Class actions undercut by insurance

Key Points:

The court held each class action plaintiff's claim was a separate claim, and subject to the claim excess under the policy.

It is possible for a successful class action to turn out to be almost worthless, according to a new Federal Court decision.

The Court held that, where damages were payable out of a defendant's insurance, each class action plaintiff's claim was a separate claim. This meant that each claim was subject to the claim excess under the policy.

Background

Brighton Hall was a financial services company. It advised some clients to invest in Westpoint. When Westpoint collapsed, some of those clients began class actions against Brighton Hall for negligent advice. Brighton Hall claimed indemnity from its PI insurer in respect of the class action claims.

By now under the control of liquidators, Brighton Hall arrived at a settlement with its insurer. Under that settlement, the insurer agreed to pay the full policy limit of $2 million on the condition that the liquidators were to distribute that money in accordance with section 562 of the Corporations Act. If there was any money left over, it was to be repaid to the insurer.

The Court was asked for directions on two points:

did the class actions give...