In this article we discuss the Third Parties (Rights Against Insurers) Act 2010 that came into force on the 1 August 2016.This legislation was enacted to remedy substantial deficiencies with the Third Parties (Rights against Insurers) Act 1930. The Act will apply to situations where either the liability, or the insolvency, of the insured occurred after 1 August 2016.Section 1 (3) confirms that where the insured suffers one of the events listed including insolvency or dissolution, the third party may sue their insurer without first having to establish liability and quantum against the insured. The third party will therefore no longer have to apply for permission to pursue the insured, or restore the insured to the Register of Companies.Section 2 confirms that the third party must still seek a declaration as to the insured's and the insurer's liability but will be able to do so in the same sets of proceedings.The rights transferred to the third party still enable the insured to use all the usual defences including non-disclosure of material fact, breach of warranty and breach of condition. However, the Act excludes three particular circumstances:
- Section 9(2) confirms that any condition in the insurance contract will be deemed fulfilled, if the third party does what it requires instead of the insured. For example, a third party will be able to give notice of a claim to an insurer, instead of the insured.
- Section 9(3) confirms that any condition in the insurance contract that requires the insured to provide continuing information and assistance to the insurer once the claim has been notified, will not apply against a third party where the insured is incapable of fulfilling such requirement. For example, the insured may have been dissolved.
- Section 9(5) (vi) confirms that a pay first clause in the insurance contract will not apply to a third party. An insurer will not be entitled to require that the insured pay the third party before the third party can seek an indemnity from the insurer.
The Act also gives third parties greater access to information about the insurance arrangements.Clause 11 confirms a third party may request in writing certain insurance information from any party that it reasonably believes can provide the relevant information. This would include brokers and insurers.Schedule 1 lists the information to which the third party is entitled. This includes;
- Whether there is an insurance contract covering the relevant liability.
- The identity of the insurer.
- The terms of cover.
- Whether the insurer has denied liability.
- Whether the policy limit has been eroded in respect of other liabilities of the insured.
- Whether there are or have been any proceedings between the insured and the insurer in respect of the supposed liability of the insured and the details of any such proceedings.
- Schedule 1 stipulates that this information must be sent to the third party within 28 days.
ConclusionUnder the 1930 Act, a third party will still have to sue the insured to establish both liability and quantum. If the insured was in liquidation, they would have to apply to the Court for permission to issue, or continue with, proceedings. Furthermore, if a company had been dissolved and struck off the Register of Companies, the third party had to apply under Section 1030 of the Companies Act 2006 for a declaration that the company be restored to the register. Also under the 1930 Act, the full range of defences that the insurer could bring to bear on a claim by the insured, were also avaialble to defend the claim by a third party.The 2010 Act therefore greatly streamlines the procedure. Proceedings can be issued directly against the relevant insurer. The insurer is prohibited from using certain defences that were available under the 1930 Act and the information available to the third party is more extensive than was the case under the previous Act.The author of this article is a Solicitor and Fellow of the Chartered Insurance Institute, with significant experience in advising clients involved in complex and high value insurance litigation. For advice and information in relation to the issues set out in this article, please contact email@example.com.