Before the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act) came into effect, a third party who obtained judgment against an insured could not pursue the insured’s liability insurer since it was not party to the insurance contract. If the insured became insolvent, the insurance monies became part of the general assets distributable among creditors. The purpose of the 1930 Act was to mitigate the potentially harsh consequences of the strict application of the common law. It enabled a third party to bring a claim directly against an insurer by operation of a statutory transfer of some of the insured’s rights under the insurance policy, in cases where the insured had become insolvent. One of its key shortcomings, however, was that a third party could only issue proceedings against the insurer after it had first established the existence and amount of the insured’s liability. This required a number of separate proceedings and, if the insured was a dissolved company, proceedings to restore it to the register.
On 1 August 2016, the Third Parties (Right Against Insurers) Act 2010 (the 2010 Act) came into force, over six years after receiving Royal Assent. The 2010 Act repealed and replaced the 1930 Act, except in cases where the insured both incurred liability to the third party and entered insolvency proceedings before 1 August 2016. The aim of the 2010 Act is to make it easier for third parties to stand in the shoes of an insolvent insured and bring a claim directly against a liability insurer. The 2010 Act maintains the overall scheme of the 1930 Act but aims to remedy some of its problems and simplify the process for bringing a claim. In particular, where the 2010 Act applies, it is no longer necessary for the third party to establish the insured’s liability before bringing a claim against the insurer; instead, the third party is able to pursue a single claim against the insurer to establish both the insured’s liability to the third party and the insurer’s obligation to pay under the policy. It is also no longer necessary to restore a dissolved company to the register.
The central issue in the recent case of Redman v Zurich Insurance PLC was the extent to which the 2010 Act applies retrospectively to cover claims to which the claimant’s remedies would previously have been covered only by the “less attractive” (to quote the judge) 1930 regime.
Between 1952 and 1982, Mr Redmond worked for ESJS1. In November 2013, he died from lung cancer alleged to have been caused by exposure to asbestos during the course of his employment. In January 2014, ESJS1 was the subject of a voluntary winding up and was eventually dissolved in June 2016. The issue for the court was whether Mrs Redman, as his widow, was entitled to circumvent the more stringent procedural requirements of the 1930 Act on the basis that the 2010 Act applied to her claim. The defendant insurer, Zurich, applied to strike out the claim under the 2010 Act. It is worth noting that this was a ‘friendly action’ – Zurich had consented to ESJS1 (now restored to the register) being joined to the action out of time and had indemnified Mrs Redman for the costs of the hearing. Zurich clearly had an interest in how the issue of statutory interpretation would be resolved and the court was also clearly keen to determine the proper interpretation of the transitional provisions applicable to the 2010 Act, having been informed that unless there was some authoritative decision on the issue there was likely to be an accumulation of claims against insurers under the 2010 Act, giving rise to a strong risk of wasted time and costs.
The judge allowed Zurich’s application to strike out the claim, holding that on the proper construction of the transitional provisions it was clear that the 2010 Act did not apply to the claim. He held that the claimant’s proposition that the insured had not incurred a liability to the deceased employee before the 2010 Act came into force did not stand up even to the most casual scrutiny. For the purposes of both pieces of legislation, it was well established in law that liability is incurred when the cause of action is complete and not when the claimant has established the right to compensation (by judgment or otherwise).
The judge also dismissed what he described as the “brave” submission by the claimant that the transitional provisions allowed the 2010 Act to apply retrospectively but in parallel with the 1930 Act. He noted that the purpose of transitional provisions was to identify the respective scope of application of earlier and later legislation. If the claimant’s approach were correct, there would be no such transition because the 2010 regime would apply retrospectively and indiscriminately without reference to any point or circumstance of transition. He also noted that if Parliament had intended the 2010 Act retrospectively to apply to all third party claims against insurers then it would have taken a relatively straightforward drafting exercise to achieve this. It was held that in any given circumstance, either the 1930 Act applies or it does not. Where it does continue to apply then the 2010 Act has no application.
This appears to be the first judicial decision on the scope and application of the transitional provisions of the 2010 Act and, given the ‘test case’ nature of it, maybe the last?