The Third Part (Rights Against Insurers) Act 2010 came into force on 1 August 2016 and is a mechanism allowing a Claimant to make a claim against a pre-existing insurer of an insolvent company.
The purpose of the new Act is to effectively re-assign an insolvent company’s insurance rights to a Claimant.
The new Act is a new piece of legislation which overrides some aspects of the former Third Party (Rights Against Insurers) Act 1930.
Fundamentally, the new Act absolves the need for a Claimant to restore an insolvent company to the register in order for it to initiate a claim against the insolvent company’s insurer.
Understandably this is more advantageous for a Claimant as it simplifies the process of obtaining an indemnity for financial loss and most importantly makes the process less expensive.
There are in addition further benefits for a Claimant under the new Act. One of these benefits is the enhanced disclosure requirements which can be made to parties other than the insolvent company, which means that the Claimant can obligate provision of (otherwise confidential) policy documentation at an early stage so that it can be in a better position to identify whether it has a right of action against the insolvent party’s former insurer. This is because in most cases where an insurer and company are involved, coverage issues may arise.
Such disclosure requests can be made against any party which is likely to know of information or hold information regarding insurance policies of the insolvent company, such as an insurance broker or intermediary.
The Act also allows the Claimant to ‘step into the shoes’ of the insolvent company and provide notification of the claim to the insurer, rather than guessing whether the insolvent company provided notification of a claim to their insurer itself whilst trading.
The Act makes the determination of coverage issues easier for the Claimant from the outset. The Court determined in BAE Systems Pension Funds Trustees Ltd v RSA 2017 that a potential coverage dispute will not prevent a Claimant adding an insurer into proceedings as a Claimant is only required to claim it has rights under a contract of insurance, rather than having to establish those rights before applying to bring the insurer into proceedings. It is instead up to the insurer to either seek to strike out the Claimant’s claim or apply for the matter of cover to be determined as a preliminary issue.
If however the insurer is successful in arguing they were not on cover at the time the debt or negligence accrued and therefore the claim should be struck out, the Claimant may be liable of the insurer’s costs of the application and therefore appropriate legal advice and disclosure should be sought prior.
In addition, the new Act allows a Claimant to seek a declaration from the Court of the insolvent company’s liability to the Claimant, and the insurer’s potential liability to the claim, before issuing proceedings/applying to bring the insurer into the proceedings.
In summary there are many advantages to the new Act which is much welcomed by Claimants owed a debt/who have suffered a loss due to the insolvent company. One of the only disadvantages known of the new Act thus far is that it is relatively new, and therefore it is difficult to determine how successful or enforceable the new aspects of the Act will be in practice. This will develop over time with the help of intervention from the Court.
Due to the complexities of the Act and company law in general, we recommend you seek legal advice on any potential claim before taking steps against an insolvent company yourself.
Call us on 020 7251 9900 to discuss ways to recover a debt or make a claim against an insolvent company.