Insurance Claims: Know Your Rights Against Insurers Of Insolvent Parties

Summary and implications

The Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act), as amended by the Insurance Act 2015 and the Third Parties (Rights Against Insurers) Regulations 2016, came into force on 1 August 2016. This has brought some welcome and long-awaited reforms to the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act) and will make it easier and less risky for third parties to bring direct actions against insurers of insolvent parties.

1930 Act

The 1930 Act introduced some important changes to the law when it came into force. Notably, it overrode privity of contract by allowing third-party claimants to make claims against insurers directly, ensuring proper compensation could be secured by third parties who had incurred damage at the hands of an insolvent party. However, the 1930 Act had several shortcomings and changes to insolvency law over the last 85 years have caused many parts of it to become outdated. As discussed in more detail below, the 2010 Act addresses these shortcomings and provides important updates.

What improvements have been made?

No need to establish liability against the insured

Under the 1930 Act, before a third party could make a claim against an insurer, it was first required to establish liability against the insured. This was problematic, first, because if the insured did not admit liability, the third party would have to issue separate court proceedings in order to establish liability. Clearly, this was costly and time-consuming. Moreover, there was a further step if the insured was a dissolved company - in order to establish liability, the third party would first have to make an application to have the dissolved company restored to the Register of Companies, adding in a third set of legal proceedings.

The 2010 Act remedies this shortcoming by getting rid of the need to establish liability against the insured before a claim can be brought directly against the insurer. This eliminates the expense of having to issue separate proceedings to establish liability and means that there will be no need to restore dissolved companies to the Register.

Right to obtain information

Under the 1930 Act, a third-party claimant also needed to establish liability against the insured before having the right to access information relating to the insurance policy. This was another major shortfall of the 1930 Act since it meant that a third party had no certainty that the claim would be covered by the...