Commentary on Sections Section 2: Establishing liability in England and Wales and Northern Ireland
19.This section introduces, for England and Wales and Northern Ireland, a new mechanism to enable a third party to bring proceedings against an insurer without first establishing the fact and amount of the insured’s liability.
20.Subsections (1) and (2) entitle a third party who has received a transfer of rights, but who has not yet established that the insured is liable, or has proved that the insured is liable, but has not proved the amount of that liability, to bring proceedings against the insurer.
21.Subsection (2) enables a third party to seek declarations (one or both of which can be asked for by the third party) from the court in proceedings against the insurer. The first declaration (provided for in subsection (2)(a)) will contain the court’s decision on the third party’s allegation that the insured is liable to him. The second declaration (provided for in subsection (2)(b)) will contain the court’s decision as to whether the insurance policy covers the liability incurred by the insured against the third party.
22.Subsection (3) provides that the third party is entitled to the declaration(s) requested where he or she has proven his or her case. In the absence of this provision, a decision on whether to grant the declarations applied for would be within the discretion of the court.
23.Subsection (4) enables an insurer facing a claim from a third party using the mechanism in this section and claiming a declaration as to the insured’s liability (under subsection (2)(a)) to rely on any defence which would have been available to the insured had proceedings been taken against the insured (for example, estoppel, contributory negligence etc).
24.Subsection (5) adjusts the operation of subsection (4) in the specific circumstances set out in section 12(1).
25.Subsection (6) empowers a court to give “the appropriate judgment” where the court has made a declaration the effect of which is that the insurer is liable to the third party. In many cases, this will be a judgment for a particular sum of money. However, if argument on the amount of the liability has been postponed, either to a later court hearing or to arbitration, the court might grant judgment for damages to be assessed.
26.Subsections (7) and (8) extend the benefit of the new mechanism to third parties who are entitled or obliged, by a provision in the insurance contract, to resolve the issue of the insurer’s liability in arbitration proceedings.
27.Subsection (9) provides that a third party who uses the new mechanism and applies for a declaration under subsection (2)(a) may join the insured as a defendant to the action at the outset. It will be possible to join the insured later in the proceedings in accordance with rules of court.
28.However, if a third party chooses not to join the insured as a defendant, the court may be required to make a declaration under subsection (2)(a) concerning the insured’s obligations, in the absence of the insured. It would be inappropriate if a declaration made in such circumstances bound the insured. Accordingly, the effect of subsection (10) is that an insured is only bound if he or she is a defendant to the third party’s claim.
29.In addition, it is intended that amended rules of court will require a third party to inform the insured of his or her action against the insurer, which will give the insured the option of applying to be joined as a defendant.