Current Insurance Law Reforms

Insurance briefing from Debevoise & Plimpton LLP published in the March 2010 issue of The In-House Lawyer.

FOR OVER 100 YEARS PROPERTY AND liability insurance law has largely been governed by the Marine Insurance Act 1906, a product of careful thought and drafting that codified the previous 200 years of case law. Times have changed, however, particularly in the speed of communications, the availability of information and the development of the law. The asymmetry of the parties' positions, whereby the insured knew everything about its affairs and the insurer knew nothing, is today very different. This has resulted in a great deal of activity in the review by trade bodies and the Law Commissions (of England and Scotland) of insurance law over the past ten years, culminating in two recent bills, the Third Parties (Rights against Insurers) Bill (the Third Parties Bill) and the Consumer Insurance (Disclosure and Representations) Bill (the Consumer Insurance Bill).

THIRD PARTIES BILL

The Third Parties Bill received its second reading in the House of Lords on 9 December 2009 and is intended to modernise the Third Parties (Rights against Insurers) Act 1930 (the 1930 Act), codify the current law, and make it quicker, easier and cheaper for a victim to recover compensation from an insurance company directly. The 1930 Act was intended to allow victims (especially of motor accidents) to receive insurance payments directly instead of their payment into the insolvent insured's estate. The Third Parties Bill should enact the following changes:

In circumstances where the insured is the subject of any insolvency event, there is a statutory transfer of their rights to any third party to whom a liability is owed by the insured. That third party can then issue proceedings against the insurers to establish both the insolvent insured's liability and the potential liability of the insurers. The need for multiple proceedings (against the insured third party to establish their liability to the claimant and against the insurers) will be removed. The definition of an insured person is widened to take into account the immense changes in both the insurance and insolvency landscape since 1930. It will now include individuals, incorporated and unincorporated bodies, and certain trusts. The Third Parties Bill updates the current insolvency processes by including company and individual voluntary arrangements. Liabilities incurred voluntarily. such as legal expenses insurance, health insurance and car repair insurance, will now be covered. Currently, the worst scenario for a claimant is to bring proceedings to restore the insolvent insured to the Companies Register, then bring proceedings against the insolvent insured to obtain a judgment and establish their liability to the claimant, and then bring proceedings against the insurers to obtain a claim under the insurance policy. At this point the insurers could use any valid defence under the policy that they would have used against the insured, so that the claimant would have wasted large amounts of time and money in a search that could have been revealed as fruitless at the outset. Third parties may...