November 29, 2018

Companies Act amendment improves subrogation rights of legacy insurers

Secondary legislation enacted allowing restoration of dissolved companies by their liability insurers to the register without the restoration being time limited.

The Government has approved the introduction of the Third Parties (Rights Against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018 ("the Regulations").

Operational from 23 November 2018, the Regulations benefit insurers pursuing subrogated claims on behalf of dissolved companies, where that company had a liability for third party personal injury damages, and the insurer wishes to pursue a contribution from other liable parties.

Insurers will no longer be time limited in their right to restore these dissolved companies to the register, enabling recoveries against third parties to be brought at any time, subject to the limitation period for contribution claims.

Recent changes

Under the previous Third Parties (Rights Against Insurers) Act 1930 ("the 1930 Act"), if a claimant wished to pursue a claim against a dissolved company - and by extension, its liability insurers - the claimant was required to restore the company to the register.

The Third Parties (Rights Against Insurers) Act 2010 ("the 2010 Act"), which came into force on 1 August 2016, introduced a change in the law which allowed claimants to bring a single action against the insured company and its liability insurers, rather than bringing an action against the insured (after the required restoration) then seeking to enforce it in separate proceedings against the insurers.

Closing a loophole

These changes were welcomed, yet there remained a specific loophole detrimentally affecting insurers, which the Regulations closed.

By way of example, an insurer of a dissolved company is pursued by a claimant for personal injury as permitted by the 2010 Act. The insurer, having settled the claim, then seeks to pursue a subrogated claim against other third parties responsible for a contribution. The subrogated claim must be in the name of the dissolved company.

However, where the personal injury was caused as a result of exposure to asbestos in particular, the company may have been dissolved many years before the claim is made.

This hurdle of restoring the company was usually insurmountable for insurers. Section 1030(4) of the Companies Act previously stated any application "to the court for restoration of a company to the register may not be made after the end of the period of six years from the date of the dissolution of the company."

This meant that, prior to the Regulations, if the company was dissolved more than 6 years prior to the application by the insurer, the restoration application would fail.

However, s1030(1) of the Companies Act 2016 has been amended as follows:

1030. When application to the court may be made

(1)          An application to the court for restoration of a company to the register may be made at any time for the purpose of–

(a)          bringing proceedings against the company for damages for personal injury;

(b)          an insurer (within the meaning of the Third Parties (Rights Against Insurers) Act 2010) bringing proceedings against a third party in the name of that company in respect of that company’s liability for damages for personal injury.

This addresses the previous loophole by removing the time limit previously in place. 

Therefore the Companies Act now specifically allows an insurer to make the restoration application where the intention is to bring contribution proceedings in the name of the dissolved insured company in respect of that company's liability for damages for personal injury.

The change will be welcome in particular by legacy insurers, who have previously been limited in their ability to bring contribution claims when subrogated to the rights of dissolved companies.

What can we learn?

  • Whilst the mechanism for restoring dissolved companies is these circumstances is now simpler, any contribution claim that may be pursued remains subject to the limitation period pursuant to the Civil Liability (Contribution) Act 1978. A claim for a contribution under the CLCA 1978 must be brought within the relevant limitation period, which is two years from the date on which the person seeking a contribution is "held liable…by a judgment". This date is that on which the amount of the damages was assessed, whether by a Court or by agreement of the parties.
  • This amendment and association with contribution claims in legacy actions should also be viewed in light of the decision in RSA Insurance PLC v Assicurazoni General SpA. This decision confirmed a contribution claim brought by RSA following settlement of a mesothelioma claim against another employer's liability insurer was statute-barred. Two years, not six years, was the relevant limitation period, albeit this action is subject to appeal.
  • It must be noted that the amendments do not impact cases where the 1930 Act would apply rather than the 2010 Act (i.e. cases where either liability was established, or the insured became insolvent before 1 August 2016). Whilst occurrences of these cases will diminish over time, this must be a consideration for insurers when considering their recovery potential.