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The Third Parties (Rights Against) Insurers Act 2010 (TPRAI) has been in place for over eight years and we examine the practical impact that this has on the handling of employers’ liability / public liability (EL/PL) claims.
In 2023, there were over 25,000 registered company insolvencies in England and Wales. In Q4 of 2023, these were at the highest level since Q4 in 2008. This is perhaps reflective of the current economic climate, cost of living crisis and the aftermath of the COVID-19 pandemic. As a result we are seeing more claims being brought under the TPRAI.
The TPRAI allows a claimant to bring proceedings against an insurer directly and in one set of proceedings, if the insured is in a specified form of insolvency (including liquidation, administration or dissolved). It avoids issues that existed previously, such as requiring claimants to apply to restore a dissolved company to the Company Register so that it could be sued or to obtain the consent of the administrators to pursue a company in administration. It also avoids the need for claimants to first obtain judgement against an insolvent insured, before the claimant could pursue the insurer.
We have seen this give rise to a number of issues in EL/PL claims.
Naming of insurer in proceedings
Where the TPRAI applies, it allows the claimant to bring a claim against insurers directly.
Whilst being named in court documents may be undesirable to insurers, the ability to sue an insurer directly has existed for a long time in road traffic claims.
It is important that the correct insurer entity is identified for use in proceedings, which is usually apparent from the policy schedule or other documents, albeit it may be less clear when the policy was written by an MGA or coverholder.
The ability to rely on the TPRAI and sue an insurer directly only exists if the insured is in one of the specified forms of insolvency. We often, however, see claimants seeking to sue the insurer, despite no direct cause of action existing and/or the TPRAI not applying.
Usually this situation arises where an insured individual is deceased (but did not die insolvent) or where claimant lawyers are aware of policy indemnity issues. We also see it sometimes threatened where claimant lawyers are dissatisfied that liability has been denied by the insurer on behalf of the insured.
Unless the insured is insolvent and the TPRAI applies, this approach should be firmly resisted.
Disclosure of insurance details
Where the TPRAI applies, it allows third parties/claimants to obtain information about the insured’s insurance arrangements. This information can be requested from a wide variety of parties including the insurer itself, the insured, a broker or former employees/directors of the insured and must be responded to within 28 days. It includes information such as the identity of the insurer, terms of the policy and whether the insured had been informed that indemnity is declined.
We regularly see claimant lawyers cite the TPRAI to seek insurance information despite the TPRAI not being applicable. Save where the TPRAI does apply, case law indicates that details of a defendant’s insurance information is not generally disclosable (albeit of course it can and often is provided voluntarily).
Policy excesses and other terms
Where the TPRAI applies, a third party/claimant is restricted to the terms of the policy and the insurer can rely on the same policy defences it would have had in a claim against their insured. There are, however, some terms which are specifically excluded under the TPRAI, such as terms which required the insured to cooperate with the insurer, which is no longer possible due to the insured being dissolved.
This also applies to excesses, which are common in PL policies and are unlikely to be paid if the insured is insolvent.
Where there is a policy excess, we commonly see claimant lawyers argue that the excess is a matter between the insured and insurer and therefore they are entitled to the full sum of their damages from the insurer.
For PL claims, this approach is incorrect and should be rejected as the policy excess remains payable by the insured or the administrator/liquidator depending on the nature of the insolvency. The position is of course different with EL claims due to the compulsory insurance legislation in place.
Insurer’s right to set off
Where an insurer is owed money by the insured and a successful claim is later made against the insurer by a third party under the TPRAI, the insurer is entitled to set off any money owed by the insured, when paying out the third party. Typically this will involve any unpaid premium.
Inter-UK jurisdiction
Under the TPRAI, claimants domiciled in the UK can bring proceedings against an insurer domiciled in another part of the UK, either in their home nation or where the insurer is based. For example, a claimant based in Northern Ireland could sue an insurer based in London, via the courts in Northern Ireland (or alternatively in England and Wales if they wished). This can be an inconvenience to an insurer, particularly if they have no local office in the claimant’s home nation.
Use of the Damages Claims Portal
Use of the Damages Claims Portal (DCP) is now mandatory for many personal injury claims.
However, claims against insurers pursuant to the TPRAI should not be issued in the DCP because the DCP is for claims which are for damages only (and that fulfil some other criteria). But where a claimant is pursuing an insurer under the TPRAI, it is for a declaration as to the insurer’s (and/or insured’s) liability to them. It is therefore not a claim solely restricted to damages and hence strictly speaking it is excluded from the remit of the DCP. Where such a claim is wrongly issued via the DCP, whether an insurer decides to take issue with this should generally be looked at on a case by case basis.
Summary
The TPRAI has been a useful tool for claimants, albeit its scope is often misunderstood.
For insurers, whilst it places some obligations which would not have existed otherwise, it generally simplifies the claims process where their insured is insolvent, thus reducing claim lifecycle and costs.
In the current financial climate with many businesses struggling generally, we can expect it to be applicable in a greater number of claims going forward.
Related items: Role of the Financial Ombudsman Service in employers’ and public liability claims
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