International Recent Developments: United Kingdom

Theodora Nikaki | International Recent Developments

The new Third Parties (Rights Against Insurers) Act (2010 Act) provides third parties certain rights against insurers of liabilities where the insured is insolvent. It will come into force on a date prescribed by the Secretary of State. The 2010 Act, which repeals both the Third Parties (Rights Against Insurers) Act (Northern Ireland) 1930 and the Third Parties (Rights against Insurers) Act 1930, updates the law to reflect changes in insolvency law since the 1930s. The Act aims to set forth a more straightforward and cost efficient route to compensation for people who find themselves involved in a dispute with a party who is or becomes insolvent. To this end, the Act has introduced provisions that establish the right of the third party to seek, in a single action against the insurer, declarations regarding both the insured’s liability to it and the insurer’s potential liability under the insurance contract. Other key innovations include the introduction of detailed provisions on disclosure of insurance information to the third party, and the removal of some of the technical defences available to insurers under the original 1930 version.

The provisions of the 2010 Act generally apply consistently to both contracts of general insurance and marine insurance. One key difference in application is found in section 9(5) through 9(6), which provide for the validity of “pay to be paid” (“pay first”) clauses. Although such clauses are null and void when included in general insurance contracts under section 9(5), they are valid if incorporated in a marine insurance contract pursuant to section 9(6). However, they will be inoperative in the context of marine insurance contracts when the third party’s insurance claim is a death or personal injury claim. The practical consequence of such a rule is that the direct right of action against Protection and Indemnity (P&I) Clubs is limited to death and personal injury claims, while other claims, such as cargo claims, are still subject to the pay-first clauses under section 9(6).