Third Parties (Rights Against Insurers) Act 2010
August 2016 will see the biggest shake up to UK Insurance law in living memory. In addition to the implementation of a new general Insurance Act, making substantial changes to the rights of policyholders and insurers, it has recently been announced that the “new” Third Parties (Rights Against Insurers) Act 2010 will finally come into effect on 1 August 2016.
The new Third Parties Act is significant. It applies both to companies and individuals and will be of interest to anyone with a claim against an insolvent party. In addition to bringing the current Act up to date with current insolvency law, it allows the party with a claim to:
- Find out whether the insolvent party has any insurance policies which would have provided cover against the liabilities the claim relates to, and
- Bring a claim directly against the insolvent party’s insurers, avoiding the risk and uncertainty of suing an insolvent entity.
The ability to access an insolvent party’s insurance cover is not new. The existing 1930 Act of the same name allows claims to be brought against an insolvent party’s insurers, but not without significant risk and expense. The new Act purposefully makes it much easier and cheaper to do so and is expected and intended to be more widely used as a result.
Like the existing Act, the new Act does not generally transfer to a third party any greater rights against the insolvent party’s insurers than the insolvent party itself would have had. However, it includes significant new provisions in an attempt to overcome the practical issues which have prevented the existing 1930 Act from being utilised more widely.
Obtaining details of an Insolvent Party’s Insurance Cover
Under the new Act, third parties will, for the first time, be entitled to request details of the insolvent party’s insurance cover before they decide whether or not to bring a claim, removing the uncertainty of whether or not they may be anything worth pursuing before committing their time and money. They will have a right to request details from the insolvent party itself, or from any other parties that have knowledge of the insolvent party’s insurance arrangements e.g. its former insurance broker, or in the case of a defunct company, former officers or employees of the company. Those parties are required to respond within 28 days and either provide the details requested, or any information they have as to where such details might be found. The details which can be requested are broad, and include;
- The identity of the insurer,
- The terms of the policy, including the original and/or remaining limit of cover,
- Whether the insurer has denied liability for the potential claim and if so, details of any proceedings with the insurer concerning its liability under the policy.
Bringing claims directly against the Insurer
Under the new Act, third parties will no longer have to establish the insolvent party’s liability before pursuing its insurer. Third parties will be able to obtain a declaration that the insurer is liable for the insolvent party’s liabilities to them. If the insurer does not accept the insolvent party’s liability to the third party, the third party will still have to establish that legal liability before enforcing the policy against the insurer but it gives the third party the option of determining any potential issues over the insurance coverage before pressing ahead with a potentially more expensive claim to establish the insolvent party’s liability to them.