The 2010 Act has now been updated by regulations (the Third Parties (Rights against Insurers) Regulations 2016) to reflect changes in insolvency law. Accordingly, the long-awaited 2010 Act will finally come into force on 1 August 2016.
It will be recalled that the 2010 Act is intended to make it easier for third party claimants to bring direct actions against (re)insurers where an insured has become insolvent. The key changes coming in are as follows:
1) There will no longer be any need for the third party to "establish" the insured's liability to it first (by judgment, arbitration award or agreement). The 2010 Act will allow a third party to litigate the substantive cause of action alongside an action for an order that the insurer pay any damages awarded.
2) The definition of an insolvent company has been updated.
3) The 2010 Act allows a third party who believes he has a right of action under the 2010 Act to obtain information about the rights transferred both before and after the issue of proceedings. If it can be established that there is a contract of insurance that covers, or might reasonably be expected to cover, the supposed liability, information can then be obtained on:
A person who receives a notice requesting information is obliged, within 28 days (beginning with the date of receipt of the notice), to provide as much of the information specified as they can "without due difficulty" and if it cannot be provided, state why and provide details of any other person who might be able to supply it. Failure to comply with a notice requesting information permits the third party to apply to the court for an order compelling compliance.
In addition, the third party may request information from any person that he or she reasonably believes could provide the information. This might include brokers, former employees and anyone else authorised to hold policy information.
This should enable the third party to make an informed decision on whether or not to commence or continue litigation (and so may prevent speculative claims, but will equally place a large administrative burden on insurers and may increase the amount of compensation the third party seeks).
4) The 2010 Act retains the general approach of the 1930 Act that the rights transferred to the third party will be subject to the defences which the insurer could use against the insured (eg breach of a warranty or condition precedent). However, it introduces three exceptions which are designed to defeat "technical" defences:
The 2010 Act retains the general approach of the 1930 Act that the rights transferred to the third party will be subject to the defences which the insurer could use against the insured (eg breach of a warranty or condition precedent). However, it introduces three exceptions which are designed to defeat "technical" defences:
a) Anything done by the third party, which, if done by the insured, would have amounted to, or contributed to, fulfilment of the condition is to be treated as if done by the insured. So, for example, the third party will be able to give notification where a policy provides that the notification must be made by the insured itself.
b) Insurers can no longer rely on a defence of breach of duty to provide information, where the insured is:
(i) an individual who has died, or
(ii) a body corporate that has been dissolved.
(iii) Insurers can no longer rely on "pay first" clauses. This does not extend to marine insurance, except where the insured's liability is in respect of personal injury or death.
The 2010 Act, like the 1930 Act, does not cover reinsurance contracts.
Possible Impact of the 2010 Act on insurers
The 2010 Act is generally expected to be procedurally better for third parties and insurers alike. As it will generally be the insurer that defends the claim against the insured in any event, the 2010 Act is considered to reflect and recognise the reality of the situation. Further potential consequences are: