Lloyd's Maritime and Commercial Law Quarterly
THIRD PARTIES RIGHTS AGAINST INSURERS REFORMED
Third Parties (Rights against Insurers) Act 2010
The Third Parties (Rights against Insurers) Act 2010 (“the Act”) received Royal Assent on 25 March 2010 and, subject to minor modification, gives effect to the recommendations made by the Law Commission in 2001.1 The Third Parties (Rights against Insurers) Act 1930 is repealed.2
The Act makes improvements to the position of a third-party claimant where there is liability insurance to meet his claim. The reforms result in a new mechanism to establish the respective liabilities of insured and insurer, codification of recent case law, minor restriction to insurer defences, and clarification of procedural rights to information. The provisions remain faithful to the philosophy of the previous statute: the rights created are dependent upon the insured’s entering into one of the insolvency processes.3 The Law Commission considered that major reform in relation to the creation of a direct right of action, irrespective of the solvency position of the insured, went beyond the scope of the reforms contemplated. As a matter of legal principle, this is unfortunate, because these provisions continue to perpetuate a perverse interest in forcing the insured, as distinct from the uninsured, into one of the insolvency processes. What is necessary to trigger the statutory transfer of rights is the combination of insured liability as a matter of fact (rather than, as established) and manifestation of the insured’s insolvency.
Establishing liability
The claimant acquires the insured’s right to indemnity and the right to commence proceedings for a declaration as to the insurer’s liability.4 The claimant’s rights are restricted to the amount of his claim on the insured; if the insurance is insufficient, the claim against the insured is preserved for the remainder.
As with the previous provision, the rights arise once the insured has become a “relevant person”, a status which encompasses most of the current forms of UK insolvency process.5 For individuals, these are notably a bankruptcy order, an Individual Voluntary Arrangement (“IVA”), debt relief order, and administration orders under the County Courts Act 1984 (there is particular treatment of deceased insolvents and administration
1. Law Commission and Scottish Law Commission joint report: Third Parties—Rights against Insurers (Law Com No 272; Scot Law Com No 184) accepted by the Government in 2002. The Third Parties (Rights against Insurers Bill 2009 was introduced into the House of Lords at the end of 2009 and from then proceeded at rapid pace to its final form in early 2010.
2. The 1930 Act continues to apply where both the insured’s insolvency and the factual occurrence of liability to a third party takes place prior to 25 March 2010 (by s 20 and Sched 3 of the Act).
3. The rights of employees and others are much less certain compared with Road Traffic Act 1988 claimants. The latter group have direct rights of action against motor liability insurers irrespective of the solvency of the insureds concerned, being the result of the Fourth Motor Insurance Directive 2000/26/EC and the Fifth Motor Insurance Directive 2005/14/EC. The position of employees is also weaker, in that there is no fall-back compensation fund in the event that the employer defendant has failed to maintain the insurance required. Moreover, the restrictions on the terms effective as against a third-party claimant are less extensive. During 2009 there was some support for the creation of an Employers’ Liability Insurance Bureau, but these provisions have not, as yet, resulted in reform.
4. Ss 1 and 2; underscored by ss 8 and 14.
5. S 4.
CASE AND COMMENT
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