Yes there will be plenty of excitement surrounding the announcement that on 1 August 2016 The Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act “) will now come into force.
What does this change?
As things stand making a claim against the insurer of an insolvent entity is somewhat of a nightmare under the existing Third Parties (Rights against Insurers Act) 1930.
Any potential claimant has to go through the elongated and sometimes expensive process of restoring the defendant company (if it is a company) before being able to make any claim against its insurer. They then had to issue a claim against the insolvent entity and that claim then had to be transferred to the insolvent entity’s insurer. The bottom line is, a potential third party claimant had to go through a two stage litigation process.
Once this has taken place then the claim against the dissolved defendant would be transferred to the insurer.
The new 2010 act simplifies this dramatically, in the main because its provisions will allow a claimant to directly sue the dissolved defendant’s insurer. This is of course caveated by which cases will be acceptable under the new 2010 Act.
The dissolving entity will become a “relevant person” for the purposes of the 2010 Act if it was in an insolvency situation (i.e. CVA, administration, receivership, liquidation) and was insured by that insurer at the date of the claim or the insurance policy was entered into by the dissolving entity after the date of the claim.
The Key part of section 1 in the 2010 Act is that a claimant can bring an action against the insurer “without having established the relevant person’s liability”. This means a claimant only needs to issue a single set of proceedings without having to first establish a claim against the insolvent entity as one had to previously under the 1930 legislation.
The 2010 Act introduces some interesting innovations regarding limitation for claimant suing an insurer.
If the claimant (third party) sues the defendant insolvent entity within the limitation period and then the limitation period expires before they make a new claim against the insurer under the 2010 Act, the claim will not be time-barred.
The 2010 Act also prevents a common clause in insurance policies which is that if the insurance contract says “if the insured dies or becomes insolvent then the contracts is terminated or the parties rights are altered”, this will be disregarded.
Claims by the third party in this respect will therefore continue even if the insurance policy of the defendant contains such a clause and they have gone insolvent.
It will no longer be a defence for an insurance company to invoke this provision where the insured defendant has been declared bankrupt or insolvent.
One of the major issues that arose from third party claims against insurers of insolvent entities is finding out the relevant information about the insurance policy, extent of cover etc.
A third party can now write to the insured defendant or their appointed liquidator/insolvency practitioner to obtain this by asking for certain prescribed pieces of information that the new 2010 Act provides for.
What effect will it have?
This potentially game-changing piece of legislation is predicted to have far and wide reaching effects.
One of the most notable areas of law this will affect will be personal injury, where claims against insolvent entity’s insurers will be that much more simplified and one of the main practical hurdles preventing such claims in the past is now removed to an extent.
This will of course affect other areas, in particular insolvency law where claims are made against insolvent entities.
Generally speaking, any third party’s ability to pursue a defendant is bolstered now that they do so in the knowledge that the insurance policy of the defendant may pay them out and they will not simply stand as a low-ranked creditor in the insolvency some way behind fixed and floating charge holders.
Of course, this piece of legislation will likewise have massive ramifications within the insurance industry. Insurers will need to comprehensively redraft policies to reflect these changes and likewise there could be a noticeable effect on premium and excess prices to adjust and compensate for this change.
The developments are certainly interesting and will open up a new host of possibilities for those who are third parties making claims or insurers defending such claims in the future.
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