The main changes brought about by the 2010 Act are set out below.
One of the aims of the 1930 Act was to ensure that where a person is insured, and incurs an insured liability to a third party and that person becomes subject to an insolvency process, then the proceeds of any insurance policy are not paid to the office holder for distribution among the general body of creditors, rather the insured's rights against the insurer are instead automatically transferred to the third party upon commencement of specified insolvency processes.
However, pursuant to the 1930 Act a third party first had to establish the insured's liability by judgment, settlement or arbitration award. This could cause the third party significant issues, for example if the insured company had been dissolved meaning a costly and time consuming application for restoration would be required, or if the insured was subject to an insolvency process which provided for a moratorium on creditor action, such as in administration. This would leave the third party only with the ability to ask the administrator for permission to commence proceedings (which may not be given) or apply to court for permission (costly and with the risk that permission would be refused).
The significant change is that the 2010 Act removes the need for a third party to first establish the insolvent defendant's liability under their insurance policy through a judgment, settlement or arbitration award before it can proceed against the defendant's insurer. All issues, including the defendant's and the insurer's liability can now be determined within the same set of proceedings, therefore the insured no longer needs to be a party to any proceedings (although the insured will be given notice of any action should it wish to apply to be joined to the proceedings).
The automatic transfer of rights will however not place the third party in a better position than the insured would have been. This means that the insurer can rely on any defence that the insured would have had against the third party had the action been brought against the insured. Furthermore the insurer can rely on any policy defences it would have had against the insured to decline cover, for example if the insured had breached a material term of the insurance policy.
The 2010 Act however enables the third party to fulfil the conditions of the insurance policy in place of the insured so that the insurer will not be able to rely upon the non-performance of the insured as a defence.
The 2010 Act also makes it much easier for a third party claimant to request information about an insurance policy, by permitting the third party to request the information directly from insurers (and any other person who may have the information, such as a broker), whereas previously third parties may be left frustrated in having to deal with insolvency practitioners who may not have the full information available to them to answer the questions, and little desire to ask questions of the insurer on behalf of the third party. Requests for information also have to be answered within 28 days, so long as the party is able to comply with the request without "due difficulty". This change allows third parties to obtain information about the rights transferred and make a much more informed decision about whether to commence, or indeed to continue proceedings in a far more efficient manner.
The 2010 Act is not retrospective. In most circumstances the 2010 Act will only apply if liability has been incurred after it comes into force or if the insured becomes a relevant person after it comes into force. If both events happen before it is in force, the 1930 Act will apply.The 2010 Act is not retrospective, and in most circumstances the 2010 Act will only apply if the insured incurred a liability and entered an insolvency process on or after 1 August 2016, incurred a liability before 1 August 2016 and the insured entered a process on or after 1 August 2016, or incurred a liability on or after 1 August 2016 and the insolvency process started before 1 August 2016.
However if both the existence of liability and the insolvency process happen before the 2010 Act is in force, the 1930 Act will apply.
This is a welcome and long overdue amendment to the law, streamlining claims against insurers where there is an insolvent/dissolved insured.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.