A new lease of life

A little used statute, which has sat on the shelf since 1930, has finally been taken down and dusted.

The Third Parties (Rights Against Insurers) Act 1930 gave the Claimant the right to bring a claim direct against insurers where the insured Defendant had become insolvent. A major advantage of the Act was that insurance proceeds could be paid in full, direct to the Claimant, and did not form part of the insolvency assets for distribution to all creditors.

But a Claimant faced difficulties which made the Act less attractive. The main ones were:

• the need for the insolvent Defendant to have notified insurers of the claim (often they had not); and
• the need for the claim against the insured Defendant to be proved first, before a claim could be brought against insurers.

The Third Party (Rights Against Insurers) Act 2010 aims to overcome these and other difficulties and, given that the Act has gone from 5 sections to 21 sections plus 4 schedules, one might hope it has.The new Act provides:

• that notification of a claim to insurers by the Claimant constitutes good notice under the insurance policy;
• that a Claimant is entitled to bring a claim against insurers to prove both the claim against the insured Defendant and the liability of the insurers to pay under the policy, all in one action. This has the added advantage that, where the insolvent Defendant is a dissolved company, there is no need to restore it to the Companies Register; and
• a detailed schedule of information which an insured Defendant, and subsequently his insurers, must provide to the Claimant. This enables the Claimant to assess, before commencing proceedings, whether it is worthwhile pursuing a claim.

An insurance company is still entitled to rely on any defence, counterclaim or set-off it would have had against the insured, or on behalf of the insured, for example, for unpaid premium or for contributory negligence by the Claimant. But insurers cannot rely on any clause in the policy which requires the insured to pay first before insurers have to reimburse. Nor can they rely on the expiration of the primary limitation period because the time for bringing an action against insurers commences from when the liability of the insured Defendant is established. Finally, an insurance policy cannot contract out of the Act.The Act now specifically extends to arbitration as well as court proceedings, claims or insurance companies based outside the UK, and includes estates which are insolvent as well as insolvent companies and individuals.So much for the good news. Unfortunately, the Act is not yet in force, despite being passed last year. The Department for Business, Innovation and Skills (BIS) is reviewing this as part of a review of legislation inherited from the Labour Government.Watch this space!

Meanwhile, in these days of an increasing number of insolvencies, at least take whatever advantage is possible from the 1930 Act which remains in force.

Frances Alderson, partner, Fladgate LLP (falderson@fladgate.com)