The Third Parties (Rights against Insurers) Act 2010 – simplifying claims against insolvent defendants
This new Act helps to put creditors or other claimants (‘third parties’) directly in touch with insurers of insolvent people or companies.
The Third Parties (Rights against Insurers) Act 2010 simplifies the position of third parties who want to bring a claim against an insolvent company or individual, where the company or individual in question has insured against that claim. Recognising that, in many cases, it is really an insurer who responds to the claim and pays the debt or damages, the 2010 Act transfers the right to receive payment under the insurance policy from the insolvent company/individual to the creditor.
The new Act replaces the similar Third Parties (Rights against Insurers) Act 1930 but makes it easier for third parties to bring a claim.
Bringing the claim
The new Act will apply where either the liability under the insurance policy or the insolvency occurs on or after 1 August 2016. If both occur before that date, the 1930 Act will continue to apply.
The insured company or individual must be the subject of formal insolvency proceedings.
The third party can bring a claim before the insurer’s liability to respond to the claim is established, and can bring the proceedings directly against the insurer.
The third party cannot, however, enforce any claim i.e. recover any insurance monies, until the insurer’s liability is established. Once the third party proves that the insurer is liable or potentially liable they can ask the court (or arbitral tribunal) for a declaration to that effect.
The insurer can raise any defence that would have been available to it against the insured but the new Act introduces three exceptions:
- The third party will be able to fulfil any conditions that the insured should have fulfilled e.g. notification of the claim, and the insurer will not be able to argue that the insured had to give that notice.
- Policy obligations, such as giving continuing assistance to the insurer, which the insured cannot meet e.g. because the company has been dissolved, will not apply to the third party.
- ‘Pay first’ clauses will not apply where a third party is involved.
Rights to information about insurance
Improved rights to information from insurers, brokers and any other person the third party reasonably believes can provide information are a very positive development. The Act sets out a wide range of information to which the third party is entitled on requesting it in writing. Requests for information must be responded to within 28 days.