Implications of the Third Parties (Rights Against Insurers) Act 2010
- AuthorKate Sweeney
The New Act
On 25th March 2010 the new Third Parties (Rights Against Insurers) Act 2010 received Royal Assent, replacing the 1930 Act by the same name which is acknowledged to be out of date compared with modern business practice.
The new 2010 Act simplifies the claims procedure for a third party claimant to make a claim against an insurer as a result of the actions of an insolvent insured. The key changes introduced by the new Act are:
Rights of Action
The new Act no longer requires a third party claimant to establish liability against an insolvent insured before bringing proceedings against the insurer. Instead, a third party claimant can commence proceedings directly against the insurer, although the third party is still required to establish liability against the insured. The effect is to negate the need to restore a defunct insured company for the purpose of making a claim against their insurance policy which covers the liabilities.
Rights to Information
The new Act gives third party claimant’s new rights to obtain certain information relating to the insolvent insured’s insurance e.g. whether there is a contract of insurance which covers the liability, the terms of that insurance, and whether there are or have been proceedings between the insurer and the insolvent insured in respect of that liability.
The person who receives the request for information must provide the same within 28 days of receipt of the request.
Restriction in Insurer’s defences
The 2010 Act restricts the defences available to the insurer with a view to preventing insurers from defeating a third party claim on a technical defence available under the policy of insurance. For example, an insurer is no longer able to rely on the defence of the insolvent insured’s failure to notify the insurer of a claim, provided the third party claimant complies with the prescribed condition.
What are the Implications?
The result of these changes is likely to be more straightforward, cheaper litigation. It therefore follows that a less burdensome path is going to be a more popular one, meaning an increase in claims being made against insurers. Furthermore, the restriction of the insurer’s reliance on a technical defence to get out of a claim increases the likelihood of successful claims.
A further consideration for insurers is the significant administrative burden introduced by the new rights to information. There is likely to be an increase in requests for information as third party claimants seek disclosure to ascertain whether it is worth pursuing the matter further. The requirement to respond within 28 days is yet another timescale for insurers to contend with, on top of the recent changes to response timescales introduced by the new RTA regime.
What considerations should be made?
The new 2010 Act is widely anticipated to come into effect in April 2011; therefore insurers have time to prepare for the consequences.
Insurers should plan head by considering policies and procedures to deal with the likely increase in requests for information. If an insurer is efficient in dealing with these requests and issues relating to the policy are dealt with at first stage then the likely effect would be to dissuade third party claimants from pursuing the matter further if it is clear that there are no prospects of success. Less unnecessary litigation means a saving of costs and time, both for the claimant and defendant.
Insurers should also consider the likely cost consequences of an increase in claims. If an insurer plans ahead they should be able to set-off this increase in costs against future premiums, meaning changes are less of a surprise, and bottom line figures are protected. Insurers may also want to think about how they risk assess those companies to which policies are being sold.
There is no doubting the feeling that the new Act is favourable to the third party claimant, which will lead to an increase in claims. But surely a more efficient, cost saving system, enabling claims to be dealt with under one set of proceedings, is better for all parties?... Provided those parties take steps now to anticipate the changes.
By personal injury solicitor & business development manager, Mark Fenning