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

2. 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

3. 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

4. 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)

5. 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

6. 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

7. 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?

8. 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)

9. 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)

10. 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)

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

12. 7 King’s Bench Walk, Temple, London EC4Y 7DS
7 King’s Bench Walk, Temple, London EC4Y 7DS