Insurance Contracts CP - Law Reform Commission

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CHAPTER 9 THIRD PARTY RIGHTS 1
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Introduction
9.01 Irish law still retains two rules that limit the capacity of individuals to benefit from the terms of
an insurance policy, even if it appears on the face of the policy that the individual or individuals in
question were intended to benefit therefrom. These rules are that a person who is a stranger to a
contract cannot enforce that contract, or be the subject of obligations under such a contract 2 - the Privity
rule. The other rule states that consideration for a contract must move from a promisee if the promisee is
to be able to enforce a promise. 3 There has been a considerable level of controversy surrounding these
two rules and whether the two rules are simply two different ways of stating the same proposition of law.
9.02 The most extensive discussion of these barriers to allowing a third party to directly enforce a
contract of insurance took place in the High Court of Australia in Trident General Insurance Co Ltd v
McNiece Bros Pty Ltd. 4 A workplace liability policy had been taken out by a company, BC. BC engaged
contractors to carry out work on its behalf. An employee of the contractors was injured and the claim
brought against the contractor by the employee was settled. The contractor, McNiece, sued Trident, the
insurer even though Trident‘s contract of insurance had been taken out with Trident by B.C. This case
predated the Insurance Contracts Act 1984, and therefore section 48 of the 1984 Act, discussed below,
could not be invoked. A majority of the High Court of Australia found for McNiece. Mason CJ and Wilson
J indicated that the ―principled development‖ of the common law required that the older, unjust privity rule
ought not to be followed and that McNiece was entitled to succeed in the action. Toohey J agreed but he
formulated a privity exception specific to liability insurance contracts involving contractors. Gaudron J
followed an unjust enrichment path in order to allow McNiece the chance to recover while the remaining
three judges, Brennan, Deane and Dawson JJ applied the privity doctrine and would have allowed
Trident‘s appeal: while expressing little or no affection for the privity doctrine, in Brennan J‘s words, ―a
doctrine which is both settled and fundamental,‖ Brennan J remarked that the proposed solution not only
flew in the face of precedent, it created uncertainty over central issues such as whether the newly minted
third parties‘ right to sue is irrevocable.
9.03 The Commission cannot see the Irish Supreme Court following a decision such as the majority
view in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd. Such a course of action would in the
opinion of the Commission be unnecessary and undesirable. The Commission has already examined the
privity of contract question and has proposed legislative changes that will provide a more balanced
response to the injustices that privity of contract can produce. 5
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See generally Merkin Privity of Contract (LLP 2000) pages 44-53 (Merkin) and Chapter 9 (Henley): in Kelly
and Ball, Principles of Insurance Law 2 nd ed (Butterworths 2001); Lowry and Rawlings Insurance Law,
Doctrines and Principles 2 nd ed (Hart 2010) Ch. 6.
Murphy v Bower (1876) 10 IRCL 354.
McCoubray v Thompson (1868) 2 IRCL 354.
(1988) 165 CLR 107; see generally Kincaid, Privity and the Essence of Contract (1989) 12 UNSWLJ 59.
Consultation Paper on Privity of Contract (LRC CP40-2006); Report on Privity of Contract and Third Party
Rights (LRC 88-2008).
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