Parliament Approves Amendments to Third Party Rights Against Insurers

After more than 80 years, the law governing the rights of third parties against insurers has finally been given an overhaul, with the passing of the Third Parties (Rights Against Insurers) Act 2010. The aim is to make it easier, quicker and cheaper for third parties to recover compensation from the insurer of a defendant who is insolvent or subject to an insolvency procedure.

Background

The original right of third parties to recover compensation from insurers in such circumstances was granted by the Third Parties (Rights Against Insurers) Act 1930. The mischief that the Act was designed to cure was the application of the proceeds of an insurance policy for the benefit of creditors generally, when in fact the insured's entitlement to the proceeds only arose as a result of the third party's claim.

The Act, however, has long been criticised as ineffective and in need of reform. It is simply too difficult for third parties to succeed with claims against insurers under the current regime. Amongst the problems are:

(a) The technical hurdles: under the 1930 Act, there were numerous technical hurdles for the third party claimant to overcome. These included the requirement to establish liability against the insured before bringing a claim against the insurer, which was felt to be a waste of costs and time. Connected to this was the need to restore an insolvent company to the Register of Companies before bringing...