In 2016 the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act) came into force. Both the 2010 Act and the 1930 Act of the same name allow claimants to pursue insurers directly for insured losses in the event of the insolvency of the policy holder. The procedures set out in both are, however, distinct. The recent High Court decision of Redman v Zurich Insurance plc and another  EWHC 1919 (QB) considered the interplay between the two pieces of legislation.
Prior to 1930, there was no recourse for a claimant to recover its losses from an insolvent defendant's insurers. This changed in favour of claimants with the implementation of the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act), which transferred the rights of an insolvent defendant insured under a policy of insurance to the claimant.
The way that the 1930 Act operates is that, following the insolvency of an insured defendant, the claimant is able to pursue the insurer directly, as if the insurer were the defendant, for an indemnity under the policy. However, before such a claim could be brought, the claimant must have first established liability as against the insolvent defendant by obtaining judgment or otherwise.
This created practical difficulties; at the point that the claim against the defendant was brought, the claimant would not necessarily know whether the defendant had any insurance cover, and would therefore not know whether it was worth bringing the claim until after liability had been established. If, after establishing liability, the claimant discovered that the defendant did not have any, or any sufficient, insurance, the claimant was left with no means of recovering damages or costs, including the additional costs incurred in establishing liability against the insolvent defendant.
The 2010 Act, which came into force on 1 August 2016, removed some of these practical difficulties; under the 2010 Act, the claimant still has the option of adopting the 1930 Act route of establishing liability and then bringing a claim against the insurer.
However, the claimant now has the alternative option of joining the insurer into the claim against an insolvent defendant insured, with the result that, if liability is established, the insurer is bound by that decision to indemnify the insured's liability. Whilst the liability of the insurer to provide an indemnity is subject to the usual policy terms and conditions (including the insured's deductible and any applicable exclusions), this mechanism prevents any monies paid out by insurers from becoming an asset in the insolvent estate. This process also removes the need for multiple sets of proceedings by allowing the claimant to issue proceedings directly against the insurer and to resolve all issues (including the insolvent defendant's liability) within those proceedings.
Mr Redman, the Claimant's husband, worked for ESJS1 ("the Employer") from 1952 to 1982. In November 2013, Mr Redman died from lung cancer which was alleged to have been caused by exposure to asbestos during the course of his employment. On 30 January 2014, the Employer commenced voluntary winding up and was dissolved on 30 June 2016.
The Claimant brought proceedings against the Employer's liability insurers Zurich Insurance Plc (Zurich) under the 2010 Act. Zurich applied to strike out the claim and/or for summary judgment, arguing that the 2010 Act did not apply because the Employer had not incurred a liability to the Claimant prior to the 2010 Act coming into force. Zurich argued that the Claimant must first establish liability against the Employer, as required under the 1930 Act, before she could pursue insurers.
The question before the Court was therefore whether the 1930 Act or the 2010 Act applied.
Under the 2010 Act, the 1930 Act continues to apply if, before 1 August 2016:
- The Insured incurred a liability for which it is insured
- The Insured has become a 'relevant person' ie has entered into formal insolvency procedures.
The Claimant initially argued that the Employer had not incurred a liability against which it was insured prior to 1 August 2016. However, this argument was conceded in skeletons submitted to the court - in Mr Justice Turner's opinion, rightly so. Put succinctly by Turner J:
"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."
Liability arises at the date of the 'accident' when negligence and damage collide.
The Claimant's alternative line of attack was that the proper interpretation of the transitional provisions of the 2010 Act did not prevent the 2010 Act from restrospectively applying to all claims which had previously fallen within the 1930 Act regime. Turner J dismissed this argument on the grounds that:
- There would be no need for 'transitional provisions' if the 2010 Act applied retrospectively
- It would have been a simple drafting exercise to achieve retrospective application, if that is what Parliament had intended
- If the provisions of the 2010 Act were to apply retrospectively, but in parallel to the 1930 Act, it would be expected that there would be some merit in claimants choosing between the two regimes. However, the Claimant could not identify any circumstances in which the 1930 Act would be a more favourable route.
The Court therefore held that the application to strike out the claim must succeed because there were no reasonable grounds for bringing the claim against Zurich.
Although the provisions of the 2010 Act, and the circumstances in which that regime will apply, appear to be relatively clear, this judgment will provide welcome clarification to insurers, as it should help to reduce the number of '1930 Act' claims being incorrectly brought directly against insurers.
Although the 2010 Act is expected to result in a rise in the number of claims being brought against insurers, the 2010 Act is not all bad news for insurers. In particular, as a result of the Act:
- Insurers may fight liability arguments without fear of waiving repudiation of the policy
- There is increased certainty over claims actually being brought (as opposed to the possibility of a third party claim hanging over insurers for a number of years whilst the claimant seeks to establish liability). This should allow insurers to hold reserves against 'old' files for a shorter period
- The fact that claimants can obtain information regarding the insurance policy (including the limit of indemnity and whether the insurer has exercised its rights to avoid cover) may deter a claimant from exercising its third party rights in certain circumstances.