Compendium of Insurance Law

Professor Robert Merkin KC and Johanna Hjalmarsson

Document

6 LIABILITY INSURANCE

OVERVIEW

6.1 There has been greater statutory intervention in the field of liability insurance than in any other area of substantive insurance law. A number of statutes require compulsory insurance to be in place as a condition of carrying on a particular form of activity. The relevant statutes are:

(a) Riding Establishments Act 1964 (insurance against liability for personal injuries arising out of the use or hire of a horse);
(b) Nuclear Installations Act 1965 (insurance to be held by operators of nuclear establishments against the consequences of nuclear accidents);
(c) Employers’ Liability (Compulsory Insurance) Act 1969 (insurance against liability for personal injury to employees employed in Great Britain);
(d) Solicitors Act 1974 (insurance against professional negligence);
(e) Credit Unions Act 1979 (insurance against loss or liability caused or incurred by reason of fraud or dishonesty of employees);
(f) Estate Agents Act 1979 (insurance against liability for mishandling client money);
(g) Road Traffic Act 1988 (insurance against liability for use or permitting use of a motor vehicle, in respect of personal injury or property damage);
(h) Osteopaths Act 1993 (insurance against professional negligence);
(i) Merchant Shipping Act 1995 (insurance by owners of oil tankers and other vessels against liability for oil pollution, including liability for bunker oil);
(j) Merchant Shipping and Maritime Security Act 1997 (insurance against liability for ships in UK waters, other than oil pollution liability).

The relevant parts of the legislation and implementing regulations are set out in this chapter, with the exception of the Road Traffic Act 1988 which is treated separately in chapter 7.6.2 In addition to legislation requiring insurance, the rules of professional organisations commonly do the same.6.3 The statutes which impose a requirement for liability insurance do not on the whole dictate the terms upon which liability insurance is to be taken out, other than by identifying the risks against which insurance must be available. There are, however, important exceptions to this principle in the Employers’ Liability (Compulsory Insurance) Act 1969 and the Road Traffic Act 1988, both of which to a greater or lesser extent intervene in the contractual arrangements between the parties by depriving the insurer of the right to plead defences that would otherwise be available. Professional rules may also require insurers to forego rights of avoidance and termination for breach of warranty in policies issued by them to lawyers, accountants and others.6.4 The existence of liability insurance, whether or not compulsory, is expressly recognised by the Third Parties (Rights against Insurers) Act 1930. This Act overcomes the common law rule that the proceeds of a liability policy form part of the assured’s general assets in the event of his insolvency, by permitting the third party victim of an insolvent assured to bring direct proceedings against the liability insurer and thereby preventing the insurance proceeds from forming part of assets which are to be applied in favour of all creditors. As will be apparent from the annotations to the 1930 Act, it has, over the years, been proved to have a series of fundamental weaknesses, and in 1995 the Law Commission instigated an investigation of its provisions, producing a consultation paper in January 1997 and a final report in 2000. To date the Law Commission’s recommendations for fundamental changes to the 1930 Act has not been implemented. One change, contained in the amended version of s 651 of the Companies Act 1985, is modification of the time limits available for an application to be made for the restoration of a dissolved company to the register of companies so that its liability can be established for the purposes of the 1930 Act. That section has been replaced by Chapter 3 of Part 31 of the Companies Act 2006 (ss 1029 to 1032).6.5 Liability insurers are affected by Government policy to recoup from those inflicting personal injuries on victims any social security payments made to, and National Health Service charges incurred by, the victim. This is achieved by two pieces of legislation, the Social Security (Recovery of Benefits) Act 1997 and the Health and Social Care (Community Health and Standards) Act 2003. These Acts, supported by implementing Regulations, establish the Central Recovery Unit which is charged with the responsibility of recovering payments and charges from wrongdoers and their liability insurers. The schemes under the two pieces of legislation are more or less identical, and only the latter is reproduced in this work.

6.20 THIRD PARTIES (RIGHTS AGAINST INSURERS) ACT 1930

(20 & 21 Geo 5 c 25)

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