Third Parties (Rights against Insurers) Act 2010 – recent court decisions relating to limitation issues and declarations from the court in respect of coverage

The previous 1930 Act had enabled a third party to bring a claim directly against an insurer where the insured had become insolvent, however a claimant had to (i) restore a dissolved company to the register of companies and obtain the leave of the court to allow proceedings to be commenced; (ii) obtain judgment against the insured; and (iii) commence separate proceedings against the insurer.

The purpose of the 2010 Act is to make it easier for third parties to obtain early information in respect of insurance cover to enable them to decide whether it is in their commercial interests to pursue a claim and to enable that claim to be pursued directly against insurers without first having to establish the insured’s liability to the third party. The third party can request information in relation to insurance from any party that it reasonably believes can provide the relevant information. There is a 28 day time limit for a response and if no response is provided the third party can apply to court for an order for the information to be provided.

In making the request for information the third party must reasonably believe that (i) the insured has incurred a liability to it; (ii) there is insurance that would respond to the claim; and (iii) the insured is insolvent.

There have been relatively few judgments in respect of the applicability of the 2010 Act. A recent  judgment is of relevance to the question of whether a claimant can benefit from an extended limitation period due to the insured’s insolvency. Other judgments of interest are set out below.

Recent 2010 Act Cases

• In Rashid v Direct Savings Ltd [2022] 8 WLUK 108, the court held that the limitation period continues to run in claims against the liability Insurers of an insolvent insured under the 2010 Act. Consequently, a claimant will not benefit from an extended limitation period simply because the insured has entered liquidation. Prior to the decision in Rashid, it had been held in the case of Financial Services Compensation Scheme v Larnell (Insurances) Ltd (in liquidation) [2005] EWCA Civ 1408 that the principle that where a company goes into liquidation there is a pause on limitation, also applied to claims against an insolvent insured’s liability insurers under the 1930 Act. Therefore, Rashid is the first reported decision that the pause on limitation where a company goes into liquidation is not available under the 2010 Act.

• In Guide Dogs for the Blind Association and others v Box and others [2020] EWHC 1948, a claim against insolvent solicitors and their professional indemnity insurers, the judge held that the court did not have jurisdiction under the 1930 Act to make a declaration relating to whether insurers had a right to aggregate claims as the solicitors’ liability had not been established. The judge held that the court had inherent jurisdiction, however, as a determination would be useful to the parties and the conduct of the litigation would be altered by a declaration. The judge made clear that the 2010 Act had introduced a change in the law which allows a third party to bring proceedings for a declaration where the insured’s liability to the third party is not established.

• In BAE Systems Pension Funds Trustees Ltd v Royal & Sun Alliance Insurance plc and others [2017] EWHC 2082 (TCC), an insurer to proceedings under the 2010 Act was joined as co-defendant despite insurers’ argument that section 2 of the 2010, Act which provides that a claimant has a right of action against insurers when the insured is insolvent or in administration, was not engaged as it was entitled to decline cover. The judge held that s 2 of the 2010 Act was engaged even where there was a policy dispute. This decision confirms that third parties do not need to establish the liability of the insurer before commencing proceedings against them. The judge commented that it would be for insurers to decide the extent to which they took part in the proceedings in accordance with their position on policy coverage and it was open to insurers to seek declarations or determinations in relation to coverage.

• In Peel Port Shareholder Finance Company Ltd v Dornach Ltd [2017] EWCH 876 (TCC) the court held that the potential third party claimant was not entitled to pre-action disclosure under CPR 31.16 of a public liability insurance policy of a solvent insured. This reflects the general rule that a court will not order disclosure of a solvent insured’s policy or information in respect of that policy unless this is of relevance to the issues in dispute between the parties. The decision suggests that the statutory exception in the 2010 Act (which provides improved rights to insurance information before proceedings are issued) will not apply even in cases where the claim against the solvent insured is likely to succeed and enforcement of the judgment debt will result in the defendant’s insolvency.

In light of the current economic climate there may be an increasing number of claims against insolvent insureds. Should this be the case there are likely to be further disputes before the courts arising from the 2010 Act and the obligations under the 2010 Act to provide information. Such information will be central to a claimant’s decision as to whether, commercially, to pursue a claim.