Third party insurance

Following First National Tricity Finance Ltd v OT Computers Ltd [2004], a third party has rights to information about an insolvent insured’s policy cover once insolvency has occurred. This case changed the previous approach that the claimant only had that entitlement after establishing the liability of the insolvent insured.

Subject to the points revealed below, It follows that you will need to consider a request for information if you have established that the insured is insolvent as defined by the 1930 Act.

If the insured is insolvent – a request can be made of the insured or its insolvency practitioner – the 1930 Act does not Immediately create a right to information from the insurer. An insurer may, if it wishes, provide information voluntarily.

The 1930 Act requires such information as may reasonably be required for the purpose of ascertaining whether any rights may have been transferred and enforcing those rights. Specific reference is made to contracts of insurance and premium receipts. No other details or documents are specified. The obligation is likely to be met if the third party is given sucient information to confirm that the liability it claims the insured has is covered by a policy and to what extent.

Yes – strictly speaking the 1930 Act does not put any obligation on an insurer until the insured or its insolvency representative has provided some information which although not sucient, gives the third party reasonable grounds for believing rights have transferred. The third party is then entitled to seek information from the insurer to confirm if rights have in fact transferred. However, an insurer may choose to provide information if it is in its interest to do so.

No. Unlike the 2010 Act, the obligations to provide information are limited to the insured, the insolvency representative and, in the circumstances set out above the Insurer.

No.

If an insured is a “relevant person” (ie is insolvent, in liquidation or dissolved) and the third party reasonably believes the insured is liable to information can be sought about its cover to establish whether any rights have been transferred. Information can be sought from an insurer even if the insured is dissolved. This is the first point to check if a request is made – that the insured’s status means that the right to seek information exists.(See 2010 Act and Regulations for precise details) Given the time limit of 28 days for responding this may need to be established quickly.

From the insured or any person who is able to provide information. This widens the net considerably compared to the 1930 Act and would now include brokers or agents, or parent or subsidiary companies. Consequently a recipient of a request needs to deal with it as soon as it is established that the insured is subject to an insolvency procedure. This is a significant difference to the position under the 1930 Act. If an insured is defunct enquires can be made of employees and directors, of brokers as well as insolvency practitioners who acted for the insured before it became defunct.

The 2010 Act sets out precisely the information that must be given by a person receiving a request. The duty is to provide information not documents, though documents may be volunteered.

• Whether an insurance contract exists that covers (or might reasonably be regarded as covering) the supposed liability.

If there is such a contract the further information to be given:

• Insurer identity
• Contract terms
• If the insurer has declined liability to the insured
• Whether there is litigation between insurer and insured (details to be provided)
• Any limits on the policy (and if an aggregate how much remains)
• Whether anyone else has a call on the policy proceeds through a charge.

The 2010 Act requires information to be provided only if it can obtained without undue difficulty from a document in a person’s control, or within an individual’s knowledge. A document is in control if a person has it, has a right to it or to inspect and copy it.

Yes. A response must be provided within 28 days of receipt of the request. Any person approached should provide the information it has within that time or explain why it is not able to provide it. If the information is in a document which was in the person’s control but is now held by another details of that other person should be given within 28 days. If the time limit is breached an application can be made to the court for an order compelling compliance.

The 1930 Act allows a third party to pursue a claim directly against an insurer in certain circumstances. It is to make sure that any compensation owed to a third party goes to it, rather than into funds used to satisfy all creditors when a procedure occurs.

By allowing an action against the insurer, compensation is paid directly to the claimant.

"Transfer of rights under the insurance policy": effectively the third party is able to stand in the shoes of the insured person against whom the TP claims a liability and pursue a claim for indemnity under the insurance policy

Only when the insured is (a) subject to a procedure (otherwise the 1930 Act is not triggered at all) and (b) the third party has established liability and the amount of that liability against the insured. That means the third party has to make a claim, and possibly litigate to judgment against the insured first (though it is sufficient that there is an arbitral award or enforceable agreement).

