ABSTRACT

If an insolvent1 has insured against liabilities which it has incurred to a third party, either before or after the insolvency, the third party can compel the insurance company to pay the insurance money directly to him or her under the Third Parties (Rights Against Insurers) Act 1930. This right does not arise until the existence and amount of the liability has been established. This can give rise to problems where an insolvent company is dissolved without the liability having been established, as happened in Bradley v Eagle Star Insurance Co Ltd.2 The court has the power under s 651 of the Companies Act 1985 to declare the dissolution void and revivify the company but only if an application is made within two years of the date of dissolution. Some liabilities against insurance companies only arise when the insured has paid out on the claim; if the insured goes into liquidation or bankruptcy before paying the third party, there will be no right capable of being transferred to the third party.3 The 1930 Act gives the third party a right to obtain information about the insurance policy. However, in practice, that right is often worthless. The right to information is restricted because it does not arise until the liability of the debtor is established and this may not be until some time after the debtor has become insolvent. Until then, the third party may have to conduct litigation in ignorance of whether he or she has any rights under the 1930 Act or, if they have, whether they are of any value. As a result, time and money may be wasted pursuing a worthless claim or a worthwhile claim may be abandoned in the belief that there are no funds to pay a judgment. There will be no protection for the third party if the insurance company has already paid the insolvent insured; in that case, the insurance moneys form part of the general assets and the third party will be an ordinary creditor in the insolvency. It is not possible to contract out of the provisions of the 1930 Act nor for the insured and insurer to come to any arrangement after the start of the insolvency which would defeat or affect the rights of the third party.