#4933 - Third Parties And Consumer Regulation - Insurance Law

Third Party Rights

1930 and 1999 Acts – most important thing is that anyone with a third party claim against an insured having liability insurance for that claim can potentially assert rights under the 1930 Act if the insured goes insolvent.

Risk Declarations

Contracts of insurance are contracts where 3^rd parties may often have a right to claim the benefit of the contract that has been agreed between the UWs on one side and the insured policy holder.

1. Contracts (Rights of Third Parties) Act 1999: Assists a 3^rd party in claiming protection under an insurance when the policy holder insures a group of people with rights to sue. Where a policy provides that some 3^rd party may expressly benefit, then that 3^rd party can take advantage of the rights the contract provides to it, even though it was not a contracting party to the contract. S.1 applies to equally to insurance contracts.

= The policy seems to give third parties the benefit of the contract and there was an intention when the contract was placed that third parties should have that benefit.

The extent of the act is unlimited in practice so it is frequently excluded by insurers. This does not affect the ability of someone to claim under agency principles – normal to claim under agency...although there is an odd circumstance when you cannot claim under agency but you can claim under the act; i.e. insolvency.

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These acts provide for a statutory transfer of the insurance claim from the insured to the 3^rd party claimant. So the 3^rd party claimant acquires the rights under the insurance contract, subject to the Ts&Cs of the insurance contract.

2. Third Parties (Rights Against Insurers) Act 1930: In force. You have a statutory trust which is created in favour of the 3^rd party who wants to sue the insured, when the insured becomes insolvent.

Then the beneficiary of the statutory assignment (injured third party – means any third party who has a claim in contract or in tort as against the insured – maybe the beneficiary) take rights to assign subject to the same rights and obs that the original insured had over the policy. If the original insured had failed to do something, as a result of which the insurance became invalid, it would be invalid also for the third party.

Occurs when you are claiming against an insured for breach of liability and they go bust. You have a statutory transfer of the contractual right from the party causing the damage, to the party suffering.

*Under 1930 Act a third party cannot step into the shoes of a bankrupt insured and must rely on his complying with the insurance policy obs, whereas under the 2010 Act the third party can step into the bankrupt’s shoes and perform his obs. The 1930 Act is in force and provides for the statutory transfer of the right to indemnity as from the ascertainment of the liability against an insured in liquidation (i.e. on insolvency following determination and ascertainment of the insured’s liability to the third party claimant (s.1(1)(b) 1930 Act). 2010 Act not expected to be in force until 2014.

The 1930 Act does not prohibit a clause that requires the insured to pay third party liabilities as pre-condition/CP to UWs having indemnity, whilst the 2010 Act prohibits such a clause (s.9(6)), aside from in marine insurance for liabilities other than in respect of death or personal injury. However, in both the 2010 and 1930 Act prohibits clauses that relieve the UWs of liability simply because the insured has become insolvent.

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3. Third Parties (Rights Against Insurers) Act 2010: Not in force.

Two reasons for passing:

Issue 1: Under 2010 Act a 3^rd party can, as against the insurer, prove in an action against the insurer that the insured was liable. However, under 1930 Act the third party would have to prove the liability of the insured before commencing proceedings against insurer as, under 1930 Act, the statutory transfer of the policy indemnity only takes effect after liability of the bankrupt has been established by an action.

Solution: Allows the 3^rd party to perform the ob of the insured - Correct the difficulty that is created for the 3^rd party beneficiary under the 1930 Act and to enable that 3^rd party to perform any requirements under the policy himself/herself in their own name. Even though they are not identified in the policy, any obs that the insured had can be satisfactorily performed by the beneficiary – S.9(2).

Issue 2: 1930 Act had problems where an insured was liable but was a corporation and since struck off the register, as it obliged the beneficiary to effectively put that co back on the register so it could get a judgment against it. Not entitled to prove the insured’s liability to it in an action against insurer.

Solution: Corrected by 2010 Act – S.1: Says where a condition cannot be complied with because a co/individual is insolvent, the compliance will be suspended until such time as the 3^rd party can comply with it.

Issue 3: The 1930 Act has the effect that the third party claimant would have to prove that any terms and conditions that should have been complied with by the insured after the date of the loss, are or have been complied with by the insured. Can be a considerable problem where the insured has become insolvent because it is not about to take any action which will benefit the third party claimant.

Solution: The 2010 Act in contrast says that in the event that a policy provides for such actions to be taken / claims to be notified within a particular period / info to be provided, then the third party claimant itself can perform those actions and that will be considered to be a good discharge of the insured’s obligation under the insurance policy.

= Any conditions stating that the insurers will not have liability in the event that the insured becomes insolvent, obviously these type of clauses don’t take effect under either of the Acts. But nevertheless you do have the requirement that, if the insurance policy requires the insured to pay the claim before they are entitled to indemnity, then even if the rights under the insurance contract are subject to statutory assignment/transfer to the third party claimant; the third party claimant can be faced with that same condition. They are only entitled to indemnity after they have paid their own claim. Absurd! But that position was upheld for marine insurance – it will stay the same for marine under the 2010 Act in s.9(6) – such a condition will be effective for marine insurance; but won’t be the same for non-marine insurance (says...