The real possibility of a conflict of interest between an insurer and its insured will justify joinder under s79 MACA

Principles

• The purpose of section 79 of the Motor Accident Compensation Act 1999, (MACA),¹ is to address the types of difficulties that can arise where there is a dispute between the insurer and the insured defendant about whether liability of the defendant is covered by a CTP policy or some other liability/cause of action.
  
  
• Section 79 is a facilitative provision and gives a court discretionary power to permit an insurer to be joined as a party to proceedings against a defendant with whom it has a third party policy, "in order to argue that in the circumstances of the case it has no obligation under the policy to indemnify the defendant" (i.e. either the owner or driver, authorised or unauthorised).
  
  
• Section 79 permits the argument to be advanced in the same proceedings to which the defendant is a party, rather than the insurer having to commence separate proceedings against the insured.
  
  
• Section 79 also recognises and permits all interested parties to be heard on the indemnity question in the one proceeding, including the plaintiff who is likely to have a practical interest in the indemnity question, albeit derivate on the success of the plaintiff's claim against the insured defendant.

Background

The plaintiff (first respondent), commenced an action against the defendant (insured driver and second respondent) in the District Court, for personal injury damages in respect of a motor vehicle accident.

The plaintiff was driving home and got out of his car to assist the defendant. The defendant assaulted the plaintiff outside of the vehicle. The defendant drove off in the plaintiff's car while the plaintiff was attempting to get back into his own vehicle.

The insurer's position was that the plaintiff was injured as a result of a prior assault (i.e. criminal act) by the defendant and not in the course of an MVA and that if the plaintiff obtained judgment against the defendant, the insurer would have a right of recovery against the defendant in the District Court proceedings.

The insurer had not granted indemnity to the insured driver, nor had it exercised its rights to take over the defence of the proceedings on behalf of the insured driver, pursuant to s 78 of the MACA. The insurer also did not file a defence on behalf of the insured driver. Instead, it filed a notice of motion (and then an amended notice of motion) seeking to be joined as a party to the proceedings pursuant to s 79 (a joinder application) to argue that, in the circumstances of the case, it had no obligation under the policy to indemnify the defendant.

The primary judge rejected the joinder application. He observed that any joinder would be for the sole purpose of resolving a dispute between the insurer and its insured. Any such dispute between the insurer and the owner of the insured vehicle was not before the court.

Decision

The principal issue on appeal was whether the insurer should be joined as a party in circumstances where it contended that there was a conflict between its interests as the insurer and the interests of its insured.

The Court of Appeal decided that the error in the primary judge's approach was failing to address a relevant consideration, namely, "whether there was a real possibility of a conflict of interest" between the insurer and the defendant, (namely exposing the defendant to prosecution for a criminal offence).

Ultimately, the court considered it in the interests of justice and the "just, quick and cheap" resolution of the real issues in dispute that the court re-exercise the discretion and determine the joinder application on the merits. The insurer's appeal was allowed and the order for joinder was made.

Why this Case Note is important

Given Section 79 of the Act is silent on the circumstances in which it is appropriate for the court to grant applications for joinder, this case demonstrates that one of the circumstances in which a joinder application could succeed is if an insurer can demonstrate a "real possibility of a conflict of interest" between the insurer and the defendant, such as exposing the defendant to criminal prosecution.

Another example of where a real possibility of conflict of interest may arise for the purposes of a joinder application, is where the insurer has evidence to establish the plaintiff and defendant engaged in fraud.

When making a joinder application on the basis of a conflict of interest however, the insurer should clearly demonstrate the interests of the insurer and defendant as potentially not being aligned.

* Basten JA, Gleeson JA, McCallum JA

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¹ Second reading speech of the Minister (the Honourable J W Shaw) relating to an amendment of the predecessor provision to s 79 of the MACA, being s 47A of the Motor Accidents Act 1988 (NSW)).