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Changes to third parties' rights against insurers

Earlier Law

Between 1930 and 2016, anyone looking to make a claim against a dissolved company's insurers needed to restore the company to the Companies Register first before being able to pursue the insurers under the Third Parties (Rights against Insurers) Act 1930.

The process for restoring dissolved companies to the Companies Register was (and remains) lengthy and expensive. It involves preparing a claim form and supporting witness evidence; paying the Court issue fee; negotiating undertakings with the solicitors acting for the Registrar of Companies; paying their fees; and making arrangements for the payment of any statutory penalties for the late filing of the dissolved company's accounts.

The implementation of the Third Parties (Rights against Insurers) Act 2010 (the "2010 Act") in 2016 made the process simpler and cheaper for claimants. The 2010 Act allows a claimant to bring proceedings against the insurer directly for (1) a declaration as to the insured company's liability to the claimant and (2) a declaration as to the insurer's potential liability to the claimant. That is to say, a claimant is able to recover damages directly from the third party's insurer without first restoring the dissolved insured company to the Companies Register.

For defendant insurers, though, the 2010 Act had some unintended consequences.

Claims for contribution

Before the implementation of the 2010 Act, when a dissolved insured company was restored to the Companies Register, the insurer (having agreed to indemnify the insured company) was able to 'step into the shoes' of the insured company and pursue other responsible parties under the rules of subrogation. However, if a direct claim was brought against insurers under the 2010 Act and the insured company had not been restored, then it did not exist in law so its insurers could not bring claims in its name.

In an injury case, where two or more defendants are responsible for causing injuries to a claimant, the insurer of one of the defendants (acting through its insured) could agree settlement terms with the claimant, and then recover a share of the damages from the other defendant(s). This is typically done under the Civil Liability (Contribution) Act 1978 (the "1978 Act"). However, the 1978 Act only allows a party to recover a contribution from another liable party if it is in respect of the 'same damage'. This can cause issues in a disease claim where it can be argued that depending on the aetiology of the disease in question successive exposures have caused separate rather than the same damage. Also, in circumstances where the dissolved company is liable to the claimant for the injuries caused, and the insurer is liable to the dissolved company for an indemnity for the damages paid to the claimant, an insurer would arguably not be able to rely on the 1978 Act because the claim is not in respect of the 'same damage'.

Time limits for restoring companies

Section 1030 of the Companies Act 2006 imposes time limits on when an application to restore a company can be made. Where a claimant has suffered personal injury, there are no time restrictions on the claimant applying to restore the company. However, for an insurer, the law (until recently) was that an application to restore the company was to be made within six years of the company becoming dissolved. In some injury cases, for example where personal injury has been caused as a result of exposure to asbestos, the defendant company has often been dissolved for many years before the claim is brought. Even though the insurers may be liable to pay out for the whole of the injury claim (for example under the Compensation Act 2006 in relation to a claim for mesothelioma), they were often out-of-time to bring an application to restore the insured company in order to be able to seek contributions from other liable parties.

In summary, following the 2010 Act coming into force, insurers were in certain situations left in a position where they were paying out on claims and had no means by which to recover contributions from other responsible parties.

New law

The Third Parties (Rights against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018/1162 (the "2018 Regulations") came into force on 23 November 2018. The 2018 Regulations allow insurers (not just claimants) in personal injury cases to bring an application to restore a dissolved insured company at any time (i.e. the six-year time limit for insurers has been removed). The intended impact of the amendment therefore is that all insurers will be put in the same position that they would have been in had an indirect claim (i.e. via their reinstated insureds) been brought against them.

Comment

The 2018 Regulations give insurers the means by which to recover contributions towards personal injury settlements in cases where previously they would have been left out-of-pocket. Their significance in disease cases where insurers had considered the greater problem lay will be looked at in more detail by our disease team in a later article.

However, some issues for insurers remain, including:

  1. The 2018 Regulations are only intended to impact cases involving personal injury but there are other types of cases where the six-year time limit will still cause difficulties for insurers (for example claims in respect of latent damage to property). Therefore, there will still be many claims where insurers could be time-barred from applying to restore dissolved insured companies in order to take advantage of their rights of subrogation. One solution to this issue might be to allow insurers to pursue jointly liable parties without first having to restore the dissolved company, i.e. mimicking the rights that claimants enjoy under the 2010 Act, though such a change in legislation would obviously require an industry-wide impact assessment and consultation. 

  2. The Registrar of Companies typically requests that the party seeking to restore the dissolved company provide formal undertakings to, for example, issue proceedings within a certain period and provide regular updates on the progress of the litigation. Prior to the 2010 Act, it would have fallen to the claimant's solicitors to jump through the various legal and administrative hoops involved in restoring a company to the Companies Register, including potentially negotiating and providing such undertakings, usually with the defendant insurer simply picking up the costs at the conclusion of the case. The 2010 Act, however, transposes this burden on any defendant insurer who wishes to pursue a contribution claim, notwithstanding that the 2018 Regulations go some way to putting insurers in the same position as they were in for indirect claims (at least in respect of injury matters). Insurers' improved position through the 2018 Regulations will only come at the cost of them needing to successfully negotiate these processes.

Contact

Please contact Sean Monks on 0207 220 5231 or Neil Irving on 0161 603 5117 if you would like to know more.

Sean Monks specialises in insurance disputes and is an Associate in the Commercial Insurance team in London. Neil Irving is a Director in the Commercial Insurance team in Manchester.

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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