The Government's Insurance Bill (the "Bill"), which makes various amendments to the Third Parties (Rights Against Insurers) Act 2010 (the "2010 Act"), was introduced to Parliament in August 2014. It is hoped that the Bill will speed up the entry into force of the 2010 Act which has been subject to long delays. The aim of the 2010 Act is to bring about significant reform in the way that third parties might pursue direct claims against insurers instead of against an insured that is, or is likely to become, insolvent.
Proposed changes under the 2010 Act
At the moment, under the Third Parties (Rights against Insurers Act) 1930, third parties are entitled to claim directly against the insurers of an insured insolvent company. However, the procedure to do this is both complicated and expensive. The most significant changes under the 2010 Act are as follows:
- A third party will be able to proceed directly against an insurer, rather than first having to establish liability in proceedings against the insured. This change will enable the claimant to resolve issues of liability and insurance coverage in the same proceedings, making claims easier to pursue and reducing costs for the claimant.
- The list of insolvency events to which the 2010 Act relates is much wider than before and includes situations where a company has been subject to an administration order, has had a receiver or provisional liquidator appointed, or has entered into a voluntary arrangement.
- The 2010 Act provides for third parties to have easier access to information in respect of the insurance position of an insolvent company. The 2010 Act makes clear that a potential claimant may request such information from any person (not just the insurers and insurance brokers).
- Whilst it will remain the case that an insurer will be able to benefit from any defence against the third party that it would otherwise have had against the insured, the scope of such defences has been curtailed. For instance, it will no longer be an acceptable defence to say that an insured did not satisfy a condition in its insurance policy, as long as the third party can itself meet the condition.
- It is also now clear that for the 2010 Act to apply, the insolvency event must occur in the UK. Prior to the 2010 Act, the jurisdictional scope of making a third party claim was unclear.
- The 2010 Act received Royal Assent in March 2010 and it was intended for the Act to come into force relatively quickly. This process was however subject to lengthy delays and in 2013 the Government announced that it was going to amend the 2010 Act to cover further insolvency scenarios. The Bill, in making a number of minor amendments to the 2010 Act, does just this. Furthermore, the Bill makes provisions for the Secretary of State to extend the range of insolvency events covered by the 2010 Act in the future.
When it is eventually in force, the new legislation will have a significant impact, and will likely lead to higher levels of litigation against insurance companies at an earlier stage. In particular, it will make pursuing the insurers of a distressed manufacturer or supplier a much less protracted, and much more cost effective, process. The 2010 Act is currently expected to come into force in October 2015.