Section 62 provides that where an insured who has a policy of liability insurance becomes bankrupt or dies (if an individual) or is wound up (if a company) or dissolved (if a partnership or other incorporated association), monies payable to the insured under the policy shall be applicable only to discharging in full all valid claims against the insured in respect of which those monies are payable, and no part of those monies shall be assets of the insured or applicable to the payment of debts.
While section 62 does not expressly confer a direct right of action on an injured party against a defendant’s insurers, in the case of Dunne v PJ White Construction Company (1989), Chief Justice Finlay, as he then was, expressed the view in the Supreme Court that it was an inevitable consequence of section 62 that a right of action in favour of the injured third party is created, with the qualification that this is a matter to be fully argued before it is finally determined.
Chief Justice Finlay also stated that the injured person had the benefit of the presumption that the defendant’s insurance policy was good. To properly implement the protection given by the section, it was necessary that the onus of proving the existence of a right to rescind or repudiate the policy lay on the insurers.
There have been no reported definitive judicial statements in Ireland on the application of section 62 and the manner in which it should operate since Dunne was decided in 1989. However, in the current economic climate many plaintiffs find themselves in a situation where if successful in litigation, the outcome will be a paper judgment against an insolvent defendant. If there is a likelihood that the defendant was insured, section 62 presents a possible means of recovery.
This is an issue that is most likely to arise in the area of professional indemnity insurance and in particular with regard to those professions that are known to be required to carry professional indemnity insurance. Where an insurer avoids or repudiates a policy of professional indemnity insurance (or any policy of liability insurance), and particularly where there is a risk of a large number or high value claims against the insured, consideration should be given to the possibility of a claim under section 62 and steps taken to minimise the insurer’s exposure.