On 28 April 2016, the Third Parties (Rights against Insurers) Act 2010 (Commencement) Order 2016 was made. It provides for the Third Parties (Rights against Insurers) Act 2010 (the New Act) to come into force on 1 August 2016.

The New Act is a long-anticipated modernisation of the regime in the Third Parties (Rights against Insurers) Act 1930 (the 1930 Act). It is designed to simplify the requirements for bringing claims in circumstances where an insured defendant is insolvent, and to reduce expense on both sides. The five year delay in the New Act coming into force was caused by the need to clarify certain definitions relating to insolvency in specific sectors. This has now been rectified by the Third Parties (Rights against Insurers) Regulations 2016.

Under the 1930 Act a party had to establish liability against the insolvent insured before pursuing its insurer. Under the New Act the insurer can be brought into proceedings from the outset due to a statutory transfer of the right to the benefit of a liability policy.

From a practical perspective, perhaps the most important change that insurers should be ready for is that they will be required to provide detailed information about policy coverage to a claimant at the pre-proceedings stage, and within 28 days of a request being made. If they fail to comply, the claimant can apply to Court and the insurer is likely to have a costs order made against it. The idea behind this requirement is that claimants should be able to find out at an early stage whether the insurance policy would indeed have responded to the claim in question, preventing them from pursuing unsustainable claims. However it is likely to create an increased administrative burden for insurers.

The New Act also limits insurers’ defences vis à vis the third party claimant in that (i) pay-first clauses will no longer be valid (except in non personal-injury marine claims) (ii) the claimant will be able to step into the insured’s shoes to fulfil policy conditions; and (iii) failure by the insured to provide assistance in defending the claim will no longer be grounds for declining cover if the Insured is a dissolved company.

The 1930 Act will still apply in situations where the insured became insolvent and the event giving rise to the liability happened before 1 August 2016.

More information on the Act can be found in our articles of 25 February 20161 and 10 March 20162