Third Parties (Rights against Insurers) Act 2010: impact on disease claims
Legislation has been in place since the 1930s to try and protect the interests of claimants in their claims against insured persons who become insolvent. The Third Parties (Rights against Insurers) Act 1930 allowed the successful claimant who had won their claim to then bring an action against the insurer by deeming that the rights of the policyholder under the contract of insurance vest in the third party upon the insolvency of the insured.
The Third Parties (Rights against Insurers) Act 2010 was introduced to widen the application of the process and to alter the way it operated with a view to offering greater protection, saving costs and avoiding unnecessary delay.
Although the 2010 Act received Royal Assent on 25 March 2010, it was never previously implemented. After years of delay and recent tweaks to its scope it finally came into force on 1 August 2016.
Extended definition of "insolvent"
It should be remembered that the aim of this legislation is to afford the claimant a route to the insurance cover when a policyholder is no longer able to claim under the policy. Insolvency takes many forms in the UK and not all routes of insolvency were caught by the 1930 Act. Under the new provisions, a policyholder must fall within a definition of a "Relevant Person". This term is defined within sections 4-7 of the Act.
In terms of individuals, it will include those who are subject amongst other things to an approved voluntary arrangement with creditors or those subject to a bankruptcy order under the Insolvency Act 1986. If a policyholder has died insolvent then they would be a relevant person if, for example, their Estate was administered via an Order under the Insolvency Act.
Both companies and unincorporated bodies can be classed as a relevant person if they are caught under one of several different processes such as an administration order, a sanctioned voluntary arrangement with creditors, the appointment of a liquidator, a winding up process or a dissolution. The intention is clearly that in the vast majority of insolvency situations the policyholder will be classed as a relevant person.
Direct action against insurer
Previously, under the 1930, Act the claimant had to firstly establish the claim against the insolvent policyholder before then being allowed to stand in the shoes of that insolvent policyholder and enforce the judgment against the insurer via a further set of proceedings. This meant for example, that if a company was dissolved, then it was necessary to restore it to the Register of Companies so that proceedings could be taken against it. This would be followed by a second set of proceedings to establish liability against that company, and then a third court action against the insurer of the company under the 1930 Act. Obviously this process could be lengthy and costly.
The new process under the 2010 Act will allow direct action against the insurer from the start, as a named party in the proceedings. A third party with a claim against a relevant person can now bring the action against the insurer seeking in that action not only a declaration of liability against the relevant person but also enforcement of that liability against the insurer.
Easier access to information
The 2010 Act also allows potential claimants to seek information about the terms and extent of insurance cover. It allows for easier access to coverage information on policies directly from former officers, directors and employees of the policyholder, insurance brokers and liquidators.
The information that can be sought includes:
confirmation that the insurance policy exists,
the identity of the insurer,
terms of the policy,
whether cover has been declined previously,
details of any other on-going proceedings,
the limit of funds available to meet a claim.
Once a notice seeking information is received, the recipient must respond within 28 days.
Failure to respond means that the claimant can seek a court order compelling a response.
A further provision allows a claimant who has started proceedings directly against an insurer in respect of the liability of a relevant person to serve a notice on former directors, employees or insolvency practitioners. This notice requires them to produce a disclosure list akin to the method of standard disclosure under the CPR had the company not been defunct and was the defendant rather than the insurer.
The new Act makes it clear that a claimant can bring his action against an insurer where either the claimant or the insurer is domiciled regardless of any terms within the insurance contract. In other words a claimant in Scotland, for example, can bring the claim in Scotland even if the contract of insurance would require any proceedings between policyholder and insurer to be brought in England and Wales.
Policy wording issues
If the policyholder must comply with certain conditions to benefit from cover, then the claimant can stand in the policyholder's shoes to fulfil those conditions e.g. giving notice of the claim. Further, insurers cannot rely on conditions requiring the provision of information or assistance if that information or assistance cannot be provided because the policyholder is dead or defunct.
Most terms requiring "pay and be paid" between insured and insurer will not take effect when the claimant is standing in the shoes of the policyholder.
Impact & consequences of the Act for insurers in disease claims
It is important to note that the 1930 Act will continue to apply to certain claims. It will remain applicable to those claims where:
the insolvency event, and
the incurring of the liability
both occur before the commencement of the 2010 Act on 1 August 2016
In a tort claim the liability is incurred when the right of action is complete – this will usually be when the damage occurs. In an NIHL claim the damage generally occurs at the time of exposure. For this reason many, if not most NIHL claims will be unaffected. However the new process would apply if the insured becomes insolvent on or after 1 August 2016.
Consider mesothelioma claims – the damage does not occur at the time of exposure. Does it occur at the point of no return when the cancer growth and disease progression becomes inevitable (often referred to as “angiogenesis”)? If so, what test or point in time would be used for that?
There are clearly going to be potential disputes and argument over which legislation applies to certain claims.
Assuming the 2010 regime does apply then the two main changes are the ability to bring an action directly against the insurer if the policyholder is insolvent and the provisions dealing with requests for information. Insurers will no doubt have to become more accustomed to being named in proceedings in disease claims. However, it is hoped that this will reduce overall claimant costs in cases of insolvent policyholders, especially where there is a defunct company and the need for restoration is now removed.
Consider what happens in long tail disease claims involving policies with several insurers over many coverage years. Does the claimant sue all the insurers? What of an insurer who has an interest for multiple defendants? There is certainly potential for conflict of interest which has not been addressed but will probably have to be dealt with in practice as these claims arise.
A lot remains unanswered in terms of day-to-day practice for insurers and only time will tell if it is having the desired effect of saving costs and time for both insurers and claimants.
For now it is important to ensure a proper understanding of which regime applies and to have procedures in place to deal with claims rightly made under the 2010 regime.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.