The Third Parties (Rights Against Insurers) Act 2010 will come into force shortly (after a considerable delay). This important Act makes it easier for a third party to bring a claim directly against liability insurers in the event that the insured is or becomes insolvent. The Act has been delayed because it did not address certain insolvency situations. This has now been remedied by the Third Parties (Rights Against Insurers) Regulations 2016, which were laid before parliament on 25 February and should take effect in the Summer.

The draft Bill accompanying the Law Commission’s 2001 report was approved by the government in 2002 but the Act did not receive Royal Assent until 2010. Some 6 years later and the Act, which allows a claimant to stand in the defendant insured’s position in relation to a claim on its liability insurance, is still not in force. However, after a considerable delay, the Act is likely to be in force by this Summer.

The Act is not in force yet because it was defective regarding certain insolvency matters. For example, companies entering into administration without a court order were not within the scope of the Act. To remedy the position, the Act was amended by the Insurance Act 2015, which corrected some of the defects and added a regulation-making power to enable the remaining defects to be corrected. The subsequent Third Parties (Rights Against Insurers) Regulations (the “Regulations”), which which will trigger the application of the Act, were laid before both Houses of Parliament on 25 February.

Defects Corrected

To trigger the application of the 2010 Act an insured must both:

  1. incur a liability to a third party against which it is insured; and
  2. be or become a “relevant person” within the meaning of the Act.

For an insured to be or become a ‘relevant person’ it must undergo a specified insolvency or analogous event. To be effective, the Act should therefore cover all such events. However, the Act as currently drafted does not cover all insolvency situations, making it narrower in this respect than the 1930 Act.

The Regulations rectify this by ensuring that bodies subject to a sector-specific insolvency procedure and all bodies which have been dissolved (other than unincorporated partnerships and bodies that are no longer being treated as dissolved by reason of subsequent events) will be considered ‘relevant persons’ for the purpose of the Act.

It is hoped, given the considerable delays to date, that the Act will come into force as soon as possible so that legislation first considered some 20 years ago can finally take effect.