Potential increase in claims against Insurers as a result of the pandemic

As a consequence of the COVID-19 pandemic, it is likely that we will see a rise in the number of claims brought against employers and insolvent companies, and in turn a rise in the number of claims brought against Insurers under the Third Party (Rights against Insurers) Act 2010 both in the civil courts and in the Employment Tribunal.

The recent developments outlined below highlight the attitude of the Courts in relation to claims issued pursuant to the 2010 Act and its scope.

Before the 1 August 2016 a Third Party wishing to pursue a claim against a dissolved company’s Insurers was required to restore the company to the Companies Register and obtain a Judgement against that company before being in a position pursue its Insurers, pursuant to the Third Party (Rights against Insurers) Act 1930 (‘the 1930 Act’).

Following the introduction of the Third Party (Rights against Insurers) Act 2010 (‘the 2010 Act’) on 1 August 2016, a Third Party can pursue a claim directly against Insurers in a single set of proceedings (provided the Insured is a ‘relevant person’) removing the need to restore the dissolved company in order to bring a claim.

By removing the hurdles imposed by the 1930 Act, the 2010 Act makes it easier for a Third Party to pursue a claim against liability Insurers if an Insured becomes insolvent.

Recent Developments

Since the implementation of the 2010 Act, there have been a number of decisions and legislative updates which are of note.

Firstly, the Third Party (Rights against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018/1162 (‘the 2018 Regulations’) came into force on 23 November 2018 and allow Insurers (as well as Claimants) to bring an Application to restore a dissolved Insured company to the Companies Register at any time in personal injury claims. This enables Insurers to be put into the position they would have been in had the claim been brought against them under the 1930 Act. This development is welcomed in particular by Insurers who wish to recover contributions from Co-Defendants in personal injury claims and is a particularly useful tool in disease related claims where there may be multiple Defendants.

The 2010 Act was also considered in the case of AXA Insurance Plc and Lord Bishop of Leeds v Dixon Coles & Gill [2020] EWHC 2089. The Defendant Dixon Coles & Gills was a well-established three partner firm of Solicitors. It was discovered on 24 December 2015 that Mrs Box, Senior Partner, had stolen over £4,000,000 from various clients over the course of a number of years. The firm was subsequently faced with a number of claims and proceedings were brought by two sets of clients collectively.

The firm’s professional indemnity Insurer was HDI Global Speciality SE (‘HDI’) and the policy had an indemnity limit of £2,000,000 on any one claim. Under the policy HDI was obliged to indemnify the innocent partners.

It was argued that all the misappropriations should be classed as a single claim meaning that the single indemnity limit of £2,000,000 would have applied to all the claims brought against the firm, leaving it with an uninsured exposure of £2,000,000.

The Claimants brought a claim directly against HDI under the 1930 Act for a declaration that each of the claims should be treated separately. The claim was allowed with the High Court holding that each theft was a separate dishonest act. HDI sought to argue that the thefts were sufficiently related on the basis that Mrs Box used funds from one client to cover up the theft committed against another client. The High Court rejected this argument on the basis that there must be a sufficient interconnection between the thefts (the thefts themselves had to be related to constitute aggregation) and the fact that all thefts were committed by the same person and concealed was not enough.

This decision, which was delivered by the English High Court on 28 October 2020, emphasises the high threshold for Insurers in establishing that acts are sufficiently related so that multiple claims can be aggregated. It also highlights the difficulty for Insurers in escaping such claims.

A more recent decision concerning the 2010 Act was delivered by the Court of Appeal earlier this year in the case of Irwell Insurance Company Ltd v Watson & others [2021] EWCA CIV 67.

Mr Watson was employed by Hemingway when he brought claims of unfair dismissal and discrimination. Hemingway had taken out indemnity insurance with Irwell. The policy would indemnify Hemingway against any claims from employees or former employees as long as certain policy conditions were met. Hemingway became insolvent and Mr Watson brought a claim in the Employment Tribunal as well as against Irwell. The issue for the Court of Appeal was whether the Employment Tribunal had jurisdiction to hear this claim which hinged on the 2010 Act.

The Employment Tribunal dismissed an Application by Irwell to strike out the disability discrimination claims as having no reasonable prospect of success but stayed the Employment Tribunal proceedings pending determination of the issue as to whether Irwell was liable to Mr Watson under the 2010 Act. Mr Watson succeeded on appeal with the Appeal Tribunal holding that in all respects the Employment Tribunal functions like a Court. Irwell appealed to the Court of Appeal. The appeal was dismissed and the argument that Employment Tribunals were not permitted to deal with questions of insurance law was rejected.

The decision confirms that Insurers can be named as Respondents in Employment proceedings.

Conclusion

The application of the 2010 Act makes it much easier for a Third Party to pursue a claim against Insurers if the Insured becomes insolvent. We are likely to see an increase in the number of insured companies falling foul to the effects of the pandemic and as a consequence a rise in the number of claims pursued against Insurers.

If you would like any further information or advice on this issue, please contact the Defence Insurance Litigation team at Carson McDowell.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.