The Act, which received Royal Assent as long ago as 25 March 2010, is finally due to come into force on 1 August 2016. It has the intention of allowing third parties to make claims directly against liability insurers in insolvency situations.
The new Act overhauls the 1930's Act of the same name, which contained certain onerous conditions on claimants, including requiring the claimant to first bring a claim against an insolvent insured prior to bringing a claim against the insurer. This required the claimant to apply to restore the insolvent insured to the Companies Register.
The validity of the claim and the amount of liability also had to be first established by judgment, thereby meaning the Claimant had to bring two actions which increased costs and time.
Under the new Act a claimant can claim against the insolvent wrongdoer’s insurer directly, without first having to sue the wrongdoer. Accordingly a claimant no longer needs to restore a dissolved company to the Register before commencing proceedings. The Claimant may, during the same proceedings, seek a declaration from the Court for both the wrongdoer’s and its insurer’s liability.
A claimant may also serve a notice requiring an insurer to provide information regarding their policy within 28 days. This notice can also be sent to any other person or organisation whom the claimant reasonably believes holds policy information e.g. an insurance broker. This will place additional administrative burden on insurers, particularly as the timeframe for responding is relatively short.
The new Act maintains the 1930 Act's position that the third party's claim is only as good as the insolvent insured's claim. Defences such as limitation or contributory negligence remain valid.
Problem for defendants
The position prior to the new Act was that a claimant needed to restore the defendant Company to the Companies Register in order to bring formal proceedings. Under the terms of the Companies Act 2006, a Claimant was permitted, if bringing a personal injury claim, to do this at any time after the insolvency and was not time limited. As the defendant insured would have been restored, this would allow the defendant's insurer to pursue subrogated rights and contribution claims on the insured's behalf against other employers and their insurers.
Following the Act, a claimant no longer needs to restore the defendant company but can proceed directly against their insurer. This creates a problem for the insurer, however. In order for the defendant to seek a contribution from another insurer, it will need to apply to restore the insured company. However, unlike a claimant, it only has 6 years from the date of the dissolution to do so.
In respect of legacy claims, particularly mesothelioma , where the latency period between exposure and onset can be as much as 40 years, insurers will accordingly be prevented by the Companies Act from restoring the insured company.
It is clear that the Companies Act requires amendment in order to remove this procedural unintended impediment which will allow an insurer to exercise their important substantive right. In the circumstances, the bar is in clear breach of Article 6 of the European Convention on Human Rights, which is an absolute right that cannot be restrictively interpreted.
A short term solution?
It would always be prudent for an insurer to restore an insolvent insured where possible, (i.e. within six years of insolvency).
However, where this is not an option, in order to circumvent these requirements in the short term, a Claimant can be requested by the insurer (as part of the terms of the settlement) to assign their rights under the new Act. This will allow the insurer to bring contribution proceedings directly against another insurer, without first needing to restore the insolvent insured (which the insurer will be unable to do).
Contribution proceedings can then be brought against others insurers of the same (mutual) defendant and also other insurers of other defendants. This is particularly common in mesothelioma claims, where claimants are frequently exposed to asbestos by multiple employers.