Third party insurance

Third Parties (Rights Against Insurers) Act 2010 and 1930

Insolvency of a policyholder creates practical difficulties for a third party claimant in tracing any insurance cover and, at common law, being able to rely upon the indemnity available to the policyholder that is triggered by the event of which the claimant complains. These two problems were recognised by Parliament initially in 1930 and more recently in 2010 when Third Parties (Rights Against Insurers) Acts were passed. The 2010 Act came into force on 1 August 2016.

Request for information

It is important to note that whilst the 2010 Act is less specific about the information that should be provided it creates a substantially wider class of individuals who are required to provide this information.

Where the 1930 Act imposes an obligation on the insolvent policyholder (or the person administering the insolvency) and on the insurer to disclose information the 2010 Act imposes that obligation on any person who is able to provide information about the coverage and its terms.

The new Act also provides a time limit of 28 days within which that person should respond. The classes will now include brokers, company officers and risk managers in addition to those caught by the 1930 Act.

Claim by third party against insurer

The 1930 Act remedied the problem that the insurance policy indemnified the insolvent estate, leaving the claimant (or Plaintiff in those days) to recover pennies in the pound of his damages.

The Act provided a mechanism of full recovery of damages directly from the insurer preserving the liability and indemnity arguments of both policyholder and insurer. The mechanism was, however, cumbersome, lengthy and costly. The new 2010 Act has simplified the process.

Both Acts may be relevant dependent on the date of insolvency and when the event giving rise to the claim occurred. To assist with queries BLM has prepared two flowcharts.

 
 
 

Request
by Third Party
for coverage information

 

Claim
by Third Party
against insurer of insolvent policyholder

Establish the insured’s status –

If the insured is not a relevant person (e.g. insolvent) in liquidation there is no obligation to provide information. If insured is a relevant person then consider liability.

The insured has to be a relevant person before any rights can transfer to a claimant under the 2015 Act (and also under the 1930 Act). They will be a relevant person if subject to any of the procedures set out in the Acts.
If the insured is not a relevant person the claimant has no rights under the Acts.

When was the liability incurred and the insolvency procedure making the insured a relevant person?

For the purposes of establishing the date when the liability is incurred, the date when the cause of action was complete is used.

Liability pre 1.8.16
Insolvency procedure post 1.8.16
 

The 2010 Act applies where either or both of the liability or the procedure occur after the 1.8.2016. Here, although the liability was incurred before the Act, the fact that the procedure was after triggers the 2010 Act.

Liability post 1.8.16
Insolvency procedure post 1.8.16
 

The 2010 Act applies where either or both of the liability or the procedure occur after 1.8.16. Here, both the liability and the procedure post-dated the 1.8.16 and the 2010 Act is triggered.

Liability pre 1.8.16
Insolvency procedure pre 1.8.16
 

The 1930 Act continues to apply where both the liability and the procedure arose before 1.8.16 when the Act came into force.

Liability post 1.8.16
Insolvency procedure pre 1.8.16
 

The 2010 Act applies where either or both of the liability or the procedure occur after the 1.8.16. Here the liability was after 1.8.16 even though the procedure was before and the 2010 Act is triggered.

Establish the insured’s status –

If the insured is not a relevant person (e.g. insolvent) in liquidation there is no third party remedy available. If insured is a relevant person then consider liability.

The insured has to be a relevant person before any rights can transfer to a claimant under the 2015 Act (and also under the 1930 Act). They will be a relevant person if subject to any of the procedures set out in the Acts.
If the insured is not a relevant person the claimant has no rights under the Acts.

When was the liability incurred and the insolvency procedure making the insured a relevant person?

For the purposes of establishing the date when the liability is incurred, the date when the cause of action was complete is used.

Liability pre 1.8.16
Insolvency procedure post 1.8.16
 

The 2010 Act applies where either or both of the liability or the procedure occur after the 1.8.2016. Here, although the liability was incurred before the Act, the fact that the procedure was after triggers the 2010 Act.

Liability post 1.8.16
Insolvency procedure post 1.8.16
 

The 2010 Act applies where either or both of the liability or the procedure occur after 1.8.16. Here, both the liability and the procedure post-dated the 1.8.16 and the 2010 Act is triggered.

Liability pre 1.8.16
Insolvency procedure pre 1.8.16
 

The 1930 Act continues to apply where both the liability and the procedure arose before 1.8.16 when the Act came into force.

Liability post 1.8.16
Insolvency procedure pre 1.8.16
 

The 2010 Act applies where either or both of the liability or the procedure occur after the 1.8.16. Here the liability was after 1.8.16 even though the procedure was before and the 2010 Act is triggered.