New Act to assist litigation against insolvent defendants

Written on 22 Sep 2016

Greater assistance for parties with potential and existing claims against insolvent companies and individuals in the UK is now available as the Third Parties (Rights Against Insurers Act) 2010 came into force on 1 August 2016.

Following a long delay in implementation and some further amendments after the Act was initially given royal assent in 2010, a number of additional strategic opportunities for recoveries against an insolvent party in the UK have become available. The Act will be of interest to potential claimants against an insolvent party who has or may have had policies of insurance that cover the liabilities to which the claims relate. The main changes under the Act are as follows:

  • The Act allows a third party / potential claimant to litigate its substantive cause of action alongside an action for an order that the insurer pay any damages awarded. This is a change from the previous position, whereby the third party / potential claimant needed to establish the (insolvent) insured’s liability to it first (by judgment, arbitration award or agreement) before making a claim against the insurer of the insolvent defendant.
  • A potential claimant can use the Act to obtain information from an insurer or others about: (1) the identity of the insurer; (2) the terms of the insurance; (3) whether there are (or have been) additional proceedings issued; and (4) whether there is an aggregate limit of indemnity (and if so, how much) and whether there are any fixed charges which would apply to any sums paid out.
  • The range of defences that insurers can bring against claims relating to insolvent policyholders’ liabilities has been significantly reduced.
The new Act is intended to make claims against insurers of insolvent defendants more straightforward and allow claimants to make more informed litigation decisions at the outset, by enabling them to obtain more information about the insurance cover.