Background
The Third Parties (Rights against Insurers) Act 2010 (“the 2010 Act”) has been brought into force on 1 August 2016 by way of provisions in the Insurance Act 2015. The 2010 Act replaces and deals with some of the shortcomings within the Third Parties (Rights against Insurers) Act 1930 (“the 1930 Act”). The legislation deals with rights of recovery of insured liabilities against insurance companies, where the individuals or corporate bodies who are liable are in an insolvent situation.
Analysis
Relevant persons under the legislation
Sections 4 to 7 of the 2010 Act set out the relevant persons covered by the changes which include individuals and corporate bodies. Section 4 includes individuals who have in force within England and Wales, any of the following:
a. an administration order;
b. an enforcement restriction order;
c. a debt relief order;
d. a voluntary arrangement; or
e. a bankruptcy order.
The legislation also includes at Section 5 individuals who die insolvent.
Corporate bodies are covered by Section 6 of the 2010 Act in the following circumstances:
a. there is a compromise or arrangement in force between the body and its creditors (or a class of them) which is sanctioned in accordance with Section 899 of the Companies Act 2006; or
b. the body has been dissolved under Section 1000, 1001, or 1003 of the Companies Act 2006 and the body has not been:
i. restored to the register; or
ii. ordered to be restored to the register;
c. an approved voluntary arrangement is in force;
d. an administration order is in force;
e. a receiver of the corporate body’s property has been appointed;
f. the body is being wound up voluntarily;
g. a provisional liquidator has been appointed; or
h. the body is, or is being, wound up by the Court following the making of a winding up order.
Key Changes
There are three key changes between the 2010 Act and the 1930 Act, which are focussed on in this article:
Provision to allow the third party to proceed against the insurer direct
Section 1 of the 2010 Act provides that:
“1(2) The rights of the relevant person under the contract against the insurer in respect of the liability are transferred to and vest in the person to whom the liability is or was incurred (the “third party”).
1(3) The third party may bring proceedings to enforce the rights against the insurer without having established the relevant person’s liability; but the third party may not enforce those rights without having established that liability.”
This is a significant change from the 1930 Act that the creditor or third party does not need to bring the action against the relevant person and can claim direct against the debtor’s insurance company. This has practical significance if, for example, the relevant person was a company which had been removed from the Register of Companies at Companies House, as there would no longer be a need to restore the company to the register.
The third party can bring the proceedings to enforce the rights against the insurer prior to actually establishing the relevant person’s liability. The rights can only be enforced however after establishing that liability. Liability can be established by way of a declaration from the Court, a judgment, an award in arbitration proceedings, or by way of an enforceable agreement. The proceedings to seek the declaration or obtain the judgment can now be brought against the insurer.
Defences available to the insurers
Under the 1930 Act insurers had wider defences than are available under the 2010 Act.
In the past, the insurer could seek to avoid liability by relying on failure by the insured to fulfil conditions of the policy, such as providing notification, information or assistance to the insurer. The 2010 Act provides that the rights transferred under the insurance policy are not subject to some of the policy conditions. Therefore if it is not possible for an insured to provide information to the insurer, for example if the insured is an individual who has died or is a dissolved corporate body, that will not provide the insurer with a defence to the claim.
Improved rights to information
Section 11 of the 2010 Act and Schedule 1 deals with requests for information and disclosure. In practice this will be extremely beneficial to third parties or creditors. Where the third party has a reasonable belief that: a debtor owes a liability; the debtor is a relevant person under the 2010 Act; and the debtor is insured, the third party can give notice in writing requesting the information from the debtor. If the third party has a reasonable belief that another person is able to provide the information, such as an insurer or insurance broker, the third party can give notice in writing requesting the information from that other person. The information that can be obtained is set out in Schedule 1 paragraph 1(3) as follows:
a. “whether there is a contract of insurance that covers the supposed liability or might reasonably be regarded as covering it;
b. if there is such a contract then -
i. who the insurer is;
ii. what the terms of the contract are;
iii. whether the insured has been informed that the insurer has claimed not to be liable under the contract in respect of the supposed liability;
iv. whether there are or have been any proceedings between the insurer and the insured in respect of the supposed liability and, if so, relevant details of those proceedings;
v. in a case where the contract sets a limit on the fund available to meet claims in respect of the supposed liability and other liabilities, how much of it (if any) has been paid out in respect of other liabilities;
vi. whether there is a fixed charge to which any sums paid out under the contract in respect of the supposed liability would be subject.”
The recipient of the notice has 28 days to provide the information that they are able to provide. If the recipient is unable to provide some of the information requested, a response must be given within 28 days stating reasons why the information cannot be provided. In the absence of a response within 28 days, the third party can make an application for an order from the Court for provision of the information.
Comment
The introduction of the 2010 Act is good news for third parties bringing claims against insolvent individuals or corporate bodies who are insured against the liability. The changes in relation to access to information mean that requests for information must be dealt with promptly and will help creditors to identify quickly whether insurance cover is in place to cover the liability of the relevant person. The ability to go against the insurer direct will also speed up the process, although the option to include the relevant person is still there if that is needed. It will be more difficult for insurers to avoid liability. The legislation should make recovery for creditors, where insurance is in place to cover liabilities, more efficient and lead to better prospects of a successful recovery.
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