Do you have a claim against a company that has gone bust? How the Insurance Act 2015 might help you
We often act for clients who have claims against companies which are then handled by the companies’ insurers. When a company has taken out liability insurance, if that company becomes liable to another person (a “third party”) then the third party would be able to sue the insured and the insured’s liability would be covered by the insurer. An example of this would be when suing an architect’s firm for professional negligence, or a construction dispute where one party to a development contract has not carried out their professional obligations under a contract. Usually, there is insurance in place to cover the potential liability.
But what happens if the insured becomes insolvent, or is wound up?
The current rules which govern what happens if an insured becomes insolvent are contained in the Third Party (Rights Against Insurers) Act 1930.
Although the purpose of the 1930 Act was to protect third parties against the insured’s insolvency, in practice it has proved difficult for the third party to benefit from the legislation. Many third parties find themselves having to issue two sets of Court proceedings: the first against the insured (which may involve applying to restore a dissolved company to the Register of Companies) in order to establish liability; and the second against the insurer itself if liability has been established. This can be an extremely costly and time-consuming exercise.
Additionally, although the 1930 Act provides a right for the third party to obtain information about the insured’s insurance policy, that right does not arise until liability has been established against the insured. That means that a party might be put to the cost of issuing proceedings to establish liability against the insured, only to find those costs entirely wasted if the insured’s insurance policy does not cover the liability.
The 2010/2015 Acts
On 12 February 2015 the Insurance Act 2015 received Royal Assent, and it will come into force in August 2016. Perhaps most importantly, the Act makes amendments to the Third Parties (Rights Against Insurers) Act 2010, which has yet to come into force.
The 2010/2015 Acts propose to remove the challenge to third party claims by allowing third parties to bring claims against insurers direct without first having to bring proceedings against the insured to establish liability. Insurers (and brokers) will also be obliged to provide third parties with information about the insurance policy, and third parties will be able to take the place of the insured, effectively, and fulfil the conditions of the policy themselves (such as notifying a claim).
How will the changes affect you?
Clearly, the introduction of the 2010/2015 Acts will benefit third parties who have claims against insured persons or companies: they can sue the insurer direct, and can obtain information about the insured’s policy at an early stage, which means they can then take an informed view as to whether to proceed with their claim. This is in stark contrast to the current regime of having to issue proceedings against the insured to establish liability before being permitted to obtain relevant information about the policy. This can only help reduce third parties’ costs of legitimate claims, and encourage settlement negotiations to take place at an earlier stage of the process,
Frustrating though it is that it will have taken such a long time for the 2010 Act to come into force, with the introduction of the 2015 Insurance Act, it does indeed appear that there is light at the end of the tunnel for third party claimants.
If you have a claim against an insolvent insured, and are interested in knowing more about this process, please contact Chris Corney at Carter Lemon Camerons solicitors on 0207 406 1000 or at firstname.lastname@example.org.