The recent decision of Jefford J in Peel Port Shareholder Finance Co Ltd v Dornoch Ltd  EWHC 876 (TCC) clarified the applicable regime for pre-action disclosure of insurance policies in insolvency cases. Jefford J held that the special regime for disclosure created by the Third Parties (Rights against Insurers) Act 2010 precludes the ordinary operation of pre-action disclosure through CPR 31.16(3) and insurers only have a duty to provide pre-action disclosure of insurance policies where the 2010 Act applies.
The Third Parties (Rights against Insurers) Act 2010
The 2010 Act applies to third parties who have rights against an insured declared insolvent or entering a voluntary arrangement with its creditors. It provides for the transfer of the rights of the insured against its insurer to the third party so as to enable them to benefit from the contract of insurance. It effectively allows a wronged third party to make a claim directly against an insolvent person's insurers.
Schedule 1 to the 2010 Act permits a third party to write to the insured or directly to the insurer for information where the third party reasonably believes that the 2010 Act applies.
The 2010 Act limits the information which is disclosable to, amongst other things, whether a contract of insurance exists which covers or might reasonably be thought to cover the supposed liability. Where such a contract exists, the name of the insurer and the terms of the insurance must be disclosed. Default allows the third party to apply to the Court for its disclosure.
In the case of Re OT Computers Ltd (In Administration)  Lloyd's Rep IR 669, the Court of Appeal held that the 2010 Act's predecessor, the Third Parties (Rights against Insurers) Act 1930, allowed for the disclosure of a contract of insurance before the establishment of the insured's liability. This is reflected in the wording of the 2010 Act which only requires that the third party "reasonably believes" that the rights of insured have transferred under the 2010 Act. Thus, a third party may obtain pre-action disclosure of an insurance policy where the 2010 Act applies.
The decision in Peel Port
In Peel Port an application was made for the disclosure of an insurance policy under CPR 31.16(3). Peel Port owned a warehouse in Kent which was damaged by fire. Peel Port alleged that another company, EAPL, had caused the fire by flame cutting work carried out on neighbouring premises.
The claim was complicated by the fact that if the action was successful then EAPL would likely be forced into insolvency. EAPL's insurers, Dornoch, denied that the claim by Peel Port was covered by EAPL's insurance policy. Dornoch alleged that the work was in breach of a condition precedent contained within an endorsement.
Peel Port made an application against Dornoch for pre-action disclosure of the full insurance policy, including the endorsement. Without being able to establish whether the contract covered EAPL, Peel Port was unable to bring its claim without risking substantial cost for a judgment against an uninsured and insolvent defendant.
Jefford J held that the special regime created by the 2010 Act precluded the operation of CPR 31.16(3). If insurance policies were obtainable under CPR 31.16(3) then the disclosure provisions of the 2010 Act were effectively made redundant. By implementing a special regime, Parliament must have considered insurance policies non-disclosable under the ordinary provisions of the Civil Procedure Rules.
Such an approach followed the case of West London Pipeline and Storage v Total UK Ltd  Lloyd's Rep IR 688, where it was held that the general approach to the disclosure of insurance policies of solvent insured defendants is that the policies are not disclosable. This is because the policies neither advance nor undermine any party's case.
At the time that the action was brought, EAPL continued to be a solvent company. Thus, the 2010 Act did not apply and the approach of West London Pipeline was followed.
Practical effect for insurers where their insured is insolvent
The decision in Peel Port Shareholder Finance means that ordinarily insurers do not need to disclose insurance policies to third parties at the pre-action stage. However, where the insured is insolvent and the 2010 Act applies then if an insurer receives a valid request for disclosure, even at a pre-action stage, the insurer should disclose the policy. Failure to do so may result in an adverse court order and subsequent adverse costs. What Peel Port makes clear is that CPR 31.16(3) cannot be used to circumvent the insolvency requirement of the 2010 Act, even where insolvency is highly likely as a result of the action.
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