Do you have a potential insurance claim against a bankrupt or company in liquidation? Perhaps you had a claim against an individual or company and it has since been declared insolvent. Or you could be an insurer and your insured has been declared insolvent.
If so the following article may be of interest.
Third Parties (Rights against Insurers) Act 2010
The above legislation provides a revised and easier procedure for third parties to pursue a claim directly against liability insurers where the insured has or will be declared insolvent.
When Will It Take Effect?
The latest ministerial statement dated Thursday 25 April 2013 states that a number of amendments are intended to be added and that the new Act will come into force “as soon as reasonably possible after these amendments have been made.” It therefore remains that third parties will be subject to the provisions of the old regime.
The Old Regime
The Third Parties (Rights against Insurers Act) 1930 ensures that where the insured incurs liability to a third party but was declared insolvent, the insurance proceeds will be protected from the insured’s insolvency.
Without such protection the proceeds would otherwise vest in the Trustee in Bankruptcy or Liquidator who would distribute the proceeds to the insolvent’s creditors. This would mean that the third party would only receive a fraction of what it had claimed.
Under the 1930 Act procedure the insured’s rights are automatically transferred to the third party upon the occurrence of specified insolvency events. Once transferred the third party can sue the insurer directly.
The potential realisation of the proceeds of the insurance policy thereby fall outside of those assets which would otherwise form part of the bankruptcy or liquidation estate.
Problems with the 1930 Act
- The necessity of the third party to first issue proceedings to establish the existence and amount of the insured’s liability before it can issue proceedings against the insurer itself;
- The old regime fails to keep pace with developments in company and insolvency law;
- It does not include certain types of liability which were voluntarily incurred by the insured;
- The right to information does not arise until liability of the insured is established;
- The third party is only able to exercise the right to information against a limited number of people;
- Rights transferred to the third party are subject to any defences which the insurer could have used against the insured. This means that insurers could rely on technical defences to defeat third party claims for example the insured failing to notify the insurer of the claim, even if the third party has given this notification.
The New Act
The new regime includes the following changes:
- The process is consolidated into a single set of proceedings allowing the third party to issue proceedings directly against the insurer and resolving all issues (including the insured’s liability) within those proceedings;
- If the insured was a defunct body which had been struck off the register of companies, the third party no longer has to institute proceedings to restore it;
- The new Act improves the third party’s rights to information about the insurance policy, allowing the third party to obtain information at an early stage in order to enable an informed decision to be taken about whether or not to commence or continue litigation;
- Under the new Act the third party can ask for information from the insured or any other person able to provide it “Ã‚Ëœwithout due difficulty” if it is a document under his control or from his own knowledge. This is with the caveat that there is a reasonable belief that the insured is liable and is a relevant person as described in one of the listed insolvency procedures. The person receiving such a notice must respond within 28 days;
- The insurer may rely on any defences he may have had against the insured however the new Act removes the ability for the insurer to rely on the technical defences mentioned above allowing the third party to fulfil conditions that otherwise had to be fulfilled by the insured or absolving the third party of the requirement to provide information or assistance to the insurer if that condition cannot be fulfilled in the instance of the death of a bankrupt or dissolution of a corporate body; and
- The new Act will be retrospective.
As the new Act removes barriers to a potential claimant’s investigation, is clearer on the process of notification and eliminates the ability for insurers to rely on certain defences it follows that claims against insurers will increase.
How can we help you?
If you are a potential claimant we can:
1.) Obtain the insurance policy or prepare the letter before action if such a policy is being withheld; and
2.) Once the policy is obtained we can analyse the same and look into the merits of pursuing a claim against the insurer.
If you are an insurer we can similarly assist with an analysis of your position and provide advice on defence and/or settlement.
If you wish to discuss your matter please do not hesitate to give us a call on 0207 467 3987.
This Blog is up to date as at 4 December 2013.
The information and any commentary on the law contained in this article is provided free of charge for information purposes only.
No responsibility for its accuracy and correctness, or for any consequences of relying on it, is assumed by any member or employee of Summit Law LLP. The information and commentary does not and is not intended to amount to legal advice and is not intended to be relied upon.
You are strongly advised to obtain advice from a Solicitor about your specific case or matter and not to rely on the information or comments in this article.