The Covid-19 pandemic has had a severe impact on the economy. This has given rise to an increasing number of claimants with claims against insolvent businesses.
In these circumstances, a third-party claimant would usually notify the company’s insolvency practitioner of its claim. The claimant is then required to pursue its recovery as part of the insolvency process alongside other creditors.
The Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act)1
However, where the claim against the insolvent defendant is for a liability which is covered by insurance, the 2010 Act may be applicable. Pursuant to this, a third-party claimant can make a recovery claim directly against the defendant’s insurers.
Unlike under its predecessor the 1930 Act,2 in order to establish the insurer’s liability, the third-party is not required to obtain a court judgment or arbitration award against the insolvent defendant. Nor is the third party required to obtain a declaration of liability prior to making its claim against the insurer. Under the 2010 Act, the insurer can be sued (as co-defendant) in the same proceedings issued against the insolvent defendant.
The 2010 Act also permits the third-party claimant to satisfy the policy conditions required of the original insured defendant, for example notifying the claim within the required notification period.
Furthermore, under the 2010 Act, a potential third-party claimant has the right to request information about the insurance contract from the insolvency practitioner, former officers of the company and the insurance broker.
The impact of the pandemic
The 2010 Act came into force on 1 August 2016 and only applies to claims arising after that date. Since coming into force, the comparatively stable economic climate until the pandemic has meant the 2010 Act has been employed sparingly. However, given current conditions and with litigation funding more widely available, it seems likely that increasing numbers of claimants may seek to pursue their claims against insurers and bring the 2010 Act into prominence.