IBA Insurance Committee Substantive Project 2012 (FINAL)
IBA Insurance Committee Substantive Project 2012 (FINAL)
IBA Insurance Committee Substantive Project 2012 (FINAL)
Argentina
IBA Insurance Committee Substantive Project 2012
reserved.
Index
ABOUT THE INTERNATIONAL BAR ASSOCIATION 3
COMMITTEE
NOTE FROM THE IBA INSURANCE COMMITTEE 4
EDITORIAL 5
ARGENTINA 6
AUSTRALIA 12
BELGIUM 21
DENMARK 26
GERMANY 32
HUNGARY 40
INDIA 47
INDONESIA 52
IRELAND 56
ISRAEL 63
MALAYSIA 67
NETHERLANDS 73
NEW ZEALAND 79
NIGERIA 87
NORWAY 94
POLAND 99
SPAIN 105
SWEDEN 112
SWITZERLAND 120
TAIWAN 126
TURKEY 131
UNITED KINGDOM 138
UKRAINE 144
2
IBA Insurance Committee Substantive Project 2012
The Insurance Committee aims to provide its nearly 600 members, and the IBA Legal Practice Division as a
whole, with information about developments in insurance and reinsurance law and markets throughout the world
as well as with specialist knowledge to assist in the efficient solution of practical insurance problems. New
insurance products are also brought to the attention of members.
In addition to this publication, the Committee produces a newsletter for its members which provides updates and
commentary on developments and issues in the field.
The Committee also presents sessions at the IBA Annual Conference every year. In 2012, the Conference will be
held in Dublin. Please see http://www.ibanet.org for more information on this and other upcoming events.
If you would like to join the Insurance Committee, or if you would like further information on the Committee’s
activities, please visit http://www.ibanet.org.
Tel: +44 (0)20 7842 0090, Fax: +44 (0)20 7842 0091
or by email at [email protected].
3
IBA Insurance Committee Substantive Project 2012
Building on this past success, this year we have conducted a survey regarding direct third-party access to liability
insurance. Members from 23 jurisdictions have provided detailed discussion and insights into this issue.
With insurance and reinsurance being a global enterprise, resulting in cross border disputes, often involving both
common law and civil law jurisdictions, we hope that this comparative analysis will be valuable to lawyers and
other (re)insurance professionals alike.
We would like to thank those who generously contributed their time and expertise to successfully complete this
project.
Copies of this report will be made available to our members at the annual meeting in Dublin. You may also
access this report on the IBA’s website.
Best regards,
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
EDITORIAL
A party suffering loss or damage, and seeking to recover its loss from the liable party, may find itself in a
difficult position. Not only will it have to establish the liability of the offender, but it can only hope there will be
sufficient funds to compensate for the loss. The latter will be far less worrisome if the liable party has taken
out liability insurance. The injured party may receive the payments that the liable party will be able to claim
under the insurance agreement. However, even in this event, another problem may arise for the injured third
party if the liability insurance is accessible only through the liable insured party. The third party may still be
left with nothing, for example, if the liable party is declared bankrupt or refuses to cooperate.
A number of jurisdictions have sought to resolve this problem by creating a right for a third party to obtain
direct access to liability insurance. Although the principle of third party access may sound simple, the way in
which access is granted, and the conditions under which a third party may exercise this right, can vary
greatly from country to country. It is our hope that these surveys will provide useful information about the
choices that have been made in various jurisdictions about third-party access to liability insurance.
A Note Of Appreciation
I would like to thank my colleagues at Houthoff Buruma, Martine Kos and Marijke Lohman, who devoted
significant time and effort to this project over the course of several months. This report would not have been
possible without their substantial and persistent assistance. Furthermore I would like to thank our editor
Greg Korbee for reviewing the contributions and Stephanie van Spijker for her editorial work.
HOUTHOFF BURUMA
DISCLAIMER
This report is not intended to provide legal advice but to provide general information on legal matters.
Transmission in not intended to create and receipt does not establish an attorney-client relationship. This
report is not intended to replace legal advice and no responsibility for claims, losses or damages arising out
of any use of this work or any statement in it can be accepted by the contributors or editors. Readers
should seek specific legal advice before taking any action with respect to the matters mentioned in this
report.
The content of this publication has been created by the individual contributors. The views expressed are
theirs. If you would like further information on any aspect of this report, please contact the relevant
contributor or the person with whom you usually deal.
5
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
ARGENTINA
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
e. Other?
According to Section 118, second paragraph, of the Argentine Insurance Act (Law Nº
17,418), a third party is allowed to request the intervention of the insurer in a lawsuit
against the insured. In practice, an application to implead the insurer (citación en
garantía, i.e. to have the insurer joined as a third party) is generally made by the
insured, which will normally appear as the defendant. The insured is also expressly
allowed to apply for impleading (Section 118, third paragraph, Argentine Insurance
Act). However, the insurer is bound by the ruling as a principal party of the claim, to
the extent of the insured amount.
