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Disputing rights against insurers

Following the judgment of the Technology and Construction Court (TCC) in BAE Systems Pensions Funds v Royal and Sun Alliance Insurance plc and others in July, it appears that a potential dispute as to coverage is not a blocker to an insurer being joined into proceedings under the Third Parties (Rights Against Insurers) Act 2010. What does this mean for those of us either bringing or defending such proceedings?

The issue that arose in BAE was that insurers considered that their insured and the potential defendant, Twintec Limited, were aware of the relevant harmful event when the policy was taken out. The policy itself did not provide cover for such events, which were already in the insured’s knowledge. Accordingly, insurers sought to decline cover.

At this point, one might be forgiven for thinking that it is game over for the claimant, since section 1 of the Act applies “where a person is insured”. Insurers would argue that Twintec were clearly not insured. However, claimants are potentially saved by section 2.

Section 2 of the Act still allows a potential claimant to bring a claim against an insurer for either a declaration of the insured’s liability to the claimant or a declaration as to the insurer’s potential liability to the claimant.

The court dismissed the following arguments (amongst others) by insurers:

  • Twintec had not substantively challenged the correspondence relied upon by insurers. At that stage, it was not clear whether the facts giving rise to the claim were the same as those of which Twintec had knowledge prior to the inception of the policy. Full investigation of the facts was therefore necessary.
  • If the claim was allowed, a potential claimant would be free to join any insurer to the proceedings even though both the insured’s liability and that of insurers had not been proven beforehand. The court, however, decided that an unarguable claim can simply be struck out.
  • The insurer would incur substantial costs in defending the claim for a declaration as to Twintec’s liability. Those costs would be wasted. The court considered that such issues could be dealt with prior to trial by way of preliminary issue.

Jurisdictional arguments also arose. These were more case specific and are therefore outside of the scope of this blog, save that questions arose as to whether the coverage dispute fell to be dealt with by the French courts or under an arbitration clause.

The court’s answer in this case was to stay the proceedings in respect of section 2(2)(b) of the Act; that is, that part of the claim seeking a declaration as to the insurers’ liability to the claimant. This was due to potential limitation issues related to the jurisdictional question. The court was acutely aware that it could be the appropriate forum in any event, only for limitation to have expired.

Meanwhile, the proceedings under section 2(2)(a) (the seeking of a declaration as to Twintec’s liability to the claimant) were allowed to continue.

What does this mean for those of us acting in matters where the Act would apply to the insurers of an insolvent defendant but where insurers challenge coverage?

  • Questionable coverage is by no means a blocker to the Act being effective in joining an insurer into proceedings.
  • Where insurers are joined, a claimant only has to claim to have rights under the Act. A claimant does not have to establish those rights first.
  • Unarguable claims against insurers can be struck out. This may serve as some comfort to those acting for insurers in respect of costs exposure.
  • Also on the matter of costs, coverage issues may be dealt with as preliminary issues, so as to avoid wasting costs when preparing for a full blown trial.
Kennedys Janet Brook

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