The NSW Government is considering a recommendation to replace a 70-year-old insurance claims law that has caused uncertainty over liability cover for directors and officers.

Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 was designed to protect people from parties trying to escape their financial obligations, providing access to insurance payouts when a person or company cannot be sued directly.

But Attorney-General Gabrielle Upton says changes within the insurance industry have made its application unclear.

“Businesses are concerned the old law could prevent their directors and officers from having their legal costs covered by their insurer when they are defending civil actions,” she said.

A NSW Law Reform Commission report has recommended replacing Section 6 with a simple alternative that addresses the issues.

The proposed law would continue to enable civil action against a person or company’s insurer if they could not be sued directly, even if the company is insolvent or a person is deceased or cannot be found, according to the report.

Insurance companies would be no more liable than if the legal action was taken directly against the person or company.

An Insurance Council of Australia (ICA) submission last year supported the repeal of Section 6 because it caused uncertainty after the high-profile Bridgecorp court case in New Zealand and the Chubb v Moore case in NSW that had potential implications for directors’ and officers’ cover.

ICA says the Federal Government has established “a strong and comprehensive regime of insurance regulation” since 1946.