The long delayed Third Parties (Rights Against Insurers) Act 2010 came into force from the beginning of August 2016 with the intention of making it quicker, easier and more certain for Claimants seeking recovery from the liability insurers of insolvent policyholders who have caused them loss.
The “new” Act, which has been held up for dull technical reasons, replaces the Third Parties (Rights Against Insurers) Act 1930. The longstanding 1930 Act allowed Claimants to claim directly from the liability insurers of insolvent individual and corporate Defendant policyholders, to avoid the perceived injustice of insurance proceeds instead being distributed to all creditors in the insolvency. Whilst its aim was primarily focussed upon motor policies, its scope extended to much wider claim and policy types.
The 1930 scheme gave Claimants valuable rights. However, exercising them often proved cumbersome, uncertain and expensive. Before being able to take on insurers, Claimants had to conclude proceedings against the insolvent policyholder first (and often bring proceedings to resuscitate dissolved corporate policyholders before then). Furthermore, rights to information until then were limited and not widely known. Insurers could therefore often stand silent, simply reserve rights or even pull strings in the background unless and until Claimants cleared multiple expensive formal hurdles. The resultant cost and uncertainty for Claimants meant many claims fell by the wayside and, if they did not, they could still fall foul of policy conditions not being satisfied whilst the technical obstacles were overcome.
THE NEW SCHEME
The 2010 Act continues with the principle of allowing Claimants to “step into the shoes” and assume the rights of insolvent policyholders, but seeks to address a number of the practical shortcomings under the 1930 scheme. In particular, Claimants now have the following rights:
- A freestanding statutory right from an early stage to seek information from insurers and, in certain circumstances, third parties (including brokers, former directors and insolvency practitioners). Such information can include the location of relevant insurance documents, the identity of insurers, the terms of cover, the remaining limits of indemnity, whether/the basis upon which cover has been refused in respect of the claim and details of any proceedings regarding such refusal. Such information must be provided within 28 days failing which the Claimant is entitled to seek an Order from the Court for its provision.
The ability to satisfy policy conditions in place of the insolvent policyholder, to include in respect of notification. In addition, insurers are no longer able to rely upon conditions requiring the policyholder to pay the liability first or, where the policyholder has been dissolved or died, requiring cooperation and assistance.
To bring proceedings directly against insurers to determine: (i) the policyholder’s liability to the Claimant; and/or (ii) the insurer’s liability to indemnify against that liability. The policyholder need not be included as a party (and a dissolved one need not be restored), but any judgment can then only be enforced against the insurer. If the policy contains an arbitration clause, then the underlying claim can be brought in the arbitration with the coverage claim.
Claimants now have far more weapons in their armoury which if deployed carefully and proactively can dramatically improve their position. They have vastly improved rights to seek vital information regarding the existence and extent of insurance cover in order that they can make an early informed decision whether to embark upon proceedings. They can take proactive steps to ascertain and satisfy policy conditions. Crucially, they can bring a single set of proceedings against insurers to dispose of claim and coverage matters at the same time significantly reducing the time and cost of litigation.
The position is more challenging for insurers. They can no longer rely upon inertia weeding out good claims. Instead they can now be identified, forced to disclose their hand regarding policy rights and forced to “nail their colours to the mast” regarding their position on cover at a much earlier stage (against a backdrop where defence and policy cover issues can often conflict, for example where there are issues of suspected dishonesty). Furthermore, whilst in general the position remains that Claimants’ rights are no better than policyholders’ would have been, in certain circumstances insurers can no longer rely on often important policy provisions requiring assistance. More positively for them, early engagement regarding real policy issues might deter Claimants before they are “in too deep” and the technically complex situation where they only find out about claims once there has already been judgment against their policyholder is now much less likely.
This article was prepared by Richard Loney. If you'd like to discuss the issues in the article please contact Richard.