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Third Party (Rights Against Insurers) Act 2010 – why the delay?

03 March 2014
The Third Party (Rights against Insurers) Act 2010 was given Royal Assent in March 2010 but has yet to come into force 4 years later. What is the delay? Given the anticipation with which claimants are awaiting the provisions to come into force, we have provided a recap below on how this Act will differ from its 1930 predecessor (The Third Parties (Rights Against Insurers) Act 1930) and the key provisions of the 2010 Act.

Why the delay?

Firstly, why the delay? After a number of earlier ministerial statements made in connection with the enactment of the Act, in April 2013 the Ministry of Justice published a statement stating that the Government intended to amend the Act to include "(a) a number of specific insolvency situations and (b) a power for the Secretary of State to add further insolvency situations to the 2010 Act by order should the need arise." It was stated that the Government intended to bring the Act into force as soon as reasonably possible after these amendments had been made. Fast forward 8 months to the end of 2013 and still no sign of any amendments to the Act but another statement, this time from Justice Minister Lord McNally speaking in the House of Lords on 11 December 2013. Essentially the position has not changed since April 2013. He said that the Government still intended to introduce legislation to amend the Act as soon as parliamentary times permits and to commence the Act as amended as soon as reasonably possible thereafter. He added that implementation of the Act was initially delayed by work on other priorities, and more recently by the need to amend the Act.

Changes being brought in by the 2010 Act

The purpose of the 1930 Act was to protect third parties with an insurance claim against an insured, from the insolvency of the insured. So if a third party has a claim against an insured party (for example, an employer) but the employer becomes insolvent, the third party can bypass the employer and make a claim directly against the employer's insurer. The rights of the insured against its insurer are transferred to the third party. This prevents the common law position of the insurance proceeds under the insurance policy from forming part of the insured's assets and being distributed to all creditors. Under the 1930 Act the third party can only claim directly against an insurer once two conditions have been met: (1) the happening of one of a series of insolvency events (as set out in the 1930 Act); and (2) the insured's liability must first be established.

The main changes to the legislation under the new 2010 Act are:

  • It will enable a third party with a claim against an insolvent insured, to proceed against the insurer without first establishing the insured's liability.
  • The list of insolvency events and the types of insured parties covered by the legislation are both expanded.
  • The territorial scope of the legislation is made clear: it applies where the insured is subject to insolvency proceedings in the UK and does not depend on whether there is an additional connection with the UK.
  • The third party's rights to information is expanded: the third party can seek information from the insurer about the insured's insurance policy, upon the insolvency of the insured and the liability of the insured does not have to be established first.
  • The insurer is entitled to set off the amount of the insured's liability against the amount of the insurer's own liability to the third party in relation to the transferred rights.

We will continue to monitor the development of the Government's amendments to the 2010 Act and will report here when it comes into force.

 

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