Third Parties (Rights against Insurers) Bill [HL]

My Lords, this Bill implements, with minor modifications, the recommendations of the Law Commission and the Scottish Law Commission in their joint 2001 report, Third Parties— Rights Against Insurers. I am very grateful to the Law Commissions for their work. The Bill comes before your Lordships’ House as the second Bill under the trial procedure for Law Commission Bills. Like the first Bill under the procedure, which became the Perpetuities and Accumulations Act 2009, it is technical in nature. However, while the subject matter of that Act lays very much in the area of lawyers’ law and requires a good deal of understanding of that law to appreciate its impact, this Bill is more accessible and more obviously relevant to ordinary people in ordinary situations. Put simply, its core purpose is to create a more straightforward and cheaper route to compensation for people who find themselves caught up in a dispute with someone who is insolvent. To achieve this objective the Bill simplifies and modernises the procedure to be followed, not the substantive law underlying it. The Bill also differs from the 2009 Act in that it applies to the whole of the United Kingdom. In relation to Scotland, the subject matter of the Bill is reserved and therefore the Bill will apply there. In 2001, when the report of the Law Commissions was published, there was not a Law Commission for Northern Ireland. The Bill has been extended to Northern Ireland at the request of the devolved Administration following public consultation there. The Bill will therefore replace not only the Third Parties (Rights against Insurers) Act 1930, which applies to England, Wales and Scotland, but also the Third Parties (Rights against Insurers) Act (Northern Ireland) 1930. As noble Lords will have noticed, the Bill looks different from the draft Bill attached to the Law Commission report. Obviously, some changes were necessary to incorporate provisions for Northern Ireland, but the main changes are intended to make the Bill easier to understand. As noble Lords who were at the open meeting last week to hear Mr David Hertzel’s presentation on the Bill may be aware, the Bill in its present form is fully supported by the Law Commission. Mr Hertzel is the law commissioner responsible for common and commercial law. He was accompanied by Lord Justice Munby, now the chairman of the Law Commission, whose presence underlined the support of the commission for the Bill and the new procedure. Before going into the Bill in detail, I thank those who have been instrumental in developing this new procedure. I cannot possibly predict whether the procedure will be made permanent—that is a matter for the Procedure Committee and the House—but I am encouraged by the experience of helping to take through the House the Perpetuities and Accumulations Bill, as it then was, and I believe that a permanent procedure could make a real difference to the rate at which Law Commission recommendations can be implemented. The development of the new procedure was only possible because of the co-operation between all sides of your Lordships’ House—the Government, opposition parties and Cross-Benchers—and I hope that we will be able to carry this spirit forward throughout our debates because the new procedure is obviously founded on the principle of consensus. The overall aim of the Bill, which is based on and is the result of extensive consultation, is to modernise a procedure dating from 1930, where a person suffering injury or loss caused by a person who is or becomes insolvent can claim compensation from the wrongdoer’s insurer. This is well supported across the whole of the insurance field. The Bill continues the underlying policy of the 1930 Acts, which is to ensure that on insolvency the proceeds of insurance policies go to the purpose for which they were intended and are not swallowed up in the general funds available to creditors. The key innovations introduced by the Bill relate, first, to the procedure by which the third party’s rights can be established and, secondly, to the process by which the third party can obtain information about the insurance policy. The remainder of the Bill is essentially ancillary to these main reforms. I shall deal, first, with the new procedure before turning to the information rights provisions, and shall end by speaking about some of the remaining modernising features of the Bill. The starting point under the 1930 Acts and the Bill is that, where a person is owed a liability by another and that other person is or becomes insolvent, the rights of the insolvent person against his or her insurers are automatically transferred to the person owed the liability, whom we refer to as the third party. I hope that it will not be considered cheeky if I give a couple of short examples of the type of situation in which the 1930 Acts and the Bill apply. My first example is Mr Brown, who is our third party. He employs a builder, who is the insured, to refit his shop. The building contractor has liability insurance with an insurer. While carrying out work on the refit, the building contractor damages the electrical supply system. Unfortunately, before Mr Brown can recover damages from the builder, the builder goes into liquidation, but Mr Brown, the third party, is given a right to claim for the money owed to him by the builder—the insured—under the builder’s liability insurance. The second example concerns a Mr Smith, our third party. He has been diagnosed with cancer as a result of exposure to asbestos at work and has been told that he has a life expectancy of one year. He would like to claim compensation from his employer for loss of earnings and loss of pension. His employer, our insured, had insurance to cover liabilities to employees but has since become insolvent and gone out of business. Therefore, Mr Smith, the third party, is able to receive the compensation that he should have received from his employer from his employer’s insurer. 