Boom or Bust: Third Party Rights Against Liability Insurers of Bankrupt Entities in Bermuda and the U.K.

By Alex J. Potts, Sedgwick Bermuda

In the recent case of Re Kingate Management Limited (in Provisional Liquidation) [2012] SC (Bda) 52 Com, the Supreme Court of Bermuda considered the statutory rights of third party claimants to assert direct claims against liability insurers of insolvent and bankrupt insureds in Bermuda.

This is the first occasion that the Court has considered and applied Bermuda’s Third Parties (Rights Against Insurers) Act 1963, a piece of legislation modeled on the U.K.’s Third Parties (Rights Against Insurers) Act 1930.  The Court confirmed that the effect of Bermuda’s legislation is that the benefit of insurance policies taken out by an insolvent company (or bankrupt individual) with respect to third party liabilities are directly transferred to any third party to whom the company is liable, by operation of law.  The transfer of rights takes place when a winding-up order is made or a liquidator is appointed.

The Court also confirmed that the Act imposes discovery obligations on an insolvent insured and its liquidator, receiver or trustee in bankruptcy, as well as its insurer.  A third party who asserts a disputed claim against an insolvent company which is insured against the relevant liability is entitled to obtain from the insolvent insured, and its insurer, such documents and information as may reasonably be required for the purpose of ascertaining and enforcing such rights, if any.

Importantly, the Bermuda Court followed and applied the English Court of Appeal’s decision in Re OT Computers Ltd (in administration) [2004] 3 WLR 886, which made clear that, under English law, a third party claimant did not need to have conclusively established liability before it was entitled to documents and information relating to the insurance position.

It should be noted that the U.K. Act is due to be significantly reformed by the Third Parties (Rights Against Insurers) Act 2010. However, the implementation date for the U.K. reforms has been delayed, and the new legislation is not currently expected to come into force until later this year.

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