The High Court has recently held that a former employee of a construction company, which was in liquidation, had no reasonable cause of action against the company’s insurer. This was despite the fact that he had obtained judgment for negligence against the employer and the insurance policy covered the employer for such a claim in negligence.
In this case, a carpenter injured his thumb whilst working for the construction company. The company had a policy of insurance which covered, amongst other things, a claim arising from the negligence of the company. The company notified the insurer of the claim in 2009 but after the company went into liquidation the insurer advised the liquidator of the company that unless an excess payment of €1,000 was made in accordance with the terms of the policy the insurer would decline cover under the policy. No payment was made by the liquidator and the insurer, in accordance with the terms of the policy, declined cover in March 2010.
The carpenter obtained a judgment against the company but was unaware of this exchange between the company and the insurer or that cover was declined until he was informed of this by the insurer in March 2010. At that point, he added the insurer to the proceedings and the insurer immediately sought to have his claim against it struck out.
The insurer argued that the carpenter was not a party to the insurance contract and therefore had no right to sue the insurer under the insurance policy. The carpenter sought to rely on legislation protecting payments due under insurance policies where the insured party (the company in this case) went into liquidation. However, the Court held that the legislation was limited to ring-fencing monies payable by an insurance company to an insolvent company.
The Court expressed sympathy for the carpenter but held that as the company had failed to comply with the conditions of the policy (by not paying the €1,000 excess due under the policy) no monies were payable under the policy. Accordingly, the legislation was of no benefit to the carpenter and as he was not a party to the insurance contract, he could not maintain a claim against the Insurer.
This decision reflects a fundamental requirement of contract law known as “privity of contract” which restricts non-parties from enforcing the terms of a contract, even where that third party would benefit from the terms of that contract.
Although certain limited exceptions exist in Irish law (e.g. road traffic claims) the area has been the subject of calls for reform by the Law Reform Commission in the past.