After a delay of just six years, it was finally confirmed this week that the Third Parties (Rights Against Insurers) Act 2010 will come into force on 1 August 2016. In addition, it has been confirmed that from next year damages can be claimed against insurers for the late payment of insurance claims.
These changes form what is now a triple-bill of insurance law reform which will see:
- 1 August 2016 - Third Party (Rights Against Insurers) Act 2010 coming into force
- 12 August 2016 – Insurance Act 2015 coming into force
- 4 May 2017 – introduction of a requirement for insurers to pay sums due within a reasonable time or face claims for damages otherwise
The 2010 Act
Liability insurers now have less than three months in which to refresh their memory of the "new" Third Parties (Rights Against Insurers) Act to ensure that they are ready to comply with its requirements.
The key changes introduced by the 2010 Act are:
- A third party claimant will now be able to bring proceedings against an insurer before having established the insured's liability. In practice we anticipate that third party claimants will be likely to pursue a single claim against insurers in order to establish both the insured's liability and insurers' obligation to indemnify the insured.
- Although insurers will still generally be able to rely on any policy defences that would have been available against the insured, certain limitations have been imposed. For example, the third party claimant may now validly fulfil any policy conditions in place of the insured and insurers will not be able to rely on conditions requiring the insured to cooperate if the insured has been dissolved or has died.
- New, clearer and stricter rules apply to the provision of policy information to the third party claimant. For example, a statutory duty now exists on insurers, brokers and former directors of the insured (amongst others) to provide defined information relating to the policy, including the identity of the insurers, the terms of cover and the remaining limit of indemnity. Critically there is a new 28 day deadline for responding to any request for information under the act.
It is important to note that even after the 2010 Act is brought into force the 1930 Act will still apply in certain situations. The rules determining which act should apply in any case are somewhat convoluted. However, in broad terms the 1930 Act will continue to apply if the insured's (i) liability; and (ii) entry into a formal insolvency process (e.g. liquidation), both occurred prior to the 1st August 2016. Otherwise, the 2010 Act will apply.
Late payment of insurance claims
A late amendment to the Insurance Act 2015 will introduce for the first time in English law a duty on insurers to pay sums due under a policy within a reasonable time or face claims for damages otherwise. This new duty will not be brought into force until 4 May next year and will only apply in respect of payments due under policies incepting after that date.