Whilst the collapse of large firms such as Carillion and Thomas Cook have filled headlines for obvious reasons, it is worth taking a moment to consider the impact that the collapse of an organisation can have on personal injury claims brought against it.
Where an insolvent company does not have relevant public liability insurance at the time of the Claimant’s accident, that Claimant is very unlikely to recover anything even in the event of a successful personal injury claim. There are a number of procedural hurdles for a Claimant to overcome when pursuing such a claim and, unless the company pursued has assets with which to pay any judgment against it, pursuing the personal injury claim will be a fruitless exercise.
The situation is likely to be different where the Defendant had employer’s liability or public liability insurance which will respond to the personal injury claim.
Historically, the Third Party (Rights against the Insurers) Act 1930 (the 1930 Act) provided a mechanism for a Claimant to have a direct right of enforcement against an insurer following a successful claim, but only where the Claimant had first established liability against the insolvent Defendant.
The Third Party (Rights against Insurers) Act 2010 (the 2010 Act) has made this process significantly more straightforward for Claimants. Following implementation of the 2010 Act (provided that the claim does not fall outside its scope) a Claimant can claim against an insolvent company’s insurer directly and is not required to sue the insolvent company. In practice, this means that the Claimant does not need to seek to restore a dissolved company to the Companies Register and, in one set of proceedings, can seek a declaration from the Court as to both the liability of the Defendants and the enforcement of that liability against the Defendant’s Insurer.
Insurers are able to rely upon any defence that their insolvent insured would have had against the Claimant, including arguments of limitation and contributory negligence. In addition, the Insurer can rely upon any policy defences or limits on cover (including breaches of conditions precedent, deductibles and self-insured retentions) it would have had in a claim brought against it by the insolvent Defendant, but notification of the claim by the Claimant may satisfy policy conditions in relation to the Insured’s duties to notify the Insurer of it.
The 2010 Act provides Claimants with the right to seek from the Insurer (or Broker) details of the identity of any Insurer, policy terms, whether an insurer provided cover and whether it has declined indemnity, and the extent of cover and deductibles.
It is worth remembering that any limitations on cover would apply, even in the event of a successful personal injury claim; policy deductibles may exceed the value of a personal injury claim and costs, leaving the Claimant unable to pursue the Insurer and having to join the ranks of unsecured creditors of the insolvent Defendant.
The 2010 Act came into force on the 1 August 2016 and does not have retrospective effect. Therefore it is important to note that the 1930 Act will continue to apply to certain personal injury claims, including claims where the insolvency event and the incurring of the Insured’s liability both occurred before the 1 August 2016. It is important for Claimants to consider with care whether or not the 2010 Act applies to their claims.
Where businesses close or become insolvent, the 2010 Act simplifies the process for Claimants seeking to recover damages following personal injury accidents. As the closure of businesses will often result in the loss of key documents and witnesses, there is a risk of speculative and fraudulent personal injury claims being presented against which little evidence is available. Where practicable, when an insolvency is on the cards Insurers should seek to protect themselves against future personal injury claims by seeking copies of the Insureds’ accident books, accident investigation documents and the contact details for the Insured’s witnesses, in order to secure evidence which will be required for the defence of future personal injury claims.