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Third Party Rights against Insurers – A Guide

THIRD PARTIES (RIGHTS AGAINST INSURERS) ACT 2010

The Third Parties (Rights Against Insurers) Act 2010 received Royal Assent on the 25th March 2010 and is expected to come into force in April 2011. The 2010 Act makes a number of changes to the Third Parties (Rights Against Insurers) Act (NI) 1930.  It is aimed to make it easier, quicker and cheaper for a Third Party claimant to recover compensation from the insurer of Insolvent/Bankrupt Defendant. 

The Third Parties (Rights Against Insurers) Act (NI) 1930:

The 1930 Act gave a Third Party claimant the right to pursue a Defendant’s insurer directly and receive payment under that insurance policy where the Defendant was both:-

  • Liable to the Third Party claimant and
  • Insolvent.

 

In effect when an insured became bankrupt/insolvent and where liability was established against that Defendant, the contractual rights under a policy of insurance held with an insurer was transferred to the Third Party.    The Third Party, in effect would “ stand in the shoes” of the insured and could directly pursue the insurer to provide an indemnity under the Defendant’s policy of insurance. 

There were however a number of major problems with the 1930 Act.   In particular it was criticised for requiring a Third Party to establish liability in the first instance against the insured by way of an Agreement/Arbitration or Judgement by the Court before it could pursue an insurer. 

The 2010 Act:

  • The 2010 Act the new Act provides that a Third Party does not need to issue separate proceedings against the insured in the first instance; the Third Party can now obtain declarations as to:-
  • The extent of the insured’s liability to the Third Party and
  • The insured liability to the insured. 

in one set of proceedings. 

This will avoid the need for multiple proceedings to give effect to the purpose of the 1930 Act. 

  • The 2010 Act removes the need to restore a defunct Company to the register before proceedings can be commenced.  In fact the Third Party can simply issue proceedings directly against the insurer without involving the insured. 

 

  • The Act applies to insurance for voluntary, voluntarily incurred liabilities such as legal expenses insurers which was not covered under the 1930 Act. 

Information Rights.   The Act improves the Third Parties rights to information about the insurance policy.  It allows the Third Party to obtain information at an early stage about the rights transferred to him/her in order to enable an informed decision to be made about whether or not to commence or continue litigation.  As the law currently stands there is only a limited right on the part of such a Third Party to obtain information before liability has been established against an insured.

Limits on Rights Transferred.  The 2010 Act preserves the limits on the rights transferred to a Third Party.  The Third Party does not receive a right to recover from the insurer in any amounts in excess of the insured’s liability.  The insurers can also offset any unpaid premiums from the Third Party’s claim. 

Provision of Information Where Notice is Given.  The 2010 Act sets out that where a person receives a request for information under Schedule 1 of the Act that person which will be primarily the insurer must give this information within 28 days of receiving the Notice. 

Jurisdiction Within the United Kingdom.  The 2010 Act provides the Third Party with the choice to issue proceedings either in his/her own place of domicile or that of the insurer regardless of any contrary provisions in the insurance contract. 

  • An insurer’s defences against an insurer continue to operate against the Third Party upon the transfer of those rights.  The Third Party cannot be in any better position as against the insurer than the insured would have been.  Some more technical defences in which insurers previously relied on have however been abolished.   For example it will no longer be possible for a new insured to claim liability on the grounds that the insured failed to notify him of the incident provided that the Third Party has notify the insurer in accordance with the terms of the insurance policy. 

 

The 2010 Act will, upon commencement, apply either where the insured’s incurs a liability to the Third Party after the commencement date or where the insured is subject to an insolvency event after the commencement date.  If however both events occur before the commencement date the 1930 Act will continue to apply.  At this stage it is not clear whether “incurs a liability” refers to the date of the accident/event giving rise to the liability or where liability has been established.  One would presume it is the former but this will undoubtedly be confirmed by the Courts once this legislation comes into force.