The Third Party (Rights Against Insurers) Act 2010 makes it easier for third parties to bring claims directly against liability insurers if the policyholder is or becomes insolvent.
The Third Party (Rights Against Insurers) Order 2010 (Commendation) 2016 was enacted on April 28, 2016. It provides that the Third Party (Rights Against Insurers) Act 2010 shall come into force on August 1, 2016.
The lions of 1930
The purpose of the Third Party (Insurers' Rights Act) Act 1930 was to protect insurance proceeds from the consequences of the policyholder's insolvency.
Under common law, if a person covered by a liability policy incurs liability to a third party but files for bankruptcy or goes into liquidation, any money later paid under the policy goes to the receiver or liquidator and becomes part of the of the equity of the insured distribution to all creditors
However, under the 1930 Act, the insured's claims against his insurer are automatically transferred to the third party if any of the various specified insolvency events occurs. Once the insured's liability has been established, the third party can assert his claim directly against the insurer and the insurance proceeds remain outside the assets of the insured's creditors.
In 2001, the Judicial Commissions for England, Wales and Scotland reviewed the 1930 Act and concluded that it was not working as well as it should. His final report contained reform proposals, which were included in the new law with only minor changes.
The law maintains the automatic assignment of rights to third parties. But it allows the third party to exercise his claim in a single procedure and makes it easier to learn about the insurance contract at an early stage. Additionally, the list of bankruptcy procedures is updated and expanded to reflect changes in bankruptcy law since the 1930s.
The new law applies to the UK generally, but contains some specific provisions for insolvency and court proceedings in Scotland and Northern Ireland.
Become a “relevant person”.
According to Section 1 of the new law, the rights of the insured under the policy are transferred to the third party if the insured is already a relevant person by assuming liability towards a third party, or if the insured has already assumed liability when taking responsibility becomes a relevant person.
The Insured is or becomes a Subject Person if any of the bankruptcy procedures mentioned above is in progress. For individuals, this is a Debt Relief Order, Administrative Order, Individual Voluntary Settlement or Bankruptcy Order (Section 4).
A limited liability company or an unincorporated entity such as a partnership becomes a relevant person when a voluntary arrangement or administrative resolution is in effect, a preliminary receiver, receiver or liquidator has been appointed, the partnership is (or will be) voluntarily dissolved or ordered by a court or the company was dissolved (art.6).
Other procedures specific to the jurisdictions of Scotland and Northern Ireland are included in the list.
Part 6 of the Insurance Act 2015 introduces an amendment to the new Act, giving the Secretary of State the power to change the meaning of 'relevant person' by regulation (new Section 19 of the new Act).
establish responsibility
Under the 1930 Act, before a third party can bring a claim against the insurer, they must first "establish" the insured's liability by judgment, settlement, or arbitration. If the insured company were dissolved, the third party would also have to apply to the court to have the company re-registered.
However, according to article 1 of the new law, after the transfer of rights, the third party can bring an action against the insurer "without having proven the responsibility of the interested party". The insured's liability must be established before these rights can be effectively exercised, but this can be accomplished by court order, judgment, settlement, or arbitration.
These important provisions mean that the third party only has to bring an action against the insurer (and, optionally, the insured), asking the court to provide statements about the insured's liability towards the third party and the insurer's liability under the directive. (for example, two) .
Declarations bind the insurer, but not the insured, unless the insured is a party to the proceeding. The new court rules will require the third party to inform the insured of the claim against the insurer, giving the insured the opportunity to file an accessory action.
If the claim is brought to arbitration, the arbitral tribunal may be required to make the same representations as the tribunal. There are also specific provisions for determining liability in Scotland where the third party requests a 'declarant' from the court or arbitral tribunal.
defending
As in the 1930 Law, the assignment of rights does not put the third party in a better position than the insured.
Therefore, the insurer can invoke any objection that the policyholder would have against the third party if the action had been brought against the policyholder, such as prescription or contributory fault (§ 2 § 4).
In their claim against the insurer, the third party will be subject to the same terms and conditions, compensation limits and deductibles that would apply to the insured. And the insurer will, most of the time, have the same coverage against the third party that it would against the insured.
If the Insured made material confidentiality or made a false statement in the purchase of coverage, or breached a guarantee or condition precedent in the policy, the Insurer has a defense to the claim.
However, the new law contains some exceptions. In cases where the transferred rights are subject to a condition that must be met by the insured, everything done by the third party that, had it been done by the insured, would have fulfilled the condition, will be treated as if it had been done by the third party. insured (see 9 (two)).
This is the case, for example, of a condition precedent that obliges the policyholder to notify a claim within a specific period. If the third party notified the damage in a timely manner, the insurer cannot claim that the notification was not made by the policyholder. However, the third party will need to act promptly to ensure that the claim is filed in a timely manner.
Transferred rights are also not tied to a condition that requires the policyholder to provide information or cooperate with the insurer if the condition cannot be met because the policyholder no longer exists, is deceased, or is a dissolved company (art. 9(3).)).
'Pay first' clauses that require the insured to pay sums due to third parties before making any claim under the policy also do not apply where rights have been delegated by law, except to a limited extent in marine insurance and only when liability applies. death or personal injury (see 9.(5) and (6)).
In addition, the insurer is entitled to set off its liability towards third parties for any liability that the policyholder has towards it, for example, B. Unpaid premiums (p. 10).
restriction
There are two relevant statutes of limitations. One applies to third party claims against the insured and the other to third party claims against the insurer under the new law.
