMLXL will be entitled to be indemnified under the Policies in respect of the plaintiff’s claims if SMLXL is found to be liable to the plaintiff”.²

Legislation

The court considered the provisions of the Act and in particular sections 4, 5 and the definition section.

Section 4 of the Act provides:

“Claimant may recover from insurer in certain circumstances

1. If an insured person has an insured liability to a person (the claimant), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court.
2. The amount of the insured liability is the amount of indemnity (if any) payable pursuant to the terms of the contract of insurance in respect of the insured person’s liability to the claimant.
3. In proceedings brought by a claimant against an insurer under this section, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly (but subject to this Act), the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person.
4. This section does not entitle a claimant to recover any amount from a re-insurer under a contract or arrangement for re-insurance.”

Section 5 of the Act provides:

“Leave to proceed

1. Proceedings may not be brought, or continued, against an insurer under section 4 except by leave of the court in which the proceedings are to be, or have been, commenced.
2. An application for leave may be made before or after proceedings under section 4 have been commenced.
3. Subject to subsection (4), the court may grant or refuse the claimant’s application for leave. 
4. Leave must be refused if the insurer can establish that it is entitled to disclaim liability under the contract of insurance or under any Act or law.”

Three Elements to Establish

An applicant for leave must establish three elements:

• “that it has an arguable case that the holder of the insurance policy is liable to the applicant;
• that there is a reasonable possibility that the holder of the insurance policy will be unable to satisfy in full any judgment that may be entered against it in favour of the applicant in respect of that liability; and
• that there is an arguable case that the holder of the insurance policy would, if found liable to the applicant, be entitled to indemnity under the policy (in other words, an arguable case that the liability of the policy holder to the applicant is an “insured liability” within the meaning of s 3 of the Third Party Claims Act).”³

Justice Williams stated the “Court is therefore entitled to consider evidence as well as the pleadings in determining whether the applicant for leave has an arguable case that the insured is liable to it, and whether there is an arguable case that any such liability is an insured liability under the relevant policy”.⁴

The Court also held even “if each of the three elements is established, there is a residual discretion to refuse leave rather than to permit the applicant to commence an action against the insurer who the applicant otherwise has no right to sue”.⁵

The Plaintiff alleged it had six categories of claims in relation to which it sought leave to proceed.  

The Plaintiff’s application for leave to proceed was opposed by the insurer on the basis the Plaintiff had failed to establish an arguable case that the First Defendant would be entitled to indemnity if the First Defendant was found liable to the Plaintiff in relation to any or all of the six categories of claim.

The onus of establishing an arguable case exists rests on the Plaintiff and “the plaintiff’s onus cannot be discharged simply by asserting something in a pleading or in submissions, or by adducing evidence from a person who has no expertise to speak to the relevant subject matter. Nor can the plaintiff discharge its onus of proving the existence of an arguable case to support a grant of leave merely by submitting that any contestable issues should be determined at a final hearing”.⁶

The Court addressed each of the six categories of claim in detail. In each instance, the Court found the Plaintiff had failed to establish an arguable case that the First Defendant would, if found liable, be entitled to indemnity, for reasons which will not be elaborated on in this article.    

As the court held none of the six categories of claims had established an arguable case, the application for leave to commence and prosecute proceedings against the insurer was dismissed in its entirety.

Implications

The decision is important as it considers the three elements an applicant for leave must establish.

It is also a timely reminder of this New South Wales legislation, which may provide an avenue of recovery which had not previously been considered.

Commonwealth legislation which may also be of relevance to a recovery action includes Section 601 AG of the Corporations Act 2001, which deals with claims against insurers of deregistered companies and Section 51 of the Insurance Contracts Act 1984, which deals with claims against insurers when an insured or third party beneficiary has died or cannot, after reasonable enquiry, be found.

However, the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) is a crucial piece of legislation which should not be overlooked.

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Should you wish to discuss the decision and its implications, please contact either Spencer Pascal on 02 8047 2870 or Kirsty Henshall on 03 9947 4554.

1. 374, 376 New South Head Road Pty Ltd v SMLXL Projects (NSW) Pty Ltd [2005] NSWSC 886 ↩︎
2. Ibid at [10] ↩︎
3. Ibid at [54] ↩︎
4. Ibid at [55] ↩︎
5. Ibid at [57] ↩︎
6. Ibid at [68] ↩︎