“Too Big to Fail?” Corporate Failure Peter MacDonald Eggers QC

Introduction A corporate failure means insolvency Insolvency means unpaid creditors Unpaid creditors look for alternative means of recourse An insurance policy provides that recourse Three types of policy: Property Financial Loss: e.g. loss of profit, business interruption Liability: e.g. professional indemnity, E&O, public liability Consider the avenues of recourse against these policies

Potential avenues of recourse As co-assured As assignee As the “true owner” of insured property As third party with an enforceable right e.g. as loss payee As third party claimant against the insured Creditor maintaining own policy for the its own interest

As co-assured An insured is often named in the policy However, other persons may also be a co-assured, and therefore a contracting party, even if not named: As a member of a described class By way of a disclosed agency By way of an undisclosed agency By way of trust National Oilwell v Davy Offshore (1993) O’Kane v Jones (2003) The Jascon 5 (2006)

As assignee Assignee has the same rights as assignor Assignment may be of: Entire policy Individual right to sue on a claim Three methods of assignment: Sect. 50 of Marine Insurance Act 1906 (marine only) Sect. 136 of Law of Property Act 1925 Equitable assignment

As the true owner Persons with a limited interest can insure full value of property However, the insured is under an obligation to account to the true owner (even if the true owner is not an insured): Tomlinson v Hepburn (1966) DG Finance v Scott (1999) The liability of the insured to the true owner is a personal liability only

Third parties with enforceable right Contracts (Rights of Third Parties) Act 1999 Third party may enforce certain contractual terms if: The contract so provides, or The contractual term purports to confer a benefit on the third party Subject to the contracting parties’ contrary agreement e.g. Contracts (Rights of Third Parties) Act 1999 Exclusion Clause Implications for insurance: Loss payees Liability policies?

Third party claimants If the insured is insolvent and is liable to a third party claimant, that third party may enforce insured’s right of indemnity against insurer directly Third Parties (Rights against Insurers) Act 1930 Third Parties (Rights against Insurers) Act 2010 Applies if either the insolvency or the incurring of liability occurs on or after 1 August 2016: sect. 20 and Sched. 3 Applies to liability insurance (not defence costs cover): Centre Re v Freakley (2005) American School of Dubai v Beazley (2018) Cf. Tarbuck v Avon (2000)

Third party claimants Innovations introduced by the 2010 Act The Act does not depend on a connection with UK: sect. 18 Proceedings against the insurer Sect. 1(3), sect. 2 No need to restore defunct insured BAE Systems Pension Funds v RSA (2017) New meaning of “established” liability: sect. 1(4) Certain conditions ineffective Information and assistance: sect. 9(3), 9(4) Pay to be paid: sect. 9(5), 9(6) Termination provisions: sect. 17; sched. 1, para. 5 Confirms insurer’s right of set off American School of Dubai v Beazley (2018)

Third party claimants Innovations introduced by 2010 Act: Enlargement of information rights Sect. 11 and Schedule 1 The right to information is in addition to other rights: para. 6 Peel Port Shareholder v Dornoch (2017) Act does not expressly address: If insolvency is revoked or discharged Law Society v Shah (2007) Continuing rights of insured if settles with third party: Centre Re v Freakley (2005)

Policies for creditors’ own interest Mortgagees’ interest policy Political risks policies Credit insurance policies However, note influence of insolvency exclusions

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