The NSW Law Reform Commission’s proposal to replace Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 should be implemented, the Insurance Council of Australia (ICA) says.

Section 6’s relevance is increasingly doubtful because it was enacted more than 70 years ago, and it needs updating to meet current commercial needs, it argues.

“ICA has long advocated for legislative reform to address the inherent uncertainty created by Section 6,” CEO Rob Whelan says. “ICA supports the commission’s proposed draft bill.”

Section 6 was introduced to protect people from parties attempting to escape their financial obligations, but critics say its obscure drafting leaves significant areas of uncertainty and inadequacy in modern-day application.

Its application is unclear around directors and officers’ insurance policies, claims made and notified policies, liability for pure economic loss and contracts for reinsurance, the NSW Law Reform Commission says.

“The new provision should ensure a plaintiff can recover from an insurer in appropriate cases,” the commission says. “It should ensure that the insurer is not liable for more than the insurer would have been liable to pay under the insurance contract.

“It should also ensure the insurer can rely on the same defences and reductions that the defendant could have relied on in an action brought by the plaintiff.”

The commission recommends giving plaintiffs the right to recover against a defendant’s insurer, and discharge of the insurer’s obligation to the defendant under the insurance contract if there is any payment to the plaintiff.