11/4/2015. Third Parties (Rights Against Insurers) Acts: 1930 and Outline of the 1930 Act

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1 Third Parties (Rights Against Insurers) Acts: 1930 and th November 2015 Robert Mills St John s Chambers Outline of the 1930 Act The 1930 Act confers on an injured party, rights against insurers of third party risks in the event of the insured becoming insolvent. The Act allows the third party to step into the shoes of the (negligent) insured to provide the third party with a right of indemnity against the insurance company. A second effect of the Act is that it protects the proceeds of any claim on the policy from disappearing into the pot of assets to be distributed among creditors. 1

2 Necessary Factors to Enable the Transfer of the Insolvent Insured s Rights Against his Insurance Company The liability must be covered under the insurance policy. Any clause which the insurer could have invoked to prevent the insured recovering will be just as valid against the third party. (Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd ) There must be a judgment debt: The rights of the insured against his insurers do not arise until liability has been established. (Post Office v Norwich Union Fire Insurance Society [1967] 2 QB 363,CA.) There must be a contract of insurance Insolvency: At least one of the following events must occur either before or after the insured becomes liable to the third party: (i) The insured becomes a bankrupt; (ii) The insured makes a compensation agreement with his creditors; 2

3 (iii) If the insured is a company, a windingup order is made; or a resolution for voluntary winding-up is passed; or a receiver or manager of the company s business or undertaking has been duly appointed; or possession has been taken by or on behalf of the holders of any debentures secured by a floating charge of any property comprised or subject to that charge. The Provision of Information under the 1930 Act First National Tricity Finance Ltd v OT Computers Ltd (in administration) [2004] All ER (D) 361: It was held that on the insured s insolvency there had been a transfer of contingent rights which would crystallise when liability was established by way of a court judgment or arbitral award. The practical effect of this is that third parties are entitled to know whether the insured has an insurance policy that would meet the claim before incurring the cost of establishing liability against the insured. 3

4 Deficiencies in the 1930 Act A potential third party Claimant is not able to issue proceedings against an insurer without first establishing liability against the insured. In the absence of an admission of liability, the third party would have little choice but to issue proceedings against the insured. This could mean that the third party would have to issue two separate sets of proceedings, against both the insured and the insurers. If the insured had been dissolved, in order to establish liability against the insured, an application must be made to the court to restore the insured to the Register of Companies. Both of these points mean a significant investment of time and money for the injured third party The Status of the 2010 Act The 2010 Act will replace the 1930 Act. It is not yet in force and a date has not been set for it to come into force. It is likely to be in

5 Key Changes in the 2010 Act Right of action: Third parties will be able to bring claims directly against insurers without first being required to bring proceedings against the insured to establish liability. Right to information: The right to obtain information regarding the insurance position has been clarified. The information to be provided will include the identity of the insurer, the terms of the policy, whether the insured has previously declined to cover the liability, whether there have been any previous proceedings and how much of any fund available to meet claims has already been used up. The categories of people who can be required to provide such information is also widened. It now includes not only insurers, but also brokers and, where the insured has been dissolved, information can, provided certain circumstances are satisfied, be sought from former officers and employees and the insolvency practitioners who had been appointed in respect of the insured. Time limits for responses are also imposed. 5

6 Restrictions on Insurers Defences: (a) Insurers will not be entitled to rely upon the failure of a dissolved company to provide information and assistance where that is a condition of the policy. (b) Third parties will be able to step into the shoes of the insured and fulfil conditions of the policy itself, such as notifying the claim (Section 9(2)). If there is a pay-first clause before any right to indemnity from the insurer can arise, the new Act provides that such clauses do not affect third parties rights. Uses of the 1930 and 2010 Acts in Practice Overall it is unlikely that third parties would seek to pursue an insurer through either the 1930 or 2010 Act in a road traffic case for the simple reason that the Road Traffic Act 1988 already provides a direct means of pursuing the insurer. The 1930 and 2010 Acts are most likely to be utilised in employers liability and public liability contexts. 6