Third Parties (Rights against Insurers) - which Act to follow?

10 August 2017

We recently reported on the first judgment handed down in relation to the Third Parties (Rights against Insurers) Act 2010 (the TP Act 2010). Hot on the heels of that decision another judgment has been delivered, this one providing guidance on the transitional provisions of the Act.

In the case of Redman v Zurich Insurance plc and another the High Court was asked to decide whether the claimant was entitled to rely on the TP Act 2010, and avoid the stringent requirements of the Third Parties (Rights against Insurers) Act 1930 (TP Act 1930) as a result.

The TP Act 2010 came into force on 1 August 2016 and applies to all relevant cases from that date. The TP Act 1930 will continue to apply to all cases where, before 1 August 2016:

  • the insured has incurred a liability to the third party; and
  • the insured has become insolvent.

The TP Act 1930 was (and still is) deficient in many ways and the TP Act 2010 was brought into force to deal with those deficiencies. The key shortcomings addressed by the TP Act 2010 include:

  • removing the requirement to establish the insolvent company's liability before a claim can be made against the insurer; and, as a result
  • removing the need to have the insolvent company restored to the register of companies in order to establish its liability.

Our previous articles, A brave new world now on the horizon? Third Parties (Rights against Insurers) Act 2010 and Will the wait be worth it? The Third Parties (Rights against Insurers) Act 2010 provide more detail on the background to the TP Act 2010 and its perceived benefits.

Background to the decision

The proceedings involved a claim by a widow of a former employee of the insured company and the second defendant (the Company). The claimant alleged that her husband had died as a result of exposure to asbestos during his employment with the Company. He died on 5 November 2013, the Company was subject to a voluntary winding up on 30 January 2014 and it was dissolved on 30 January 2016.

The claimant accepted that the insured was insolvent before 1 August 2016; however she argued that the insured had not incurred a liability to her before that date. The first defendant insurer applied to strike out the claim, arguing that the TP Act 2010 did not apply.

The claimant subsequently conceded her liability argument. It was accepted by all that liability is incurred when the cause of action is complete and not when the claimant's rights against the wrongdoer were crystallised - by judgment or otherwise. In this case the liability clearly arose before 1 August 2016.

The claimant instead argued that the proper interpretation of the transitional provisions in the TP Act 2010 allowed the retrospective and parallel operation of the 2010 Act to all claims - including those where the TP Act 1930 applies.

The decision

The defendant's application was allowed. The court held that;

  1. the purpose of transitional provisions is to identify the respective scope of application of earlier and later legislation. If there was no transition period there would be no need for transitional provisions;
  2. if parliament had intended the 2010 regime retrospectively to apply to all third party claims against insurers, that could have been done by straightforward drafting;
  3. if the 2010 and 1930 Acts were to apply retrospectively and in parallel there should be some merit in allowing the claimant a choice between the two - it was difficult to see (and the claimant could not provide an example of) a benefit arising from the TP Act 1930.

Even though the parties had agreed the point, so as to avoid the need for further litigation on the same issue, the court concluded that a liability under the TP Act 2010 occurs when the cause of action is complete and not when the claimant has established the right to compensation, whether by judgement or otherwise.

Furthermore the transitional provisions do not provide for the 2010 regime to be applied retrospectively so as to run parallel with the 1930 regime. The TP Act 1930 will either apply or it will not - where it does the TP Act 2010 will have no application.

Which Act to follow?

This case makes it clear that any person wishing to rely on third party rights against insurers will not have a choice as to the Act under which to bring a claim. If the cause of action occurs before 1 August 2016, and the defendant entity has become insolvent by that date, any claim must be brought under the TP Act 1930. The TP Act 2010, with its less stringent requirements, will only apply to claims where the cause of action accrues (and liability is triggered) after 1 August 2016.

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