Client Alert: The Third Parties (Rights against Insurers) Act 2010

The Third Parties (Rights against Insurers) Act 2010 allows claimants to recover compensation directly from insurers where the insured is insolvent. The old (1930) Act requires claimants to establish the insured’s liability before bringing a separate claim against their insurer. The new Act comes in to force on 1 August 2016.

Summary of what this means for insurers

• The new Act makes it easier for claimants to bring a claim direct against the insurer of an insolvent insured by removing the need to sue the insured first in order to establish liability.

• The new Act limits policy defences on which insurers can rely in relation to a claim under the new Act as it:

• Removes the right of an insurer to rely on a policy condition requiring the insolvent insured to provide information or assistance where that condition cannot be fulfilled because the insured is deceased or the insured company has been dissolved;

• Allows a claimant to take steps which, if done by the insolvent insured, would have complied with a term or condition of the policy. 

• The new Act gives new powers to request information which will make it easier for claimants to identify an insurance fund where they have claims against insolvent insureds before embarking on an action against an insurer.

When will the new Act apply to a claim?    

• The claimant can bring one action against the insurer under the new Act in order to establish the insolvent insured’s liability for the claim and the insurer’s obligation to indemnify the insolvent insured for that liability.

• The new Act will apply to claims made on or after 1 August 2016, if:

• The insured incurs a liability; and/or

• The insured becomes a “relevant person” under the new Act.

• If the liability is incurred and the insured becomes a “relevant person” before 1 August 2016, then the old Act will apply.

• The new Act does not define when a liability is incurred.  However, case law has established that a liability is incurred in relation to insurance if the insured has an actual or potential liability to the claimant even though liability has not yet been established in the court. Therefore the new Act will only apply to accidents before 1 August 2016 if the insured became a “relevant person” on or after 1 August 2016.  

• A “relevant person” is defined in the new Act and generally will be an insured (whether a company or individual) who becomes insolvent or, if they are a company, they have been dissolved under the Companies Act.  There are a number of new insolvency events added to the definition of “relevant person” by the new Act as well as the dissolution of a company. We anticipate that claimants will argue that this will mean the new Act will apply to accidents before 1 August 2016 when the insured becomes a “relevant person” as a result of one of these new categories even though the insolvency/dissolution event occurred before 1 August 2016.  

Obtaining information under the new Act

• Claimants will have much wider powers to obtain information in relation to a policy of insurance. The powers do not apply to information which is subject to legal professional privilege.

• Where a claimant reasonably believes that they may have a claim against an insurer under the new Act and that a person may have the information prescribed in the new Act, then they can serve that person with a notice.

• The information which is prescribed is whether there is a policy in existence which covers the supposed liability and if so:

• Who the insurer is;

• What the terms of the insurance are;

• Whether the insured has been informed that the insurer has claimed not to be liable under the policy in respect of the supposed liability;

• Whether there have been proceedings between the insured and insurer regarding the supposed liability and, if so, relevant details of those proceedings (name of the court, case number, all documents served in the proceedings in accordance with the rules of the court or orders and any orders made);

• If the policy has a limit on the funds available to meet claims in respect of supposed liabilities, how much of it has been paid out in respect of other liabilities;

• Whether there is a fixed charge to which any sums paid out under the contract in respect of the supposed liability would be subject.

• If a person receives such a notice then they have 28 days from receipt to either:

• Provide the information or what information they can;

• Explain what information they are unable to give;

• If they are unable to give the information because it is contained in a document no longer in their control, give such particulars as they can as to the nature of the information and the identity of the person who has control of the document.

• If the person fails to provide the response above within 28 days of receipt of the notice, the claimant can apply to the court to require that person to comply with their obligation under the new Act.  

• Given the tight time scales under the new Act insurers (and others who may have the information, such as brokers or intermediaries) will need to act on any notices received promptly.  

• If more time is required, then a request for an extension of time should be made to the claimant setting out why the extension is required.  Although the new Act does not deal with extensions of time, provided the request is made promptly and the grounds are reasonable then the courts will take this into account on the issue of costs in any action to enforce the new Act if this is unreasonably refused.