The Third Parties (Rights Against Insurers) Act 2010 (“the Act”) came into force in August 2016. It has proven to be of undoubted significance insurers and those bringing claims against insured parties. The aim of the Act was to streamline the process of third parties enforcing rights against insurers. In the process, it was to iron out many of the perceived flaws of the Third Parties (Rights Against Insurers) Act 1930.  We look into this a little more here.

Purpose of the Act

The main purpose of the Act is to allow Claimants who believe that the proposed Defendant in their claim has a right to be indemnified by an insurer, the ability to pursue the insurer directly in certain cases. Generally, these are cases where the proposed Defendant has become insolvent.

The Act allows the claimant to issue proceedings directly against the insurer (or join an insurer into an existing claim).  But what happens in a situation where the insurer disputes their liability to the Defendant?  This was the question that presented itself in the recent case of BAE Systems Pension Funds Trustees Ltd v Royal Sun Alliance Insurance PLC & others [2017] EWHC 2082 (TCC).

Background

In the BAE case, the claimants (BAE) believed that a property that had been built for them had significant defects.  They intimated a claim against multiple potential defendants who had been involved in the construction process. When the third of these Defendants, a company called Twintech, went into administration, BAE attempted to use section 2(2) the Act to join Twintech’s insurers (RSA) into the proceedings.
Section 2(1) sets out the test for whether a party can rely upon s2(2). S2(1) says that it will only apply where a person “claims to have rights under a contract of insurance… but has not yet established the insured’s liability which is insured under that contract”.

RSA opposed the application to join them in.  This was principally on the grounds that the policy did not provide cover for the claim intimated against Twintech.  There was therefore a coverage dispute. RSA also opposed the application to join them in on the basis of an exclusive jurisdiction clause in the insurance contract. However, we do not consider that element of dispute in this article.

Decision

In considering the application Mrs Justice O’Farrell granted BAE’s application. She took the view that the test under s2(1) was met. This was on the basis that it only required the third party to claim that he had rights under a contract of insurance.   The question as to whether or not the insurer did in fact have any liability would be determined (pursuant to s2(2)) within the proceedings and by the court making a declaration on this point.  By joining RSA into the proceedings, BAE were merely following the procedure set out in s2(2).

The Judge rejected RSA’s argument that joining them would create wasted costs. She pointed out that if a clam was pursued in a situation where there indeed was no insurance cover, then the court would surely strike it out.   The judge also waved aside arguments as to the loss of opportunity for subrogation.  She said that it was for the insurers to decide whether they wished to enter a defence to the claim; being joined into the proceedings allowed them to do so.

Clearly this decision has major implications for insurers and those seeking to bring claims against insolvent insured parties.  Even where coverage is disputed, insurers may still find themselves party to ligation where a claimant meets the requirements contained in the Act.

If you have a claim against a insured professional, our solicitors can help. Call our professional negligence team on 0800 988 7756 for a FREE initial consultation.