New Bill Goes Further to Protect Third Party Claims if Insured Becomes Insolvent


Parliament has published the Third Party (Rights Against Insurers) Bill. This will simplify the process for third party claims in the event that the insured becomes insolvent. Currently, this area of the law is governed by a piece of legislation dating back to 1930. In 2001, the Law Commission made recommendations in relation to this area and the new Bill broadly adopts these. 
Under the existing law, claimants who have established liability can claim directly from the insurer in order to recover sums under the insurance policy of the insolvent party. The claimant’s rights transfer automatically once the insolvent event occurs, which may be bankruptcy, the appointment of a receiver or manager or winding up. However, problems occur if the defendant is a company that has been dissolved, as the claimant will need to apply to have the company restored to the register of companies in order to issue proceedings. Further, where liability has not yet been fully established, the claimant will usually have to resort to litigation against the insured and rely on the strength of the judgment to pursue further proceedings against the insurer.
These issues are addressed in the new Bill, which aims to eliminate the need to pursue multiple parties via the courts and encourages swift disclosure of the insurance cover so it can be determined whether or not litigation is a viable option. The new procedure will enable the third party to commence proceedings against the insurer when the insolvency event occurs, and there is provision to join the insured as a defendant to the action. It would then be up to the court to determine any liability issues.

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