The Third Parties (Rights Against Insurers) Act 2010 ("the Act") has received Royal Assent. The Act makes changes to the Third Parties (Rights Against Insurers) Act 1930 ("the 1930 Act"). A commencement date has yet to be fixed. In this article we summarise the 1930 Act and the changes made to it. The changes are designed for the most part to make it easier for a third party to claim directly against the liability insurers of an insolvent insured.
The 1930 Act
The 1930 Act applies where a person or company (the insured) has taken out liability insurance and becomes insolvent. The 1930 Act transfers the insolvent insured’s rights under the insurance policy to a third party claimant and enables the third party to proceed directly against the insurer.
To recover under the insurance (or even to obtain information about the existence and terms of a policy) the third party has to establish the existence and amount of the insured's liability before being allowed to issue proceedings against the insurers. This invariably involves the time and cost of legal proceedings,
In addition, the insurers can rely on any defences to a claim for indemnity under the policy that they would have had against the insured. For example, if the insured had failed to disclose a material fact prior to inception of the policy then the insurers could seek to avoid the policy to escape liability for paying the third party.
The key changes made by the Act