One of the most frustrating parts of pursuing a claim is ensuring that the Defendant actually has the resources to pay you should you succeed.
Where you are bringing a claim against a professional, such as a solicitor or surveyor, they should have indemnity insurance to cover such instances – the Insurer will be obligated to cover the Defendant’s costs and pay out if it loses.
Problems can arise, however, in situations where the insured Defendant has first become insolvent, particularly if the Insurer has declined to cover the claim (and therefore will not pay out if you win). The contract of insurance is between the Insurer and the Insured, and therefore any declinature decision can only be challenged by the Insured itself. If the Insured is insolvent, then clearly is may not happen.
The Third Party (Rights Against Insurers) Act 1930
The first attempt to resolve this issue was made by The Third Party (Rights Against Insurers) Act 1930, which allowed Claimants who had already established liability against an insolvent Insured, to step into the shoes of the Insured and deal directly with the Insurer. While it made some inroads to rectifying the situation, the 1930 Act still had some major issues; the main problem being the need to pursue expensive and time-consuming litigation against the Insured first to establish liability, before the Claimant had any rights against the Insurer. In respect of insolvent companies, this would almost always include the time and cost of restoring the company to the register.
Realising that the 1930 Act was far from perfect, Parliament enacted the Third Party (Rights Against Insurers) Act 2010, which came into force on 1 August 2016. The 2010 Act contains a number of improvements over the 1930 Act. The most significant of these is that it is now no longer necessary for the Claimant to establish liability against the Insured before pursuing the Insurer. Under the 2010 Act, the Claimant can now issue proceedings directly against the Insurer and resolve all issues in a single set of proceedings.
The 2010 Act also includes useful new powers for the Claimant to request information about the insurance contract before issuing proceedings. This allows Claimants to make an early and informed decision as to whether it is worthwhile issuing proceedings.
Clearly matters have come a long way over the last 80 years and now, with the 2010 Act, Claimants should hopefully be spared injustice as a result of the insolvency of an Insured Defendant.
Are you involved in a dispute with a Defendant who may be insured? If so, the experienced commercial litigation team at Levi Solicitors can assist you. Please contact them on 0113 244 9931.