Third Parties (Rights Against Insurers) Act 1930 Flashcards
In a situation where A suffers a loss, caused by B and B is insured by C. A would normally sue B and B would make a claim on his insurance and C would pay out - the insurance sums would go to A.
But what happens if B is insolvent?
The insurance policy forms a contract between the insured and the insurer, and therefore, normal rules of privity of contract exclude the possibility of a relevant claim on the policy by third parties who have suffered a loss caused by the conduct of the insured. Not being parties to the contract, third parties have no right to sue under the policy, even if the policy is taken out by the insured with the express purpose of covering such a liability.
Under the common law: as a result of privity of contract, A could not go directly after C (since he isn’t party to the insurance contract). The sum would be paid from C to B and since B is bankrupt it would go to the trustee in bankruptcy, thus it is very unlikely that this sum of money would reach C.
How does the Third Parties (Rights Against Insurers) Act 1930 remedy this?
⁃ It enables the third party, A, who has a valid claim against the insured to proceed directly against the insurer (s1(1)). It thus operates as a statutory assignation of the insured’s rights under the insurance policy to the injured third party, giving that third party a preferred status in comparison with the insured’s other general creditors.
- NB because the Act operates as a statutory form of assignation, the third party can obtain no better right against the insurer than that of the original insured. The third party “stands in the shoes” of the insured in any action against the insurer. So the insured’s liability to the third party MUST be established before the third party has any right under the Act [Saunders v Royal Insurance Plc 1998]. Similarly, any defence that could have been raised by the insurer against the insured can be raised by the third party.
What is the principle in Tarbuck v Avon Insurance Plc [2001]?
The Act only protects third party’s rights where he has suffered a loss through either the negligence of, or a breach of contract by, the insured — not legal fees
What is the assignatus utitur jure auctoris principle?
The assignee can obtain no better right under the insurance policy than the insured
Post Office v Norwich Union Fire Insurance [1967]
However there are some difficulties with the 1930 Act (so while it is helpful, there are many hurdles in certain circumstances):
⁃ It was held that if the insolvent insured’s liability to the third party is illiquid or unascertained (e.g. There isn’t a decree saying that B has caused the loss) then the third party must obtain the leave of the court to sue the insured. Then the third party must sue the insured to determine liability against the insured, then the third party can seek to recover the sum directly from the insurer.
What is new under the Third Parties (Rights against Insurers) Act 2010?
There is a new Third Parties (Rights against Insurers) Act 2010 which exists but is not yet in force. This will change some aspects of the law regarding a third party’s ability to seek direct recovery from the wrongdoer’s insurer (i.e. to remedy situations like in Post Office: under the new Act the third party will be entitled to pursue the insurer directly.)
