UK: Parliament Approves Amendments to Third Party Rights Against Insurers

Last Updated: 30 April 2010
Article by Tony George and Edward Hicks

After more than 80 years, the law governing the rights of third parties against insurers has finally been given an overhaul, with the passing of the Third Parties (Rights Against Insurers) Act 2010. The aim is to make it easier, quicker and cheaper for third parties to recover compensation from the insurer of a defendant who is insolvent or subject to an insolvency procedure.


The original right of third parties to recover compensation from insurers in such circumstances was granted by the Third Parties (Rights Against Insurers) Act 1930. The mischief that the Act was designed to cure was the application of the proceeds of an insurance policy for the benefit of creditors generally, when in fact the insured's entitlement to the proceeds only arose as a result of the third party's claim.

The Act, however, has long been criticised as ineffective and in need of reform. It is simply too difficult for third parties to succeed with claims against insurers under the current regime. Amongst the problems are:

(a) The technical hurdles: under the 1930 Act, there were numerous technical hurdles for the third party claimant to overcome. These included the requirement to establish liability against the insured before bringing a claim against the insurer, which was felt to be a waste of costs and time. Connected to this was the need to restore an insolvent company to the Register of Companies before bringing a claim, a requirement which was also felt to lack justification;

(b) Information: the manner in which the Courts interpreted the 1930 Act caused delay and expense for third party claimants. For example, the third party did not have the right to information about the policy until the liability of the insured had been established and quantified (Woolwich B. S. v Taylor [1995] 1 BCLC 132). It has therefore proved difficult for prospective claimants to know whether it is worth bringing a claim, because of the lack of information as to the existence of the policy and its terms and level of cover; and

(c) Policy defences: the effectiveness of the 1930 Act was diluted by the Courts upholding the validity of a number of policy defences available to insurers. The amended Act seeks to limit their application, whilst being careful to ensure that the third party claimant is not given greater rights under the policy than the insolvent insured would themselves have had.

The changes

The Act was passed on 25 March 2010 and brings about a substantial number of changes to the existing legislation. The most important of these can be summarised as follows:

(a) The technical hurdles: in an effort to save time and costs, the need to prove the liability of the insured before bringing a claim against the insurer has been abolished. In the event of the insolvency of the insured party, the third party claimant is given a statutory transfer of the benefit of the policy. The claimant can thus bring a claim directly against the insurer although recovery will, of course, still require them to show that the insured was liable for their loss. There is also no longer a need to restore a defunct company to the Register before proceeding with any claim.

(b) Information: the Act allows a party who reasonably believes that a transfer of rights has occurred to obtain information from parties such as brokers; and

(c) Policy defences: the Act removes the ability of insurers to rely on a number of defences that would be available against the insured, such as the requirement that the insured give the insurer notice of a claim. One of the more interesting, and widely discussed, changes is the curtailment of the pay to be paid rule.

The pay to be paid rule is most often seen in P&I insurance. Its effect is that P&I Clubs are only obliged to indemnify a member once the member has discharged a liability. Whilst in reality this requirement is often waived, it operates as an important part of P&I cover, helping to keep costs down and is part of the system of mutuality upon which the Clubs are based. The validity of such a pay to be paid rule was established in the case of The Fanti/Padre Island (No.2) [1990] 2 All ER 705.

During the consultation stage, much of the commentary surrounding the proposed Act suggested that its enactment would radically curtail the pay to be paid rule and that the Clubs would be adversely affected. The concern is unfounded. The Act exempts contracts of marine insurance (under which P&I cover falls) from the restrictions on the pay to be paid rule, except in cases of personal injury and death.

Even so, one might criticise this limited change as being contrary to the principle of mutuality since it puts insolvent members in a better position than their solvent colleagues. However, this change is far from radical and we doubt it will come as a big shock to the managers of P&I Clubs, who have long-accepted that, in practice, they are unlikely to rely on the pay to be paid rule in respect of personal injury and death, whether in respect of their members or third parties. Indeed, the Clubs have been on notice ever since the The Fanti/Padre Island when comments from Lord Goff gave them a firm indication that, should they attempt to rely on the rule in cases of personal injury or death, Parliament might be obliged to step in to remedy the situation through legislation.

Likely effects

Although pay to be paid rules remain largely intact in marine insurance wordings, the Act may still have an impact on insurers. One can anticipate an increased number of third party claimants will be successful in recovering against insurers when the party liable is insolvent. There is also likely to be an increase in requests for information by potential third party claimants, leading to increased costs and expenditure of time for the insurance industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.