Less than a year after it came into effect on 1 August 2016, the first judgment in relation to the Third Parties (Rights against Insurers) Act 2010 (the TP Act 2010) has been handed down in the case of BAE Systems Pension Fund (Trustees) Limited (the Pension Fund) v Bowmer and Kirkland Limited and others (B&K).
This decision will give comfort to companies involved in disputes with insolvent or potentially insolvent third parties but will cause concern to insurers who may face increased claims - this may in turn be reflected in the level of insurance premiums going forward.
Background to this decision
Setting out only the key facts:
- A dispute arose relating to alleged defects in the design and construction of a warehouse owned by the Pension Fund and built by B&K.
- The Pension Fund commenced proceedings in August 2016 against various defendants including B&K and Twintec Limited (Twintec), B&K's sub-contractor, pursuant to a deed of warranty. In February 2017, Twintec went into administration.
- In March 2017, details of Twintec's insurance provided by Royal and Sun Alliance (RSA) were given to the Pension Fund.
- In April, the Pension Fund applied to join RSA to these proceedings, relying on the TP Act 2010. RSA resisted the application arguing that:
- the insurance policy in question did not actually provide cover to Twintec in respect of any liability that Twintec may have to the Pension Fund; and
- any dispute as to coverage was subject to French law and had to be decided by arbitration or the French courts.
For the purposes of this review, we focus on the first of these arguments.
The main area of dispute
Summarising the key provisions, the TP Act 2010 applies where an insured (here Twintec) becomes insolvent, in which case a third party (here the Pension Fund) can step into the shoes of the insured to enforce the insured's rights under a relevant insurance policy and so, potentially recover directly against insurers (here RSA).
As we set out in our article last year 'A brave new world now on the horizon? Third Parties (Rights against Insurers) Act 2010', now the TP Act 2010 is in force, and putting it into the context of these facts, a third party such as the Pension Fund no longer needs to establish Twintec's liability to it before the claim against the insurers RSA can proceed.
The Pension Fund's potential difficulty in this application was that RSA argued that s2(1) of the TP Act 2010 (which allows a third party to bring proceedings directly against the insurer) only applies there is an already established relevant contract of insurance in place, i.e. a policy that will indemnify the insured if the claimant is successful in its substantive claim.
As it has not been established that Twintec's potential liability to the Pension Fund is covered by the RSA policy (i.e. coverage is still in dispute), RSA contended that the TP Act 2010 did not apply and that the Pension Fund's application to join RSA to the existing proceedings should fail.
The Technology and Construction Court (TCC) granted the Pension Fund's application to join RSA to the proceedings.
In doing so, Mrs Justice O'Farrell DBE held that s2(1) of the TP Act 2010 is engaged even where there is a potential dispute as to whether or not there is the appropriate cover under the insurance policy. She considered that s2 applies where the claimant has not yet established either the insured's liability (here, any liability of Twintec to the Pension Fund) - or that it is insured under that contract, i.e. that any liability Twintec may have to the Pension Fund is insured under the RSA policy. The requirement in this respect in the TCC's view was simply for the Pension Fund to claim to have such rights.
Will this decision result in more proceedings against insurers?
Undoubtedly, this decision will result in more claims against insurers where potential defendants become insolvent, as the TCC has confirmed that coverage under the relevant insurance policy does not have to be clearly established in order to be able to join insurers to proceedings (or commence proceedings against insurers) under the TP Act 2010.
As part of their defence to this application, RSA sought to argue that if the Pension Fund were successful in seeking to join RSA to the proceedings, it would result in wasted costs if RSA's contention (that Twintec's liability to the Pension Fund was not covered by the policy) proved to be correct. Mrs Justice O'Farrell stated that this did not disturb the finding about the applicability of s2 of the TP Act 2010 (that it applied even when policy coverage was in dispute).
As highlighted by the court, RSA will now need to consider how and when to have the issue of policy coverage determined.