New regulations on third parties: The Third Parties Act 2016

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After numerous tweaks in the more than six years since it was granted Royal Assent, the Third Parties (Rights against Insurers) Act 2016 finally comes into force on the 1 August 2016. Tracy Smyth looks at whether it will bring more claims against insurers

Intended to address the deficiencies identified by the Law Commission and the Scottish Law Commission in the similarly named legislation from 1930 in their joint report of 2001, the Act significantly changes the way in which claimants bringing claims against insolvent persons can, directly, pursue the insolvent person’s rights against their insurer in respect of the claim.

The last of a catalogue of changes to the Act between the grant of Royal Assent and its commencement date came with the Third Parties (Rights against Insurers) Regulations 2016 (“the Regulations”) which make the final tweaks necessary to address changes that have happened since the 1930 legislation to the insolvency regime in order to capture alternatives to insolvency such as certain individual and corporate creditors’ voluntary arrangements.

The Regulations bring within the definition of “relevant person” to which the Act applies two new categories, namely:

“A body corporate or unincorporated body is a relevant person if it is in insolvency under Part 2 of the Banking Act 2009(a)”: and
“A body corporate or unincorporated body is a relevant person if it is in administration under relevant sectoral legislation as defined in Schedule A1”

The first of these new categories picks up banks (as defined by the Banking Act 2009) which has entered the insolvency procedure under the 2009 Act, and the second covers bodies in respect of whom an administrator has been appointed under particular legislation within the aviation, energy, financial services, postal services, railway and water and sewerage industries. In addition, the Regulations make what the Explanatory Notes describe as “some related minor amendments to the 2010 Act”.

While necessary to make the category of “relevant person” to whom the Act applies as all encompassing and complete as possible, and to align the remainder of the Act with these changes, they are unlikely to add significantly to the number of circumstances in which insurers encounter claims being brought under the Act.

The insurance industry and the legal profession have seen the changes which will arise from the Act coming for a long period of time and they should come as no shock to anyone. It is unlikely, but not impossible, that a rush of cases under the new statutory provisions will be seen as the Act has been on the backburner for so long that claims are unlikely to have been stockpiled until it came into force.

Insurers may, however, see themselves becoming embroiled in claims being brought against insolvent insureds at an earlier stage bringing with it a need to identify and resolve policy coverage issues much quicker than may have been the case in the past.

Tracy Smyth is a partner at Weightmans and a member of the Forum of Insurance Lawyers’ (FOIL) Employer’s Liability Sector Focus Team

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