Not many people without legal training will have heard of the Third Parties (Rights Against Insurers) Act 1930 (‘the 1930 Act’). Did you know that this little known act could, for example, allow you to recover sums from the insurer of an opponent who has gone bust? What’s more, getting a remedy against those insurers will be easier from August 2016.
It could, therefore, help you if a negligent designer has gone pop but their professional indemnity insurance is intact, or you have some other remedy against them concerning an insured risk. This remedy enables you to get full compensation rather than having to prove your loss in their insolvency and be done with a minimal amount in the £.
The 1930 Act has a number of pitfalls which will soon be addressed. To obtain compensation under, say, a contractor’s insurance policy using the 1930 Act, the employer must first establish the liability of the contractor (‘the insured’) – i.e. bring a claim and get a court judgment or arbitrator’s award – before being able to use it. This requirement led to the bizarre situation of claimants having to get those defendant companies which had been liquidated and dissolved ‘restored’ to the Register of Companies, a costly process in itself. Only then could they pursue the defendant’s insurer. Moreover, insurers were commonly able to avoid liability on grounds of non-notification of the claim, the insured’s failure to provide the insurer with information and assistance, or rely on a ‘pay-first’ clause concerning premiums as a condition precedent to indemnity.
Reform is imminent thanks to The Third Parties (Rights against Insurers) Act 2010 (‘the 2010 Act’). “Hang on, it’s already 6 years old, so why write about it now Neil?” I hear you ask. It’s still not in force due to a legislative oversight; it did not include companies which had gone into administration by board or members’ resolutions. This has now been corrected and the 2010 Act now comes into force on 1 August 2016. If you think that’s a long time to wait for an Act to come into force, the 2010 Act itself was based on recommendations contained in Law Commission report from 2001 - who says the law doesn’t move fast?!
Under the 2010 Act, claimants will be permitted to issue proceedings directly against the insurer without involving the insolvent insured at all; although their liability to the claimant will have to be established, they won’t need to be a party to the action. Moreover, the insurer is prevented from avoiding liability on the grounds cited above, as they did under the 1930 Act.
The 2010 Act also provides that a claimant can request details of the insured’s insurance policy from anyone he reasonably believes can supply that information e.g. trustee in bankruptcy, liquidator etc. and they must provide details within 28 days of the request. A failure to do so can be the basis for an application to court for an order for pre-action disclosure. Where the original cause of action arises, or the insured becomes insolvent, on or after 1 August 2016, the 2010 Act will apply.
The 2010 Act therefore removes many of the features of the 1930 Act which often made it a blunt instrument, and at last claimants will have the right to policy information plus direct recourse against insurers without the prerequisite of obtaining a judgment. If you find yourself in a situation where you are seeking compensation for a breach of contract or negligence concerning insured obligations but your opponent becomes insolvent, all is not lost.
If you’re reading this before 1 August 2016 and you have such a claim, the 1930 Act will apply. Therefore, you may need to move fast before the insurer maintains your claim does not ‘bite’ due to non-compliance with the relevant insurance policy. If you find yourself in this situation after 1 August 2016, the 2010 Act confers significant advantages which we are keen to help you exploit.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.