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Court rules against insurers in NSW bushfire case

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Insurers are likely to amend policy wordings following a court decision regarding the Blue Mountains bushfire class actions, according to law firm Clayton Utz.

It says they will act to secure broader rights to recover both insured and uninsured losses.

Justice Peter Garling in the NSW Supreme Court this month ruled insurers are not legally authorised to opt out of class actions on behalf of policyholders and to start their own actions.

“Unless there is an express contractual right to do so, an insurer that has paid part of an insured’s loss does not have authority to conduct and control the insured’s right to recover their entire loss, both insured and uninsured,” the Clayton Utz insurance team say in an analysis.

In May last year bushfire litigation specialist Maddens Lawyers launched a class action against Endeavour Energy for hundreds of residents following the Blue Mountains fires in 2013.

Last October lawyers for IAG and other related insurers started their own class action against Endeavour, opting out 565 people and businesses they insured from the Maddens case.

Under the ruling by Justice Garling, insurers were not authorised to file opt-out notices for their 565 policyholders and to launch their own class action.

Clayton Utz says as insurers look to include this right, policyholders should be aware of policy wordings that seek to confer broad recovery rights on an insurer, especially where the value of uninsured loss may be significant.

Justice Garling ruled that of the 24 types of policy considered in his decision, most did not allow insurers to opt out of claims covering insured and uninsured losses, and the opt-out notices were not valid. In only seven policies, covering 30 policyholders, did insurers have authority to file opt-out notices.

Under most of the 24 policy types, the right to take legal action remained with the insured, who retained the right to control recovery proceedings for insured and uninsured losses free from interference by insurers, unless an insurer had fully indemnified the person for all losses, Justice Garling ruled.

Clayton Utz says the court decision may make it more likely that corporate defendants will face only one large, consolidated class action, rather than splintered claims – making management of their defence easier.

IAG has previously told that customers suffered more than $60 million of damage to homes, vehicles and businesses in the Blue Mountains bushfires.