Third Parties (Rights Against Insurers) Bill

Originally published 4 January 2010

Keywords: Third Parties Bill, rights against insurers

The Third Parties (Rights Against Insurers) Bill (the "Bill") will, if it becomes law, replace the existing Third Parties (Rights Against Insurers) Act 1930 (the "1930 Act"). The 1930 Act applies if a party with liability insurance (the "Insured") has a liability to a third party and then becomes insolvent. The 1930 Act transfers the Insured's rights under the insurance policy to the third party so that it can proceed directly against the insurers. Without the 1930 Act, the third party would, under the common law, simply have to join the other unsecured creditors and any funds obtained from insurers would be added to that pot.

On 31 July 2001, the Law Commission and Scottish Law Commission (the "Commissions") published a report outlining the problems that people saw with the 1930 Act (which we summarise in further detail below) and their recommendations on how these could be resolved. The purpose of the Bill is to implement those recommendations.

Problems

The Commissions' report identified a number of problems with the 1930 Act, the most significant being: the third party is required to establish the existence and amount of the Insured's liability before it can issue proceedings against the insurer; the third party is required to proceed against both the Insured and the insurer, which could involve restoring the Insured to the register of companies; the 1930 Act has failed to keep pace with developments in company/insolvency law (in terms of the types of insolvent entities it covers); the 1930 Act does not cover certain types of voluntarily-incurred liabilities, such as legal expenses; the rules regarding disclosure of information to the third party are inadequate (since at present the obligation to provide disclosure does not arise until the liability of the Insured is established); and rights transferred to the third party are subject to any defences which the insurer could have used against the Insured, such as strict conditions within the policy requiring the insolvent person to perform some act in person.

Reform

The key innovations introduced by the Bill relate first to the procedure by which the third party's rights can be established and, secondly to the process by which the third party can obtain information about the insurance policy. The Bill has the following key differences to the 1930 Act:

The third party will no longer have to establish...