The High Court’s decision in Redman v Zurich Insurance PLC provides the first judicial indication as to the when the new Third Parties (Rights against Insurers) Act 2010 will apply. The decision demonstrates that (for the purposes of establishing whether the Third Parties (Rights against Insurers) Act 1930 continues to apply) liability is “incurred” when the damage is caused, not when liability is established by judgment or otherwise. So, the 1930 Act applies where both the insolvency event and the damage giving rise to the liability occurred before 1 August 2016. The Judge also found that the provisions in the 2010 Act do not apply retrospectively or run parallel with the 1930 Act.
The 1930 Act was introduced to make it easier for third parties to step into the shoes of insolvent insureds in order to bring claims against insurers. The 2010 Act came into force on 1 August 2016 and replaced the provisions of the 1930 Act except in situations where both the insured became insolvent and the liability was “incurred” before 1 August 2016.
For further information on both Acts, please see our previous Law- Now.
The claimant, the widow of a former employee of the insured, brought proceedings against the insured’s liability insurers under the 2010 Act. She alleged that her husband was exposed to asbestos during his employment which led to his death from lung cancer on 5 November 2013. The insured was wound up on 30 January 2014 and subsequently dissolved on 30 June 2016.
The insurers applied for the claim to be struck out on the basis that the 2010 Act did not apply because the insured had become insolvent and incurred the alleged liability before 1 August 2016. The insurer’s application was granted by the court.
The Court approved the claimant’s abandonment of the argument that the insured had not incurred a liability for which it had insurance before 1 August 2016. Mr Justice Turner found that it is well established that liability is “incurred” “when the cause of action is complete and not when the claimant’s rights against the wrongdoer are thereafter crystallised whether by judgment or otherwise”.
The claimant’s substitute argument, that the 2010 Act could operate retrospectively and run in parallel with the 1930 provisions, was also dismissed as being “wholly inconsistent” with the wording of Section 1 and Schedule 3 of the 2010 Act. Additionally, the Judge commented that if the Acts were to work in parallel then there should be beneficial reasons why claimants have a choice and would elect to apply the 1930 Act over the 2010 Act. The claimant was unable to provide any.
The decision offers some important clarification on the transitional provisions of the 2010 Act, confirming that the liability is incurred when damage is caused and not when the claimant establishes the right to compensation, such as through judgment. Furthermore, claimants will not have a choice of whether to pursue insurers using either the 1930 Act or 2010 Act and must properly determine which Act will apply.
After the enactment of the 2010 Act, insurers and brokers were advised that they should expect an increase in claims and information requests under the Act. In reality, this decision means there will be a large number of situations where the 1930 Act will continue to apply, which means a third party will need to establish liability of the insured by judgment (or settlement) before it is able to pursue insurers.
Further reading: Redman v Zurich Insurance PLC  EWHC 1919 (QB)