If the insured is a dissolved company it would need to be restored to the register first to allow proceedings to be brought. So there is a two stage process – firstly a claim against the insured to establish liability, and then a claim against the insurer under the Act.

Yes – the TP is in the shoes of the insured – so any defences the insurer could have taken against the insured, can still be taken against the TP. This will include requirements in some policies that the insured has to pay a claim before it can claim under the policy. It follows that a claim under the 1930 Act can be resisted for matters such as: delay in notification by the insured; failure to co-operate; the liability being outside the cover; there being a breach of conditions or warranty; non-disclosure or misrepresentation.

Essentially the insurer views the claim in the same way as brought by the insured but deals with the Third party. The insurer can also raise a limitation defence based on the limitation period that would have applied between it and its insured.

Not necessarily. If an insurer is happy that it provided cover, there are no policy defences, it may choose to handle the claim against the insured, even managing proceedings against the insured if it has permission to do so. The 1930 Act will need to be invoked if the third party wants to bring proceedings against the insurer. This will usually be where the insurer is not prepared to deal with a claim, the absent insured is not challenging that, and a third party wants to make that challenge to ensure it gets the compensation to which it believes it is entitled.

By establishing liability against an insured (which may be part of the process of making the insured insolvent) the TP is able to challenge the insurer’s position.

The first point is whether the 1930 Act applies at all i.e. had a "procedure happened". Secondly consider whether the TP established liability and quantum against the insured. Finally, to approach the claim as if it had been brought by the insured. So any policy defences relating to the extent of cover or obligations by the insured will have to be met.

The 2010 Act allows a third party to pursue a claim directly against an insurer in certain circumstances. It is to make sure that any compensation owed to a third party goes to it, rather than into funds used to satisfy all creditors when a procedure occurs.

By allowing an action against the insurer, compensation is paid directly to the claimant.

"Transfer of rights under the insurance policy": eectively the third party is able to stand in the shoes of the insured person against whom the TP claims a liability and pursue a single claim to establish liability against the insolvent policyholder and indemnity under the insurance policy.

Only when the insured is subject to a procedure – otherwise the 2010 Act is not triggered at all. If the insured is so subject, and there is a cause of action against the policyholder rights transfer and the TP can now choose to bring an action against the insured to confirm liability, a separate action against the insurer for indemnity under the policy, or can choose to deal with both matters in a single action against the insurer. It is no longer necessary, to establish liability before TP rights transfer. The two stage process required under the 1930 Act whereby proceedings first had to be taken against the insured and then subsequently against the insurer is unnecessary. One action can be brought.

The 2010 Act also removes the need to restore dissolved companies before proceedings can be brought. The TP still has to establish the insured’s liability before it can enforce any rights under the Act. It can do so choosing to take proceedings and obtain judgment against the insured, though an arbitral award or enforceable agreement will be sucient, as will be a declaration of the insured’s liability in the proceedings against the insurer.

Note that if the insured is not involved in the action the judgment is not binding on it – a third party would need to involve the insured if there were losses not covered by insurance – though commercial pressures will influence that decision.

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.

Not necessarily. If an insurer is happy that it provided cover and there are no policy defences, it may choose to handle the claim against the insured, even managing proceedings against the insured if it has permission to do so.

The 2010 Act will need to be invoked if the third party wants to bring proceedings against the insured. That will usually be where the insurer is not prepared to deal with a claim, and the insolvent insured is not challenging that, and a third party wants to make that challenge to ensure it gets the compensation to which it believes it is entitled.

Under the 2010 Act that can all be dealt within one set of proceedings against the insurer or the insured can be sued as well.

The first point is whether the Act applies at all i.e. has a “procedure happened”. Then under the 2010 Act, if a combined claim/ indemnity case is made against the insurer to consider if (1) the insured has a liability and (2) the liability is covered by the policy, taking into account any defences which can be taken including the actions of the TP which may have met some of the policy requirements on the insured.