The long-awaited enactment of the Third Parties (Rights against Insurers) Act 2010 recently came into force. For those of us in the commercial sector, particularly construction, we should all be relieved by the enactment as it was designed to deal with the shortcomings of its predecessor, the 1930 Act.
Despite the fact that we are emerging from a recession, there are still a notable number of insolvencies across the construction sector at all levels. The 2010 Act is intended to streamline the procedure for claiming directly against a liability insurer of an insolvent or dissolved company, (the Company) who has caused loss to a third party to increase the prospect of recovery in one of the following ways:-
- by allowing that third party to issue proceedings directly against the insurer without having to first establish the liability of the Company. This will help reduce legal costs which are often disproportionate in this type of litigation, as it removes the need to apply for permission to pursue the Company or to restore the Company to the Register of Companies. However, it is not all plain sailing as third parties still must ultimately establish the Company’s liability.
- you will also be pleased to hear that the number of defences insurers can raise against a third party claim are also being diminished moving forward under the 2010 Act. So what does this mean for the third party? Well, any condition in the insurance contract will be deemed fulfilled if the third party and the Company do what it requires. Therefore, the third party will be able to give notice of the claim to the insurer and the insurer will not be able to argue that the requirement has not been fulfilled just because the notice was not given by the Company. Additionally, any condition in the insurance contract that requires the Company to provide continuing information to the insurer once the claim has been notified, will not apply against a third party in cases where the Company has been dissolved.
- most, but not all, policies that incorporate a ‘pay first clause’ in the insurance contract will not apply to the third party. This is good news as the insurer will not be entitled to ask the Company to pay the third party before the third party can seek an indemnity from the insurer.
There are also much-improved rights to the third party to secure greater access to information about the Company’s insurance arrangements which is a bonus on the basis that it will help the third party evaluate the commercial merits of suing the insurer or not.
With litigation costs continually being scrutinised by the Court and constantly under review by the Civil Justice Council, the enactment of the 2010 Act is indeed good news – unless you are an Insurer!