Under the Limitation Act of 1980, claims generally must be brought within six years from the date the cause of action arose.
If the third party's claim against the insured is in accordance with the contract, the prescription runs from the moment of default. For negligence claims, the cause of action arises when the damage occurs. In the case of latent damage, however, an alternative limitation period of three years is applied from the moment the plaintiff had knowledge and authorization to bring the action.
The third party's claim against the insurer is subject to the same statute of limitations as the insured's claim against the insurer: six years from the date the cause of action arose, that is, the date liability was established. of the insured against the third party. .
Under the new law, as under the 1930 Act, the insurer can generally invoke any statute of limitations defenses the insured has against third parties and any statute of limitations the insurer has against the insured.
However, there is a caveat. If the third party brought an action against the policyholder within the statute of limitations, but brought a new action against the insurer under the new law before the conclusion of that process and after the expiration of the original statute of limitations, this claim will not expires. The insurer would have a statute of limitations defense in these circumstances only if the insured had a valid statute of limitations defense in the first action (s.12).
what is reimbursable
If the insured's liability towards third parties is less than the insurer's liability towards the insured, the third party is not entitled to the difference (art. 8). This would be the case, for example, if the policy covered the insured's defense costs against a third-party claim. The insured reserves the right to recover these costs from the insurer.
The new law also confirms that once rights have been transferred, the third party can no longer enforce those rights against the insured unless the insured's liability exceeds the amount recoverable by the insurer (Section 14). This was an area of uncertainty under the 1930 Law. The new Law clarifies that the third party can only sue the insured to the extent of lack of funds.
Special provisions apply when the insured becomes a Covered Person through a voluntary process. The rules of this procedure apply to all deficiencies recoverable by the insured.
If the third party is unable to recover from the insurer due to the insurer's own financial difficulties, the third party may, if eligible, make claims under the Financial Services Compensation Plan (s.14(7)). Otherwise, he will be able to reduce any shortfall that he may claim from the policyholder.
to collect information
Under the 1930 Act, one of the main difficulties for third-party claimants was obtaining information about coverage or even the identity of the insurer. Bankruptcy trustees can be slow to answer questions and may not be able to provide information when records are lost or improperly filed.
The new law tries to limit these problems, expanding the circle of people from whom information can be requested and setting a deadline for their response.
In accordance with Annex 1, the third party may request information from the insured or from anyone who can do so in writing. This may include insurers, brokers, and anyone else authorized to maintain policy information. A person is in a position to provide information if he can do so “without any difficulty” from a document in his or her own knowledge.
Before the third party requests information from the insured, the third party must reasonably assume that the insured has assumed an obligation and is a relevant person, ie H. is in one of the listed insolvency proceedings.
Before requesting information from a third party, the third party must also reasonably believe that an insurance policy exists, that the rights under the policy have transferred to them, and that the person concerned can provide the information.
Section 1(3) governs what information the third party is entitled to. These include: whether there was a policy in force that could cover the alleged liability; the identity of the insurer; the insurance conditions; if the insurer has rejected liability; whether the process has been started (and if so, the relevant details); whether there is an aggregate threshold for compensation and, if so, how much (if any) has been paid for other claims; and whether there are flat fees that would apply to the amounts withdrawn.
The person receiving the notice must respond within 28 days, providing as much information as possible or explaining why they cannot provide it and (in the case of documents no longer in their control) who they know or believe has the information. information. If the person does not comply, the third party can obtain an injunction against him.
In the case of defunct companies, section 3 allows the third party to obtain disclosure of relevant documents from the company's former directors or employees, or from a designated receiver or administrator, without first having to re-register the company with the defunct company. record.
For this mechanism to apply, the third party must have already filed a claim against the insurer and the information request must be accompanied by information about the claim. Court rules on disclosure and inspection then apply, and the recipient has 28 days to deliver a list of documents.
Reach
The new law, like the 1930 law, does not apply to reinsurance. Article 15 confirms that this does not apply "where the liability referred to is itself a liability incurred by an insurer under a contract of insurance".
There was some doubt as to whether the 1930 Act applied to liability voluntarily assumed by the insured, such as extended warranty liability. In 2001, the Law Commissions recommended clarifying the position so that legislation clearly includes such responsibilities. The Court of Appeal in Re OT Computers [2004] subsequently confirmed that the 1930 Act applied.
Article 16 of the new law clarifies the matter, indicating that the question of whether or not the insured's liability has been assumed voluntarily is irrelevant.
However, many liability policies specifically exclude claims that have arisen solely as a result of an agreement between the parties. If such an exclusion applies to the insured, it also applies to a third party who makes a claim against an insurer under the new law.
The new law also confirms the provisions of an insurance contract that are intended, directly or indirectly, to terminate or terminate the contract or modify the rights of the parties if the insured becomes a relevant person or dies insolvent (Article 17.) .
Finally, Section 18 states that the law applies whether or not the case has a foreign element, for example because the liability arose outside the UK or if the parties are based abroad.
The Third Party (Rights Against Insurance) Act 2010 comes into force on August 1, 2016.
Version:
- The act(21 pages/102 KB PDF)
See also:The bill paves the way for third-party claims against liability insurers, NEWS OUTSIDE THE LAW 11/30/2009