It is common practice for insurers to offer policies of insurance where persons or entities other than, or in addition to, the named insured receive the benefits of the relevant insurance cover as additional insureds or third party beneficiaries. Under the Insurance Contracts Act 1984 (Cth) (‘ICA’), a third party beneficiary to a contract of insurance has a right to recover from the insurer the amount of any loss suffered by the third party beneficiary, even though the third party beneficiary is not a party to the contract.
The ICA defines “third party beneficiary” as a person who is not a party to the contract, but is specified or referred to in the contract as a party to whom the benefit of insurance cover extends. While the ICA has attempted to provide some certainty in relation to the status of third party beneficiaries, some confusion remains surrounding the rights and status of entities claiming entitlements under policies of general insurance.
Such confusion often stems from the wording of the contracts which underly this obligation – although similarly, the policy wording and its application can create confusion at times. Regardless, it is important for parties to be aware of the risks associated with both naming and not naming interested parties on policies of insurance.