October 2016 will see the Third Parties (Rights against Insurers) Act 2010 finally brought into force. Although five years since it passed through Parliament, the act has never received Royal Assent due to a number of practical hurdles. These hurdles have now been removed due to the passing of the Insurance Act 2015 (see the October edition of our Foundations e-briefing).
The Act has wide-ranging implications, but it will certainly be of relevance to construction litigation.
The aim of the Act is to update the Third Parties Act 1930 and assist a third party in receiving compensation for losses caused by an insolvent person or company who has liability insurance.
Currently, if a third party wishes to bring a claim against an insolvent insured (e.g. a contractor) in order to obtain compensation under the insured’s insurance policy (a relatively common situation in professional indemnity claims), the third party must go through a cumbersome (and costly) procedure to first establish the liability of the insured. This has until now required the third party to apply to Court to have the insured restored to the register of companies and then added in to proceedings.
Under the 2010 Act, restoration to the register will no longer be required. Instead, the third party will be permitted to issue proceedings directly against the insurer without involving the insolvent insured at all. As would be expected however the third party will still have to establish the liability of the insured within the claim before any judgment can be enforced against the insurer.
In addition, certain defences previously available to insurers (e.g. late notification by the insured) will be removed under the 2010 Act. Instead, the third party itself will be able to notify the relevant insurers of its claim against them.