The Third Parties (Rights against Insurers) Act 2010 came into force in the UK on 1 August 2016 and sets out detailed legal provisions.
Key Points
- Insolvency: an insolvent company's assets are, in general, shared among all its creditors – this usually means that individual creditors will only receive a fraction of what they are owed.
- Previous Law: The Third Parties (Rights against Insurers) Act 1930 created an exception to this general position; however the Act was outdated, did not work well and the process was expensive and time consuming.
- New Law: Replacement law in the form of the Third Parties (Rights against Insurers) Act 2010 was passed in 2010 and is legally in force as from 1 August 2016.
- Third party rights against insurers: where an insolvent party ("IP") has incurred a liability to a third party ("TP"), and the IP has insurance to cover that liability, then under the 2010 Act the IP's rights against its insurers are transferred to and vest in the TP. The TP can then pursue the insurer direct (whether or not a liability has been established) and may make a recovery from the insurers (provided a liability is established). Any insurance proceeds recovered in this way can be retained in whole by the TP – they will not form part of the IP's estate.
- 2010 Act: Under the 2010 Act the TP will (a) have rights to request information about the insurances; helping it to assess the prospects of pursuing the insurer, (b) have the same rights against the insurer as the IP would have had, (c) be able to proceed against the insurer without adding the IP to the proceedings, (d) be subject to any right of set-off the insurer would have had against the IP or any defences which the IP would have had against the TP, (e) have the right to fulfil conditions of the insurance policy as if it was the IP. The 2010 Act does not apply where both the IP incurs a liability to a TP and its insolvency proceedings commenced before 1 August 2016.
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Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
