Acts of intervention: how contracts of liability insurance are regulated to protect third party claimants in Australian Law

Uninhibited freedom to contract without undue statutory interference is a hallmark of western jurisprudential tradition. Policies of consumer protectionism and public interest sometimes operate to impose statutory intervention where unrestrained contractual freedom would produce injustice or is against the public interest in preventing fraudulent conduct or unfair practices. This paper examines some of the statutory interventions which have been enacted in Australian law to prohibit insurers from excluding benefits to third party claimants where the insured party has come under insolvent administration, has otherwise ceased to exist or has no interest in seeking indemnity under its contract of liability insurance. It argues that, whilst the general policy is clear, the intention of the legislation has become obscured by excessive deference to procedural imperatives that have subverted the initial policy objectives and the substantive law of subrogation. The effect of current statutory law in Australia raises questions in relation to rights of subrogation in cases where insurers have been joined as unwilling parties to liability claims against their insured. This paper concludes that legislators should consider reform of the present legislation to improve certainty for liability insurance underwriters and for their insured.