Litigating Against Insurers

In a recent case, the High Court has found that an insurer can be joined as a party to proceedings against an insured defendant under the Third Party (Rights against Insurers) Act 2010.

The Third Parties (Rights against Insurers) Act 2010, which came into force on 1 August 2016, made it easier for claims to be brought against insurers of insolvent defendants.  The Act removed the requirement for a claimant to obtain judgment against the insolvent insured before pursuing the insurers and restricted the reliance which insurers could place on an insured’s failure to comply with policy conditions.

BAE System Pension Funds Trustees Ltd –v- Royal & Sun Alliance Insurance plc and others [2017] EWHC 2082 (TCC) concerned an application by the claimant (BAE) to join RSA as a party to a claim which arose out of the design and construction of a building.  RSA insured the third defendant in those proceedings, Twintec.

RSA opposed the application on the basis that:

1. The policy wording did not cover any liability which Twintec may have to BAE. BAE alleged that cover was excluded under the terms of the policy because Twintec had knowledge of the claim when the policy was taken out.

2. The terms of the policy provided that any dispute should be determined under French law and in the French courts or arbitration.

Section (2)(1) of the Act states that: “This section applies where a person (a) claims to have rights under a contract of insurance by virtue of a transfer under section 1, but (b) has not established the liability which is insured under that contract”.  The Court held that this section was triggered, even in circumstances where there was a dispute as to whether the policy covered the claim.   The Act covers instances where a person “claims to have rights under a contract of insurance”.  RSA could still defend the proceedings on the basis that no cover was in place, but they could not escape being a party to the proceedings.

This decision shows that a dispute over whether or not a policy covers a claim will not prevent an insurer from being made a party to proceedings.  An insurer may successfully apply to strike out the proceedings or have coverage issues dealt with by way of a preliminary issue; it will nevertheless be forced to incur costs.

For third parties (claimants) the decision reinforces the intention of the Act, namely that it should be easier and less costly to bring claims against insurers of an insolvent defendant.

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