Third Parties (Rights Against Insurers) Act 2010—one minute guide
Produced in partnership with HFW

The following Insurance & Reinsurance practice note produced in partnership with HFW provides comprehensive and up to date legal information covering:

  • Third Parties (Rights Against Insurers) Act 2010—one minute guide
  • Purpose of the TP(RAI)A 2010
  • Background to the TP(RAI)A 2010
  • TP(RAI)A 2010—commencement
  • Operation of the TP(RAI)A 2010—transfer of rights
  • TP(RAI)A 2010—Relevant person
  • TP(RAI)A 2010—Limit on rights transferred
  • TP(RAI)A 2010—Set-off
  • TP(RAI)A 2010—Right to information and disclosure
  • TP(RAI)A 2010—Limitation
  • More...

Third Parties (Rights Against Insurers) Act 2010—one minute guide

Purpose of the TP(RAI)A 2010

The Third Parties (Rights against Insurers) Act 2010 (TP(RAI)A 2010) repeals and replaces the Third Parties (Rights against Insurers) Act 1930 (TP(RAI)A 1930). The purpose of TP(RAI)A 1930 was to ensure that, where an insured had incurred an insured liability to a third party but subsequently became insolvent, the insurance money would be paid to the third party rather than become an asset in the insolvency to be shared amongst all the insured's creditors.

Like its predecessor, TP(RAI)A 2010 transfers to the third party some of the insolvent insured's rights under the insurance policy and allows the third party to bring proceedings directly against the insurer.

The key change in TP(RAI)A 2010 is that a third party can now bring proceedings directly against the insurer or seek information about the insurance position at an early stage, without first establishing the liability of the insured.

Background to the TP(RAI)A 2010

TP(RAI)A 2010 was drafted following a consultation by the Law Commission and the Scottish Law Commission in 2001. The Law Commissions identified the following issues with TP(RAI)A 1930:

  1. the third party had to establish the liability of the insured and the quantum of the insured loss before being able to bring proceedings against the insurer. This resulted in multiple sets of proceedings

  2. if the insured was a

  • dissolved company which had been struck off the register of companies, the third party might have to issue proceedings to get the insured restored to the register before pursuing its claim

  • the third party's right to information about the insurance arrangements did not arise until the liability of the insured had been established. Even then, it did not necessarily provide access to sufficient information nor could it be exercised against all those who might be in possession of relevant information

    1. it did not apply to all relevant insolvency procedures and did not reflect changes in insolvency law since the 1930s

  • The aim of the changes was to make it more straightforward and cost efficient for third parties to recover from the insurers of insolvent insureds.

    TP(RAI)A 2010—commencement

    The TP(RAI)A 2010 received Royal Assent on 25 March 2010. Following various amendments, it was brought into force on 1 August 2016 by the Third Parties (Rights against Insurers) Act 2010 (Commencement) Order 2016, SI 2016/570 (made on 28 April 2016).

    Operation of the TP(RAI)A 2010—transfer of rights

    Under TP(RAI)A 2010, s 1 the rights of an insolvent insured (referred to as a ‘relevant person’) in respect of an insured liability are transferred to the third party to whom the liability was incurred. The third party can bring proceedings to enforce these rights against the insurer without having established the insured's liability, but it cannot actually enforce the rights until the liability and amount have been established.

    Liability can be established by a court declaration, a judgment, arbitration award or an enforceable agreement.

    Under TP(RAI)A 2010, s 2, the third party can bring proceedings (in court or arbitration) against the insurer and can request the court or tribunal to make a declaration as to: (i) the insured's liability, and (ii) the insurer's potential liability to the third party, at the same time. This means that the third party only has to issue and pursue one set of proceedings in order to obtain declarations of liability on the part of both the insurer and the insured.

    If the third party wants the declaration to be binding on the insured, it must join the insured as a defendant in the proceedings.

    The third party will not be in a better position as against the insurer than the insured. Even if the insured is not a party to the proceedings, the insurer can rely on any defence on which the insured could rely in respect of the insured's liability to the third party. In addition, it can rely on any policy defences it would have had against the insured, although TP(RAI)A 2010, s 9 provides that in circumstances where the transferred rights are subject to the fulfilment of a condition by the insured, such condition can be fulfilled by the third party instead.