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 to the third party. This may require the third party to bring proceedings against the insured. If the insured is a dissolved company that has been removed from the register of companies, at present the third party must bring proceedings to restore it to the register in order to be able to sue it. The Bill removes the need for these separate proceedings against the insolvent person and thereby removes the need to restore companies to the register. It does this by allowing the third party to issue proceedings against the insurer to establish, first, the insured’s liability and, secondly, the potential liability of the insurer. This removes the need for preliminary proceedings against the insured. To achieve that outcome, Clause 1 defines when the statutory transfer of the insured’s rights to the third party occurs and specifies when the third party may enforce those rights. Clauses 2 and 3 introduce the new procedure that may be used to establish, first, the insured’s liability and, secondly, the potential liability of the insurer, and describe how the new procedure is intended to work. For these provisions to operate, the insured must be a "relevant person". That means that he or she is either insolvent or subject to any of the other insolvency-type events specified in Clauses 4 to 7. These provisions are very detailed and update the equivalent provisions in the 1930 Acts to take account of changes in insolvency- related law. The transfer of rights under Clause 1 is not intended to put the third party in a better, or worse, position than the insured or to affect anything other than the entitlement to the proceeds of the insurance policy in relation to the liability in issue. This general rule is subject to three qualifications, where it would not be appropriate for the insurer to be able to rely on the strict interpretation of conditions in the insurance policy requiring the insured person—who may be dead or dissolved—to perform some act in person. These provisions are set out in Clauses 8 to 10 and Clause 14. The qualifications I have mentioned are in Clause 9. I turn now to the right to information, the second major reform in the Bill. Under the 1930 Acts, the right to obtain information does not arise until the insured’s liability has been established. Until then, the third party may have to conduct litigation in ignorance of whether any rights under the 1930 Act have been transferred. As a result, time and money may be wasted pursuing a worthless claim. Alternatively, a worthwhile claim may be abandoned in the belief that there would be no funds to pay a judgment. Clause 11 and Schedule 1 set out a clear disclosure regime, which remedies the problem. It enables a third party to write to someone whom they reasonably believe can provide the information the Bill specifies. That would include either an insurer or a broker. The information which a third party may seek is clearly listed in the schedule. The duty of a person who receives a request for information is also clearly set out—he or she must respond within 28 days. This ensures that a third party is able to obtain the information he or she needs to commence or continue proceedings without creating a system that is unduly onerous or costly for those who are providing the information. The remaining provisions contain a number of important but ancillary reforms, which I will briefly outline. Clause 12 sets out limitation rules relating to claims under the Bill. Clause 13 deals with jurisdiction to deal with claims under the Bill as between different territories in the United Kingdom. Clauses 15 to 19 define aspects of the scope of application of the Bill. Clause 15 specifies that the Bill does not apply to reinsurance liabilities. This follows the 1930s Acts. Clause 16 ensures that the Bill applies to voluntarily incurred liabilities such as liabilities covered by legal expenses insurance, health insurance and car repair insurance. This removes the doubt that existed under the 1930 Acts as to whether these liabilities were within the scope of the statutory scheme. Clause 17 includes anti-avoidance provisions to ensure that the effects of the Bill are not nullified by the way in which an insurance contract is drafted. Clause 18 provides a clear statement that the Bill will generally apply irrespective of whether the case has a foreign element. Finally, the Bill deals with the question of when it will apply and when the old law will continue to apply. This is essential as there will be ongoing cases when the Bill is brought into force. Clause 20 and Schedule 3 specify that the Bill will apply to all cases where the insured incurs a liability or becomes a relevant person after the Bill comes into force. In cases where both of these events occur before the Bill comes into force the present law will continue to apply. I began by saying that this Bill was simpler than the Perpetuities and Accumulations Act 2009, but I did not say it would be simple. I am sure that we will have interesting discussions about the proposed reforms, and that experts will have different views on some of them. I can, however, assure the House that the reforms we have proposed are based on consultation with experts and are believed to represent a generally supported consensus. I take this opportunity of thanking all those who have taken part in the preparation of the Bill. We believe the Bill will make the law simpler and less expensive to operate. It should bring real benefits to people in difficult situations. It should also benefit insurers by simplifying the procedures within which they have to operate. Despite the impression that may be given by its name, which merely follows the 1930 Acts, this is not in any sense a Bill against insurers—it is a Bill for all sides of the insurance industry. I commend the Bill to the Committee.