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Law Commission Report LC272

3 September 2002
The issues

Third Parties (Rights against Insurers) Act 1930 – recommendation for Appeal.

The facts

The Government has accepted the recommendations in the Law Commission’s joint report with the Scottish Law Commission in a written answer to a parliamentary question in The Lords on the 2nd July.

The Commission considers that the 1930 Act is defective. The purpose of that Act was to enable Claimants to proceed directly against Insurers where an Insured Defendant became insolvent. The scope of the Act extends to all forms of monetary claim from personal injury to professional negligence and shipping claims.

The Commission considers that the procedure under the 1930 Act was cumbersome and wasteful of time and resources. In particular, they considered that the necessity imposed on Claimants to establish the claim against the Defendant in the first place; secondly, there was a problem with obtaining information and the example of a Building Society who sought to sue Surveyors for a negligent valuation was highlighted. In that case, the Surveyors went into insolvent liquidation and the Society asked the Liquidator and the Insurer to supply documents relating to the insurance policy. The Court refused, taking the view that the 1930 Act did not entitle the Woolwich Building Society to any documents before it had established what was owed. The purpose as the Woolwich saw it of obtaining the documentation, was to decide whether the action was worth bringing in the first place.

The report proposes in summary a new streamline procedure to avoid wasteful litigation – the Third Party being entitled to resolve all the issues in a single set of proceedings against the Insurer.

Improved rights to information about the insurance policy. Under the draft Bill, Third Parties are entitled to information concerning the insurance policy from the outset.

Legal expenses and health insurance are to be covered. The Commission noted that the omission of legal expenses of Insurers from the 1930 Act represented a “serious obstacle to the Government’s aim that such insurance should play a wider role in the funding of litigation”. Under the draft Bill, Third Parties may claim directly against an Insurer, even in situations where the insurance covers liabilities voluntarily incurred by the Insured.

The decision

Voluntary Procedures

The Commission noted the problem faced by Third Parties dealing with Insured’s who made or became involved in voluntary arrangements. Under the draft Bill, a Third Party with rights against an Insurer is not bound by a voluntary procedure to the extent of those rights.

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