I received this question on an issue that fortunately does not arise very often.
“Hoping you can assist on a generic basis.
We act as insurance brokers appointed by Liquidators who were appointed over a business which has now ceased to trade.
Under the pre-liquidation insurance program the Insured held a Motor Fleet policy which included an Aggregate Deductible structure. An employee of the business driving a company vehicle under company instruction was involved in an accident whereby he clipped the back of a third party vehicle whilst changing lanes. Due to the aggregate deductible, the business was expected to settle the claim (approximately $39,000) with the third party insurer, however the cheque issued subsequently bounced. The business has since been liquidated.
As the third party insurer is not guaranteed to secure funds from the Liquidator through lodging a proof of debt, they have sued the driver of the vehicle in his individual capacity, and are seeking to bankrupt him.
My queries are:
- Is there precedent for the third party insurer to sue the driver as an individual considering the accident arose out of negligence (however not gross negligence) whilst he was operating an employer’s vehicle in the scope of his employment and under the employer’s instruction; and
- Are you aware if this is a matter which can be assessed by the Insurance Ombudsman considering the Individual is technically not an Insured Party but rather an Employee of the Insured Party?
I look forward to your advices in due course.
Brad [surname and email provided]”
My first thought was that, while insurance companies and insurance brokers receive a great deal of criticism from the media and politicians, the truth is that many go out of their way to assist people in genuine trouble.
I answered this question by phone as I needed more information and I wanted to provide some advice that is best not shared until the matter is resolved.
The position is that, at common law, the English courts held that it was no defence to liability that an employee was acting on behalf of an employer (within the course and scope of employment). The law went so far as to provide that an employer was even permitted to sue an employee for an indemnity where an employer had settled the debt in the first instance. This was followed with reluctance and much criticism in Australia until 1982 when the Employees Liability (Indemnification of Employer) Act 1982 (NSW) prevented an employer from recovering an indemnity from an employee.
I am not aware of any analogous legislation or case law that prevents a third party (or its insurer) from pursuing the employee directly and would need to do more research on this issue, which is outside the scope of this blog.
Having said this, my belief is that the law is likely to be clear and there would thus be no point in considering whether it falls within the Ombudsman’s terms of reference until the legal position is clarified because if the employee can be sued directly then that is obviously the end of the matter.
The employee in this instance has not found a job since the failure of his employer more than 6 months ago and he is also trying to assist his wife who has recently been diagnosed with cancer. As he does not have the cash, the Third Party insurer is trying to have him sell his family home. This to me is a very harsh step under the circumstances. I hope that once they appreciate all the facts the Insurer will not follow through with its recovery action. Of course legally they do not have to, and with lawyers involved who are on a no win no fee payment structure, there is no guarantee of success.
There is no easy solution here. It is rare but not unique. It certainly highlights a contingent liability for any commercial vehicle driver.
As an aside, I would mention that under good quality private motor vehicle policies, there is a substitute vehicle clause which protects the Insured against third party claims when they drive a substitute vehicle while theirs is off the road. Many such policies sold by direct insurers or via the Clayton’s comparator sites no longer provide this cover. In any event, this would not have protected the employee as the vehicle was a commercial (heavy haulage) vehicle.