Many people making personal injury claims may overlook the practical problem of making a claim for compensation if the person or business has no way of being able to pay the claim.
Take for example the following scenario:
A cyclist is not paying attention to where they are going and runs you over while you are crossing the street. As there is no requirement for cyclists to carry insurance, even though you may have sustained terrible injuries that were clearly the cyclist’s fault, you may not be able to successfully sue them. If the uninsured cyclist has no assets, it doesn’t matter how much the judgement is against them, they are unlikely to be able to pay you your compensation.
However, most people would expect large companies to either have relevant insurance or profits to compensate the injured party but what happens if you make a claim against a company that then goes bankrupt?
Since the 1930s, when the Third Party Rights Against Insurers Act 1930 came into force, there has been a method to ensure that if you are making a claim against a company/individual that goes bankrupt, there is a way to ensure that you get your compensation so long as that company or the individual had an insurance policy that covers your accident. Unfortunately, there were several problems with the 1930 Act that have been largely addressed in new legislation that came into effect on 1 August 2016.
Five key improvements since the new law came into force
- There is now no need for multiple sets of proceedings. There is no longer a need to arrange for the bankrupt company to be restored to the register of companies at Companies House. Claims can now be made against the insurer directly.There is also no longer a need to obtain a judgment against the defendant company before then being able to go after the insurer for the money. The 2010 Act allows those making claims to do everything that needs to be done under one set of proceedings. For example, they can simultaneous pursue the claim regarding whether the company was to blame for the accident at the same time as the proceedings to obtain an order that the insurer pay the compensation to the claimant.
- Insurers must now provide information to those making claims against companies they insure.If someone making a claim believes that they have a claim against a bankrupt company, the 2010 Act allows the claimant to obtain information about the policy both before and after the issue of court proceedings. As long as claimants can prove that there was a contract of insurance that covers their accident then the claimant can obtain information to include:a) The identity of the insurer
b) The terms of the insurance policy
The insurer must provide the information within 28 days. If they do not, the claimant is permitted to apply to the court for an order forcing the insurer to provide the information.
The major advantage of this is that those who wish to make a claim can make informed decisions on whether or not they believe they stand a chance of actually being paid any compensation that may be awarded to them if their claim is successful.
- The Act prevents the insurer from avoiding paying out compensation on the basis that the insured company failed to comply with the terms of the policy regarding reporting of the accident. The Act states that any step taken by the injured person in bringing a claim against the insurance company will be treated as fulfilment by the insured company of its contractual duties. This means that even if the bankrupt company failed to report the accident to its insurers, if a claimant proves that the defendant company was at fault for the accident this will be sufficient. Therefore, if an insurer wants to defend the claim it must now defend the actual claim i.e. it must prove to a court that the insured company was not at fault for causing the accident.
- The insurer can no longer take advantage of the “pay first” clauses. This means that settlements need to be paid in full by the insurer, regardless of any obligation the bankrupt company may have had to pay the first portion of the claim themselves.
- Insurers can still defend the claims on the basis of, for instance, breach of warranty, but claimants will be made aware of the fact that the defendant wishes to defend the claim on this basis at a much earlier stage.
There is however, one major downside. The act is not retrospective and only applies to cases in which the company that is being claimed against went bankrupt on or after the 1 August 2016. Therefore, for all claims where the insured company or individual went bankrupt before 1 August 2016 the old 1930 Act still applies.
The Act also only applies where there has been an event of insolvency in relation to the insured. Therefore, there will still be difficulties for claims where the company is yet to go bankrupt.
Nikolai Llewellyn specialises in high value accident and workplace injury compensation claims, with a particular focus on assaults in the workplace. He has represented numerous clients, particularity NHS workers, following assaults during their employment. He also gives lectures on the subject.