Third Party Claims against the Insurers of an Insolvent Party
After several false starts, from 1 August 2016 the Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act”) finally came into force to replace the Third Parties (Rights Against Insurers) Act 1930 (“the 1930 Act”).
The 2010 Act was introduced to improve and simplify the procedure for a third party with a claim against an insolvent person or company who has liability insurance. The 1930 Act required a third party to first start its claim against the insolvent defendant and then once liability was determined the third party could then issue proceedings against the insolvent defendant’s insurer. The 2010 Act removes the step of having to issue multiple sets of proceedings. Now a third party can from the outset bring a claim directly against the insurer instead of having to first start its claim against the insolvent defendant and all issues (including both the insured and the insurer’s liability) can be determined within those proceedings.
The key changes introduced by the 2010 Act are:
- A third party creditor of an insolvent person or company now only has to issue a single set of proceedings against the insolvent defendant’s insurer without first having to establish the liability of the insured in separate proceedings.
- A third party creditor no longer has to apply to restore a dissolved company to the Companies Register before commencing proceedings against the insurer.
- A third party can now obtain information about what liability insurance an insolvent defendant had before deciding whether or not to pursue its claim. This information is now required to be provided within 28 days of a third party making its request from not only the insured or the appointed insolvency practitioner, but also from any person entitled to provide it such as the insured’s brokers, its former office holders, and its insurers.
- Certain defences have been removed that were available to insurers under the 1930 Act. For example, liability policies often have conditions that the insured has to fulfil, such as a notification requirement. Insurers could often rely on a defence that it was not notified of a claim by the insured within a prescribed time limit in order to avoid a claim. Insurers can no longer avoid dealing with claims for this reason as the 2010 Act provides that anything done by the third party which, if done by the insured would have fulfilled the condition (such as notifying the insurer of the claim within time), will be treated as if it was done by the insured.
It is worth noting that the 1930 Act continues to apply in cases where both the liability of the insured to a third party and its insolvency occurs before 1 August 2016, the date the 2010 Act came into force. However, the simplification of the process should mean that a third party creditor now has a simplified, cheaper, and efficient procedure to pursue its claim against the insurer of an insolvent defendant who has liability insurance.
It is predicted that commencement of the 2010 Act will see an increase in information requests being received by insurers and brokers from third parties and proceedings being issued directly against the insurers of insolvent defendants. Expanding the class of persons that a third party can obtain insurance information from should also achieve savings on time and costs for a third party who can now obtain details about the extent of the insolvent defendant’s insurance cover at an earlier stage in order to make an informed decision about whether or not to pursue its claim.If you would like further information or would like to discuss this article further, please contact Michael Buchanan
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.