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Third Parties (Rights Against Insurers) Act 2010 – are you ready for the change?

After years of delay, on 1 August 2016, new legislation comes into force which should make it easier for third party claimants to bring direct claims against an insurer when its insured has become insolvent.  Oliver Spence summarises the main changes below. 

You can access a copy of the 2010 Act here.

Where the new law will apply

The Third Parties (Rights Against Insurers) Act 2010 (the”2010 Act”) will finally be bought into force in the UK to replace and address some of the limitations of the Third Parties (Rights Against Insurers) Act 1930 (the “1930 Act”).

The 2010 Act will apply in all cases where the insolvency starts after 1 August 2016 irrespective of when the liability accrues.  In circumstances when the liability to the third party accrues on or after 1 August 2016 but the insolvency process starts before that date the 2010 Act will also apply.

The 1930 Act will continue to apply to cases where both the insolvency started and the liability accrued prior to 1 August 2016.

Claims Process

The 1930 Act

Under the 1930 Act a third party/claimant is required to bring a claim against the insolvent to establish liability before bringing a claim against the insurer under the insurance policy in a separate set of proceedings.

If an insolvent business has also been struck off the Register of Companies, before a claim can be brought it is necessary to restore it to the register, which takes time and involves incurring further costs before a claim against the insurer can be started.

The 2010 Act

Under the new 2010 Act, after 1 August 2016 the third party can issue proceedings directly against the insurer and resolve all issues, including that of liability, within the same set of proceedings.  If the insured company has been struck off the Register of Companies there is now no need to restore it before a claim can be commenced.

Availability of Information

The 1930 Act

Currently third parties cannot always gain access to information, such as what policies cover the business and the identity of the insurer, meaning that often claims cannot be pursued or are delayed.

The 2010 Act

Third parties’ rights to information about the existence and terms of insurance policies have been simplified and improved allowing Claimants earlier access to information so they can make an informed decision on whether or not to proceed with litigation.

Information can now be requested from a wider body of persons, which includes any person that the third party reasonably believes is able to provide it.  This is likely to include brokers, insurers, former employees and insolvency practitioners/official receivers.

The 2010 Act states that, if requested, the following information must be provided:

  • Whether there is a contract of insurance that may cover the claim in question.
  • Who is the insurer?
  • What are the terms of the contract?
  • Has the insured been informed that the insurer has claimed not to be liable under the contract?
  • Have there been any proceedings between the insurer and the insured in respect of the supposed liability? If so, relevant details of the claim must be provided.
  • What is the policy excess?
  • If the contract has a limit on the funds available to meet claims, how much of it has been paid out to previous claims?
  • Under the contract, is there a fixed charge that the paid out sum may be subject to?

Time Limits

There is a 28 day time limit within which the above documents must be provided; failure to abide by the time limit will entitle third parties to apply for a court order requiring compliance as well as a costs order against providers of information for failing to meet the deadline.

Disclosure

The requirements to disclose information are largely the same as giving pre-action disclosure, although no ongoing duty of disclosure is imposed. However, it is not clear from the 2010 Act whether multiple requests for information could be made, which it is suggested would be akin to imposing an ongoing duty of disclosure.

Documents no longer in the insurer’s control can be requested and insurers must provide information as to the nature of such documents and who now has them in their possession. Information requested must then be provided if the new holder can obtain it from documents within its control and without undue difficulty.

It is noteworthy that the third party will not be placed in a more favourable position than it would have been in had the business been solvent.

Conclusion

All in all, the 2010 Act makes some welcome changes to clarify the rights of third parties and enable claims against insured insolvent defendants to be more easily pursued, thereby potentially reducing the costs of litigation.

 

This is not legal advice. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website.

Posted on July 29, 2016

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