Third Parties (Rights against Insurers) Act 2010: implications for marine insurers
The Third Parties (Rights against Insurers) Act 2010 came into force on 1 August 2016 and has important implications for all marine liability insurers for both past and future claims.
It is well worth all freight liability insurers, charterers’ liability insurers, port and terminal liability insurers and others reviewing their books, including for closed claims, and reconsidering reserves.
The Act repeals and replaces the Third Parties (Rights against Insurers) Act 1930, except for cases where both the insured incurs liability to a third party and its insolvency proceedings commenced before 1 August 2016.
The Act makes it much easier for claimants to obtain insurance details. It enables service of a notice to provide information on whether liability cover is available and, if so, the details of it, on a wider class of persons. These include the insured’s directors and officers, and the insured’s brokers, who have to respond within 28 days. The likely sanction for not doing so will be paying the costs of any court order which the claimant is forced to obtain compelling provision of information.
The Act also makes it much easier for claimants to recover direct from insurers. Third parties no longer have to establish liability against the insured before pursuing insurers. Insurers can be joined to proceedings. Acts done by the third party which, if done by the insured, would have amounted to or contributed to fulfilment of a policy condition are to be treated as if done by the insured. This will in some cases deprive insurers of potential coverage defences.
Old claims may come out of the woodwork in two main ways:
- Where the insured was insolvent at the time an incident occurred or became so shortly afterwards, and the claimant took no action because the insured was thought not to be worth pursuing. The Act will apply to any liability which arises on or after 1 August 2016, even if the insolvency predates that.
- If judgment has been obtained against an insured prior to the Act, the Act will apply if the insured goes insolvent on or after 1 August 2016. In the past, it may well not have been worth a judgment creditor taking steps to wind up an insured judgment debtor; now things are different.
Most P&I entries are on pay to be paid terms, likewise typical collision liability coverage such as that provided by ITC Hulls. However, many other marine liability policies do not contain provisions making payment to the claimant by the insured a precondition to a right to recover. Where the Act applies, pay to be paid provisions remain enforceable as regards property claims, but not personal injury claims.
Insurers whose policies do not contain a pay to be paid clause are therefore left much more exposed under the new Act. Going forward, all liability insurers should seriously consider including such clauses in order to better protect themselves.
Under the Act, insurers have the ability to deduct from sums payable to the third party any sums owed to them by the insured if they had this right as against the insured. Again, it is therefore worth considering inserting specific clauses into liability policies giving insurers wide rights to recover sums from the insured (whether by way of policy premium or otherwise).
Related item: Third Parties (Rights Against Insurers) Act 2010