The consequences of the Third Parties (Rights Against Insurers) Act 2010

This article originally appeared in Insurance Day, March 2025. 

In January, the Insolvency Service issued its annual summary of company insolvency statistics, which revealed the number of company insolvencies registered in England and Wales in 2023 (25,164) was the highest annual number since 1993 and, while 2024 saw a slight decrease in this number (to 23,880), the number of company insolvencies remained high relative to historical levels.

In particular, the construction industry experienced the highest number of insolvencies in the 12 months to November 2024, with the retail and manufacturing industries also appearing in the top five.

Continuing high rate of insolvencies likely to see more claims against firms

In these circumstances, we expect to continue seeing a growing number of claims pursued directly against insurers. Under the Third Parties (Rights Against Insurers) Act 2010, a third-party claimant is entitled to pursue a claim directly against a party’s insurer in circumstances where the insured party incurs a liability to the claimant but then becomes insolvent. It is against this backdrop that we consider two recent cases relating to the act.

In the matter of Riedweg v HCC International Insurance and another (2024), the High Court considered the ability of an insurer, liable to a third-party claimant under the act, to pursue another party under the Civil Liability (Contribution) Act 1978 for a contribution to the damages at issue.

Negligence claim

The claimant brought a claim in negligence against the insurer’s policyholder, a property valuer, for losses arising from an overvaluation of their property. The policyholder went into liquidation and the claimant pursued the insurer directly under the Third Parties Act. The insurer then sought to join the claimant’s solicitors to the proceedings as co-defendants. They argued the solicitors were also liable to the claimant and they could therefore be pursued for a contribution, pursuant to section 1(1) of the Contribution Act, on the basis they were another “person liable in respect of the same damage”.

Judgment was handed down in November 2024. The High Court disagreed with the insurer, concluding if both the insurer and solicitors were liable to the claimant, it was not for the “same damage” because the parties did not, as required, share a “common liability”; the solicitors’ liability would, if proven, arise from their engagement by the claimants, whereas the insurer’s liability arose under the Third Parties Act because of its obligations to the (now insolvent) policyholder under the insurance contract.

Default judgment

In the case of Scottish Gas Networks v QBE UK and others (2024) CSIH 36, the Scottish Court of Session (Inner House) examined whether or not a claimant could establish the insured party’s liability to it under section 1(4) of the Third Parties Act, by reference to a default judgment against the insured party. The court, upholding the decision at first instance, held it could; the insured’s liability had already been established by the default judgment and there was no need for the merits of the claim to be considered.

The decision may have been made by a Scottish court, but it will likely be considered persuasive by the English courts. It follows that should a default judgment be made against a policyholder, insurers will likely only be able to rely on coverage arguments in order to defend a claim under the 2010 Act. 

As the Insolvency Service’s recent publication appears to confirm, insurers will continue to see a trend of claims pursued directly against their insolvent insureds and have reason to pursue their own subrogated recoveries against other insurers under the Third Parties Act. The cases considered above underline the risks insurers will face in handling such claims and the importance of effective management from an early stage.