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The case of Rashid v Direct Savings Ltd [2022] 8 WLUK 108 considered the question of limitation in the context of the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act) and specifically whether the limitation period continues to run on the insolvency of the insured defendant. The court found that there was a distinction to be drawn between the 2010 Act and its predecessor the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act) and that under the 2010 Act time does continue to run.

Background

The Third Parties (Rights Against Insurers) Act 1930 and its replacement, the 2010 Act, assist a claimant who has a claim against an insolvent person/entity, where that claim is insured.  The legislation allows the claimant to seek an indemnity for the claim from the defendant's insurer.

There is no specific provision in either Act which answers the question whether the limitation period continues to run after the insolvency of the insured.

However several cases considered this issue under the 1930 Act.  Those cases established that a third party can bring a claim under the 1930 Act long after the usual limitation periods, provided that any claim against the insured defendant would have been in time at the date of the insured's insolvency (Re General Rolling Stock Co. Ltd (1872) LR 7 Ch App 646). In Financial Services Compensation Scheme v. Larnell (Insurances) Ltd [2005] EWCA Civ 1408, the court considered whether the statutory regime for the administration of a company’s assets in liquidation, which prevented time running under the Limitation Act 1980 after the winding up resolution, applied to a claim under the 1930 Act. The court held that it did and so the claim against insurers under the 1930 Act benefited from this suspension of limitation.

The key question which arose in Rashid was whether the same approach applied to claims under the 2010 Act.

Decision

Gosnell J considered the different provisions under the 1930 and 2010 Acts and whether Larnell could be distinguished.

One of the most significant changes brought in by the 2010 Act was that a third party can proceed directly against an insurer as soon as the defendant insured is subject to an insolvency event. This allows the resolution of issues relating to both the insured's liability and policy coverage in a single set of proceedings.  Previously under the 1930 Act there was a two stage process with the third party being required to establish liability against the defendant insured before it could proceed against the insurer for insurance proceeds to satisfy its claim.

In light of this change, Gosnell J concluded that the decision in Larnell could be distinguished and that limitation continues to run in a 2010 Act claim even after the insolvency procedure had begun. Since the 2010 Act permits a direct claim against the insurer without the insolvent insured having to be joined as a party, the reason for suspending the limitation period on insolvency, namely to enable the liquidator to collect the company's assets and distribute them fairly without having to deal with litigation from the company's creditors, does not apply in a 2010 Act claim.

Comment

We understand that Rashid is the first reported case to consider the issue of limitation in the context of the 2010 Act and provides important clarification on this issue.

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Fiona Treanor

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Sarah Irons

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Key contacts

Fiona Treanor photo

Fiona Treanor

Partner, London

Fiona Treanor
Sarah Irons photo

Sarah Irons

Professional Support Consultant, London

Sarah Irons
Fiona Treanor Sarah Irons