In the week that Leicester City overcame odds of 5000/1 to be crowned Premier League champions, the insurance market was (almost) as astounded at the news that the long-awaited Third Parties (Rights Against Insurers) Act 2010, which received Royal Assent on 25 March 2010, will be coming into force on 1 August 2016.

The new Act represents a long-awaited overhaul of the Third Parties (Rights Against Insurers) Act 1930. The 1930 Act included the requirement for claimants first to establish a claim against the insolvent entity (the wrongdoer) before bringing a claim against the insolvent entity’s insurer. Under the 1930 Act the existence of the claim and the amount of the liability first had to be established by court judgment, arbitration award or agreement. This meant claimants had to bring two actions, thus increasing costs.

Under the new Act a claimant:

  • can sue the insolvent wrongdoer’s insurer directly, without first having to sue the wrongdoer;
  • can ask the same court for declarations as to both the wrongdoer’s and its insurer’s liability;
  • can serve a notice requiring the insurer to provide information regarding the policy within 28 days. Such a notice may also be directed at any other person whom the claimant reasonably believes holds policy information (e.g. the insurance broker); and
  • no longer needs to restore a dissolved company to the register before commencing proceedings.

Insurers are still able to rely on any defence the wrongdoer would have had to the claim, such as limitation or contributory negligence. Insurers are also entitled to rely upon the same policy defences that would apply if the claim was brought by their insured (although clauses requiring an insolvent insured to provide insurers with information or assistance cannot be relied on against third parties).

The so-called “pay to be paid” defence mechanism, whereby the insured must first pay the claim before seeking an indemnity from insurers, cannot be relied upon under the new Act - except for marine insurance (as defined in the Marine Insurance Act 1906) for claims other than death or personal injury. This is welcome news for P&I Clubs.

The new Act will not apply to contracts of reinsurance.

The new law is good news for claimants who faced time and cost in bringing claims against insolvent insured wrongdoers under the 1930 Act. The new Act will streamline the process – and in turn may open the door to more claims.