A new law that came into force on August 1 will help people recover damages they are owed from a business that has become insolvent. Alex Jakubowski, Commercial Litigation Partner at solicitors Clarke Willmott LLP, says The Third Party (Rights against Insurers) Act 2010 will mean that many people will now find it easier to pursue a claim against a defendant’s insurers if the insured is or has become insolvent. It is hoped that the reforms will move unnecessary obstacles for claimants, provide more certainty and reduce cost in litigation.
Mr Jakubowski said: “There is usually no point in incurring the costs of a claim if the defendant cannot pay when you win. The existence of insurance is always important especially where the sums claimed are large. But it’s particularly important where the defendant is insolvent because it provides a means of recovery for the claimant.
“Previously the law has created a means for a claimant to recover damages from an insolvent defendant’s insurer but there remained a lot of ditches to cross. For example, where the insolvent defendant had been removed from the companies register it first had to be restored. The claimant would then have to secure judgment against the insured. Finally, it might have to engage in a dispute with the insurer about the extent of cover. That created both uncertainty and an additional layer of cost.
“This newly-introduced Act will make recovering damages less burdensome when faced with an insured insolvent defendant.”
Importantly, now the Act will allow a claimant to bring one action to obtain a declaration of both the insured’s liability and the insurer’s potential liability. The insurer in turn may rely on any defence that is available to the insured. Once liability is established, the insurer will have to pay up to the limit of the indemnity.
The Third Party (Rights against Insurers) Act 2010 also allows a claimant to require a release of information from the insolvent insured and from any person who is able to provide it. That would include insurers, brokers or anyone holding policy information.
The reforms, Mr Jakubowski says, mean that from the outset of a potential claim, a claimant should able to obtain the necessary financial information so that it can make an informed decision whether or not to proceed with the case.
The reforms will not however assist everyone. The Third Parties (Rights against Insurers) Act 2010 will apply to a claim if the insured defendant incurs liability to the claimant after 1 August 2016 or if the insured becomes insolvent after that date. However, if both of these events have occurred before 1 August 2016 the old rules will continue to apply.