Yes – the third party must establish liability whether or not the insured is involved by the TP in the proceedings against the insurer. Any liability defences, including limitation, are available to the insurer and insured (but note that if the third party has issued against the insured before a procedure, the insurer cannot raise limitation in the action against it).
As for policy defences, in effect the TP is in the shoes of the insured – so most defences the insurer could have taken against the insured, can still be taken against the TP. However the 2010 Act has introduced some changes that need to be considered: the TP can fulﬁl conditions the insured had to fulﬁl, including claims notiﬁcation; conditions requiring an insured’s co-operation are ineffective if the insured has died or has been dissolved if a corporate body; no longer are requirements that an insured pays a claim ﬁrst of any effect against a TP claim. These defences, available under the 1930 Act, are no longer relevant.
All other defences i.e. scope of cover including limits, exclusions, non-disclosure and misrepresentation, breach of warranty are available to the extent permitted by insurance law. The insurer can also raise a limitation defence based on the limitation period that would have applied between it and its insured.