Third Parties’ Rights against Insurers

The Insurance Act amended the Third Parties (Rights against Insurers) Act 2010 which came into force on 1 August 2016. The 2010 Act has replaced the regime under the Third Parties (Rights against Insurers) Act 1930.

The 2010 Act (as amended by the Insurance Act) makes a number of changes to the previous regime:

  • The procedure for establishing an insurer’s liability
  • Third parties’ rights to information about the available insurance cover
  • Removal of the need to restore entities to the Companies Register
  • Widening of the application of the Act.

The Act does not apply to reinsurance.

Establishing the insurer’s liability

If an insured under a liability policy is or becomes insolvent and the insured incurs a liability that is covered by the insurance, the rights of the insured against the insurer are transferred to the third party claimant. This reflects the position under the 1930 Act.

Under the 2010 Act the third party can bring proceedings directly against the insurer without first having established the liability of the insured. The insured’s liability to the third party and the insurer’s liability under the insurance contract can be dealt with in the same set of proceedings.

The third party can bring proceedings against the insurer for either or both of:

  • A declaration that the insured is liable to the third party.

    In defending the proceedings the insurer can rely on any defence that would have been available to the insured in defending the claim.
  • A declaration that the insurer is potentially liable to the third party.

    The insurer can raise coverage defences that would have been available against the insured, with a number of modifications. In particular, the third party will be able to “step into the insured’s shoes” and fulfil policy conditions that require the insured to do something. For example, if the policy contains a condition precedent requiring the insured to notify a claim within a certain period and the insured does not do this, it will be sufficient if the third party informs the insurer about the claim within the required period.

    If the third party is successful the court may give judgment against the insurer, which would normally be judgment for a specified amount.

The insurer will be able to set-off monies owed to it by the insured, for example for unpaid premium, from any amount due to the third party.

Insurance details

A third party that reasonably believes that an insured has incurred a liability to it can request information from the insured about the insurance cover available. The third party can also request information about the available insurance cover from another party (such as the insurer or insurance broker) if the third party reasonably believes that the liability is covered by an insurance policy and that that insured’s rights have been transferred to it under the Act.

The third party can request the following information:

  • Whether there is insurance that covers the supposed liability (or might reasonably be regarded as covering it)
  • Who is the insurer
  • The policy terms
  • Whether the insured has been informed that the insurer denies liability under the policy
  • Whether there are or have been proceedings between the insured and insurer (and relevant details)
  • Whether the limit of indemnity has been eroded by other claims.
  • Whether there is a fixed charge to which sums paid by the insurer would be liable.

A request for information must be made in writing and say why the party making the request believes it is entitled to the information.

Requests for information must be complied with within 28 days. If the information cannot be provided the response must explain why and, where a document containing information requested was at one time in the possession of the person or entity receiving the request, give whatever particulars it can about the nature of the information and who now holds the document.

Privileged information does not have to be provided in response to a request.

Removal of the need to restore entities to the Companies Register

Under the 1930 Act, a third party might have to take proceedings to restore a company to the register of companies if it had been struck off, in order to be able to sue it.

As there is no need for the third party to bring proceedings against the insured, the 2010 Act removes the need to restore companies to the register of companies.

Another reason for restoring a company to the register of companies was to obtain information from it. The 2010 Act allows the third party to request the information directly from persons related to the company, such as officers or employees or the liquidators or administrators of the company.

Widening of application of Act

The situations in which an insolvent event will trigger the application of the Act have been widened, reflecting changes in insolvency law since 1930.