Commentary on Sections Section 9: Conditions affecting transferred rights
42.The rights transferred to the third party are subject to all of the defences which the insurer could use against the insured, but for three exceptions in this section. These prevent an insurer from defeating a third party’s claim by relying on certain technical defences, based on conditions in the insurance contract.
43.Subsection (2) relates to conditions in the insurance contract that require the insured to do something. Where such a condition exists and the third party, rather than the insured, has done the thing required by the condition, subsection (2) deems that the thing required has been done for the purposes of the condition. For example, where the insured has not given notice of the claim but the third party has personally informed the insurer of the claim within the period prescribed in the insurance contract, the requirement to give notice is deemed to have been fulfilled and the insurer will not be able to rely on non-fulfilment of the condition as a defence.
44.Subsection (3) relates to any condition in the insurance contract that requires the insured to provide continuing information and assistance to the insurer once notice has been given of the claim. Where the insured is incapable of fulfilling such a condition because it is no longer in existence (because it is an individual who has died or a company that has been dissolved), subsection (3) provides that the transferred rights are not subject to that condition.
45.Subsection (4) provides, however, that a condition requiring information and assistance does not include a condition requiring the insured to give notice of a claim to the insurer. But as explained above, if a third party complies with such notice requirements, it will be treated as having been done by the insured.
46.Subsections (5) and (6) concern “pay-first” clauses, namely provisions in an insurance contract requiring the insured to pay sums due to the third party before any right to indemnity can arise. The House of Lords held in The Fanti and the Padre Island [1991] 2 AC 1 that a third party’s claim under rights transferred by the 1930 Acts is worthless if the insurance contract contains such a section. Subsection (5) abrogates this rule, ensuring that a pay-first clause will not apply to rights transferred under the Act. Subsection (6) limits the effect of subsection (5), preserving the rule in The Fanti and the Padre Island in cases of marine insurance (except in relation to death or personal injury claims).