    If there is a policy condition requiring the insured to provide information or assistance to the insurer which cannot be fulfilled because the insured is an individual who has died or a company which no longer exists, the transferred rights will not be subject to this condition; however this does not include notification conditions.

    The transfer of rights is also not subject to any condition requiring the insured to discharge its liability to the third party before claiming from the insurer (the pay-first clause) except in respect of liability for death or personal injury in marine insurance. In two cases concerning pay-first clauses in Protection and Indemnity club rules, the House of Lords held in The Fanti and the Padre Island that under TP(RAI)A 1930, a pay-first clause would defeat a claim from a third party in respect of rights transferred under TP(RAI)A 1930.

    TP(RAI)A 2010—Relevant person

    TP(RAI)A 2010, ss 4–7 set out the insolvency procedures which are required for the insured to become a ‘relevant person’ and the rights against the insurer to be transferred. For individuals, these include a deed of arrangement, an administration order, a debt relief order, a voluntary arrangement or a bankruptcy order. For limited companies or unincorporated organisations, these include dissolution, a voluntary arrangement or administration order, the appointment of a receiver, manager or a provisional liquidator, or the making of a winding-up order.

    TP(RAI)A 2010—Limit on rights transferred

    TP(RAI)A 2010, s 8 provides that if the insured's liability to the third party is less than the insurer's liability to the insured (for example, if the insured was entitled to claim the costs of defending the third party claim, or of seeking legal advice on the merits of defending the claim), the third party cannot recover the difference. The rights of the insured in respect of that amount are not transferred.

    TP(RAI)A 2010—Set-off

    TP(RAI)A 2010, s 10 provides the insurer with a right of set-off of any liability the insured had to it against the insurer's liability to the third party. This would apply, for example, in circumstances where the insured had failed to make premium payments.

    TP(RAI)A 2010—Right to information and disclosure

    Under TP(RAI)A 1930, it was not clear whether the right of the third party to seek information about the insolvent insured's insurance arrangements arose before the liability to the third party had been established. This was considered by the Court of Appeal in Re OT Computers Ltd (In Administration) and it concluded that a third party was able to make a request for information before liability has been established. This is obviously the pragmatic view and enables the third party to assess whether entering into proceedings is likely to be worthwhile.

    TP(RAI)A 2010, s 11 and Sch 1 provide the third party with rights to access information to assist in establishing the insurance position. If the third party ‘reasonably believes’: (i) that the insured has occurred a liability to it; (ii) that the insured has been subject to an insolvency procedure so that it is a ‘relevant person' under TP(RAI)A 2010, ss 4–7; (iii) that there was a contract of insurance in place; (iv) that the rights under the contract of insurance have been transferred to it; and (v) that there is a person who is able to provide relevant information, the third party can request, by notice in writing, information from that person.

    The only limitation on who can be asked for information is that the third party reasonably believes that the person will be able to provide it. TP(RAI)A 2010, Sch 1, para 7 sets out that a person is able to provide information if it is within their knowledge or can be obtained without undue difficulty from a document within their control.

    Under TP(RAI)A 2010, Sch 1, para 1(3), the third party is entitled to request information as to whether there was a contract of insurance in place; the details of the cover (insurer and policy terms); whether the insurer has denied liability; whether proceedings have been issued (and details if so); any limit on the fund available to meet claims (and if so, how much has been paid out); and whether there is a fixed charge to which any sum paid out would be subject.

    Having received a notice requesting information, the person must respond within 28 days (paragraph 2) providing the information where they are able to do so; in relation to information which cannot be provided, explain why; and in relation to documents no longer in their control, providing the details of whoever now holds that information.

    If the person fails to comply, the third party may seek a court order requiring compliance.

    TP(RAI)A 2010, Sch 1, para 3 provides that, in relation to defunct companies, once a third party has commenced proceedings against an insurer, it can seek disclosure of relevant documents from former officers or employees of the company or from the insolvency practitioner or official receiver. The third party must give notice of the request in writing and provide a copy of the particulars of claim from the proceedings.

    The right to information under Schedule 1 operates in addition to any other rights to information (for example under the Civil Procedure Rules) (paragraph 6).

    In Discovery Land Company, LLC v Axis Specialty Europe SE, a costs management conference

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