Third Parties (Rights Against Insurers) Act 2010 Retrospectivity Determined: Redman v Zurich Insurance Plc & ESJS1 Limited [2017] EWHC 1919 (QB)

We reported in edition 143 of BC Disease News that the Third Parties (Rights Against Insurers) Act 2010 had come into force on 1 August 2016 – 20 years since the Law Commission recommended reforms in this area and 6 years since the Act received Royal Assent.

The 2010 Act addresses the process by which third party claimants issue proceedings against the insurer of an insolvent insured. It incorporates developments in insolvency law over the course of the last 80 years, whilst simultaneously updating and repealing the Third Parties (Rights Against Insurers) Act 1930.

As a reminder, the key provisions of the 2010 Act are as follows:

  1. The Act removes the costly- financially and with respect to time – process of multiple proceedings. Under the 1930 Acts, a third party cannot issue proceedings against an insurer without first establishing the existence and amount of the insured’s liability. This may involve expensive and time-consuming legal proceedings. The Act removes the need for multiple sets of proceedings by allowing the third party to issue proceedings directly against the insurer and resolves all issues (including the insured’s liability) within those proceedings.
  2. The third party is no longer required to issue proceedings for the insolvent insured to be restored to the Company Register in order to sue, as established in the 1930 Act. This is because the 2010 Act allows for proceedings to be immediately initiated against the insurer.
  3. The Act improves the third party’s rights to information about an insurance policy allowing the third party to obtain information at an early stage about the rights transferred to him or her in order to enable an informed decision to be taken about whether or not to commence or continue litigation. If the third party reasonably believes that an insured has incurred a liability against the third party, then that third party is now entitled to issue a notice to an insurer requesting information on their insurance policy before any liability is established against an insured and the information is to be provided within 28 days of the request. This notice may also be sent to any entity that could reasonably be believed to know about it e.g. an insurance broker, an employee or an administrator/liquidator of the company.
  4. The scope of the 2010 Act has been enlarged, removing the ambiguity of the 1930 Act by stating that the voluntary incurred nature of a liability does not matter. It will also apply regardless of the presence of any foreign element in a domestic insolvency, such as the insurer being based abroad or in the instance whereby and insurance policy was chosen to be created under a foreign legal system.
  5. It is of note that the 2010 Act does not apply to reinsurance.

Importantly, the transitional provisions of the 2010 Act state that the new Act will only apply to claims in which the insolvency process commenced on or after 1 August 2016, or the liability for which the relevant person is insured, was incurred on or after that date.

Although this point seems clear, based on the legislation itself, the High Court last month felt it necessary to consider the issue of retrospectivity in Redman v Zurich Insurance Plc & ESJS1 Limited [2017] EWHC 1919 (QB).

The facts of this case were as follows; between 1952 and 1982, the deceased worked for EJS1. On 5 November, the deceased died from lung cancer, alleged to have been caused by exposure to asbestos during his employment with the defendant. Soon after, ESJS1 was the subject of a voluntary winding up on 30 January 2014 and was finally dissolved on 30 June 2016.

The deceased’s widow then brought a claim for negligence against the defendant, on the grounds that they had exposed the deceased to asbestos, causing his lung cancer. The claimant brought the claim under the 2010 Act, in order to circumvent the more onerous requirements of the 1930 Act.

The defendant sought to strike out the claim, or, alternatively, to obtain summary judgment.

The issue in this case was therefore the extent to which the 2010 Act applies retrospectively to cover claims where the remedies of the claimant would previously have been covered only by the less attractive 1930 regime.

In considering this point, Mr Justice Turner first turned to the drafting of the transitional provisions within the 2010 Act. He concluded that:

The wording of schedule 3 makes it expressly clear that under section 1(1) where two conditions are fulfilled the 1930 Act continues to apply. The conditions are that before 1 August 2016:

  1. The relevant person has incurred a liability against which that person is insured under a contract; and
  2. The person subject to such a liability has become a “relevant person”’.

The term ‘relevant person’ refers to an individual or corporate body falling within any of the formal legal categorisations of insolvency therein listed in the Act.

In this case, there was no dispute that ESJS1 became a relevant person under section 6 of the 2010 Act when it was being wound up voluntarily, which occurred over two and a half years before the 2010 Act came into force.

The claimant made several arguments. Firstly, it was argued that ESJS1 had ‘not incurred a liability against which that person is insured under a contract’ before 1 August 2010. However, Turner J immediately found, without hesitance that ‘such a proposition does not stand up even to the most casual scrutiny’. In doing so, he relied upon the dicta of Lord Denning in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 Q.B. 363, in which it was said:

Under that section [section 1 of the 1930 Act] the injured person steps into the shoes of the wrongdoer. There are transferred to him the wrongdoer’s “rights against the insurers under the contract.” What are those rights? When do they arise? So far as the “liability” of the insured is concerned, there is no doubt that his liability to the injured person arises at the time of the accident, when negligence and damage coincide. But the “rights” of the insured person against the insurers do not arise at that time’.

This line of argument was shortly abandoned by the claimant and Turner J concluded that:

In my view, this decision was not only right but inevitable. Liability is incurred when the cause of action is complete and not when the claimant’s rights against the wrongdoer are thereafter crystallised whether by judgment or otherwise’.

The claimant, having to therefore concede that the 1930 Act did indeed apply to this claim, then relied upon their second, more tenuous argument, namely that the proper interpretation of the transitional provision was that the application of the 1930 Act does not preclude the retrospective but parallel operation of the 2010 Act to all claims which had previously been brought under the 1930 Act. In justifying this approach, the claimant pointed out that this would avoid the need to identify the date upon which damage was caused which can often be challenging in industrial disease claims. In particular, identifying the point at which the process of the development of malignancy gives rise to damage can be controversial.

However, the judge described this submission as ‘brave’ and as ‘an interpretation of the schedule which not only bore no relation to the basis upon which this claim was purportedly brought under the 2010 Act but was entirely inconsistent with it’.

In rejecting it, he outlined the following 3 grounds:

‘i) The purpose of transitional provisions is 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 2016 regime would apply retrospectively and indiscriminately without reference to any point or circumstances of transition. I invited counsel for the claimant to identify any circumstances within the scope of his interpretation in which the 1930 regime would operate and not the 2010 regime. He was unable to do so.

ii) If Parliament had intended the 2010 regime retrospectively to apply to all third party claims against insurers then it would have taken a relatively straightforward drafting exercise to achieve this.

iii) If the provisions of the 2010 Act were to apply retrospectively but in parallel with the 1930 regime then one would expect that there would be some merit in affording the claimant a choice between the two. However, counsel for the claimant was unable when pressed on the topic to identify any circumstances in which it would benefit a claimant to elect to deploy the more procedurally unfavourable provisions of the 1930 Act’.

As such, the defendant’s application to strike out was successful on the grounds that the claim disclosed no reasonable grounds for bringing a claim.

It is clear then that:

  • A relevant person incurs a liability under section 1 of the 2010 Act when the cause of action is complete and not when the claimant has established the right to compensation whether by a judgment or otherwise;
  • The transitional provisions do not provide for the 2010 regime to be applied retrospectively so as to run in parallel with the 1930 regime. In any given circumstances, either the 1930 regime applies or it does not. Where it does continue to apply then the 2010 regime has no application.

It was stated within the judgment that a number of claims were expected to be brought against insurers under the 2010 and it was hoped that this decision on the proper interpretation of the transitional provisions would prevent an accumulation of such claims giving rise to wasted costs and time.

The full judgment can be accessed here.