Introduction

In Genworth Financial Mortgage Insurance Pty Ltd v KCRAM Pty Ltd (in liq) (No 2) [2011] FCA 1124, the Federal Court considered the point at which an "event giving rise to the claim for damages or compensation" occurs for the purposes of section 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act).

Facts

Genworth provided mortgage insurance to lenders. KCRAM was a property valuer. When four security properties were sold below their valuation price following default by the borrowers, Genworth sued KCRAM claiming that the valuations were prepared negligently.

After KCRAM went into liquidation, Genworth sought leave, under s 6(4) of the Act, to join the valuer's professional indemnity insurer, International Insurance Company of Hannover Limited (Hannover), as a second respondent to the proceeding. Leave would have given Genworth, pursuant to s 6(1) of the Act, the possibility to enforce a charge over insurance funds payable by Hannover to KCRAM. There was also an application by Genworth under the Federal Court Rules to join Hannover so Genworth could seek a declaration about Hannover's liability to indemnify under the professional indemnity policy.

Decision

Section 6(1) of the Act provides that a charge will arise in relation to insurance money payable on the happening of an "event giving rise to the claim for damages or compensation".

The "event giving rise to the claim"

Hannover submitted that the "event giving rise to the claim" was the time at which the loss became readily ascertainable, because recoupment of the loan amount was not possible through sale of the properties. Conversely, Genworth contended that the "event" for the purposes of the Act happened when it paid out the insured lender's claim.

The Court accepted Hannover's submission that the "event giving rise to the claim," for the purposes of the Act, happened when it became readily ascertainable that Genworth would suffer a loss.

The timing

Hannover submitted that, in order for 6(1) of the Act to apply, the relevant insurance policy had to exist at the time of the "event" giving rise to the claim. The court accepted this submission. Accordingly, the Court refused Genworth leave to join Hannover as a respondent under section 6 of the Act in respect of those properties where the relevant "event" occurred before the inception of Hannover's insurance policy. The Court did, however, permit the joinder of Hannover under the second limb of the application, so that Genworth could seek a declaration as to Hannover's liability to KCRAM under its PI policy (because Hannover had relied upon an endorsement to deny indemnity).

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