In practice, before the claim of the third party against the insured reaches the Court,
a third party may direct its claim only against the insurer, and negotiate the insurance
claim directly. It is furthermore noted that in many Argentine provinces, and in the
City of Buenos Aires, mandatory mediation proceedings are a prior condition to the
initiation of a lawsuit. In these previous mediation proceedings, a third party or the
insured may summon the insurer to intervene. It is not unusual for the insurer to
attend the mediation hearings directly, and even without the participation of the
insured to enter into a settlement agreement with the third party. If the mediation
proceedings fail and no agreement is reached, the third party may initiate judicial
proceedings against the insured as described above.
The effects of impleading the insurer are in practice very similar to the effects of a
direct claim.
Authors differ in their opinions regarding the nature of the impleading, but many
consider it a type of direct action in which the insured is a necessary party (i.e. a
third party cannot claim solely against the insurer).
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
A claim against the insurer by the insured is not required for a third party to be able
to claim under the liability insurance policy. However, a third party can only claim
6
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
against the insurer pursuant to the procedure established in Section 118 of the
Argentine Insurance Act (impleading) described in the answer to Question 1). The
insured must give notice of the loss or damage to the insurer within three days of its
occurrence or after receiving a claim from a third party if the damage or loss was
unknown to the insured (Section 115, Argentine Insurance Act). It should be noted
that this three-day period may be extended by the insured and the insurer in the
policy.
Pursuant to Section 47 of the Insurance Act, failure to comply with this obligation
causes the insured to lose its right to indemnification, except if the failure is due to
force majeure or the impossibility to comply.
Moreover, pursuant to Section 36 of the Argentine Insurance Act, the parties to the
insurance contract may agree that failure or delay in providing notification of the loss
or damage by the insured entitles the insurer to decline coverage. This is a standard
clause in civil liability insurance policies. However, courts usually apply very
restrictive criteria regarding the loss of the insured’s right on the grounds of failure to
comply with obligations and/or duties under the policy, and have consistently
declared that such lack of compliance only results in the loss of the insured’s rights
under the policy if it has affected the extension of the insurer’s obligation (Section 36,
paragraph b, of the Argentine Insurance Act).
However, failure or delay in giving notice of the loss cannot be invoked by the insurer
against a third party as it is deemed a “defence arising after the occurrence of the
loss or damage” (Section 118, third paragraph, Argentine Insurance Act). These
defences may only be invoked against the insured.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Please see the answer to Question 1.
7
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
A liability insurer is allowed to defend itself against a third party by denying coverage.
The insurer may exercise any defence available in connection with the lack of
coverage.
Nonetheless, according to Section 118, third paragraph, of the Argentine Insurance
Act, the insurer cannot raise any defence arising after the loss or damage has
occurred (e.g. the lack of notice to the insurer by the insured)
b. If no, does the liability insurer have remedies or recourse against the
insured?
5. Are there any further conditions for allowing a third party to have direct
access?
Bankruptcy of the insured does not impact the possibility of a third party claiming
directly under an insurance policy. In such a case, the claim against the insured must
be directed to the designated liquidator (Section 110, Argentine Bankruptcy Act), and
the insurer can be summoned through impleading. (Please see answer to Question
1).
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
The third party’s right to the insured amount and its accessories is secured, and
has priority over the insured and the insured’s creditors, even in the case of
bankruptcy, pursuant to Section 118, first paragraph, of the Argentine Insurance
Act.
8
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. Are the defence costs of the insured excluded from attachment and
seizure?
9
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
A third party has no direct interest in the insured’s defence costs and therefore
cannot request the attachment or seizure of defence costs on such grounds
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
Pursuant to Sections 1161, 1162 and 1199 of the Argentine Civil Code, settlements
and agreements are not enforceable against third parties, unless such third party
ratifies the settlement or agreement.
Consequently, any agreement or settlement between the insurer and the insured is,
without the intervention of the third party, not enforceable against the third party.
The insured may agree to indemnify/hold the insurer harmless against any claim by
third parties in connection with the loss or damage. However, such agreement would
not affect the third party’s right to claim against the insured and the insurer.
a. Would a settlement between the insurer and the insured be binding on the
third party?
As explained in the answer to Question 8 above, a settlement between the
insurer and the insured would not be binding on a third party.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
No.
10
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary
Pary Access To Liabilty Insurance
Palacio Alcorta
Martín Coronado 3260, 2nd Floor - Suite 202 (1425)
Buenos Aires, ARGENTINA
11
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
AUSTRALIA
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
1
New South Wales, Northern Territory and the Australian Capital Territory.
2
Norsworthy v SGIC [1999] SASC 496 at [62] (unreported, Supreme Court of SA, Olsson J, 30 November 1999).
3
Ripper v Gatenby (2002) 12 ANZ Ins Cas 61-532 per Blow J at [6]; Aspioti v Leigh and Kortenhorst v Dass
[2003] NSWSC 1224.
12
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
from motor vehicle accidents. These schemes may allow a third party to claim
directly under the relevant insurance policy. For example, an injured person may
have a direct claim against an insurer if the driver who caused the injury has died or
4
cannot be found.
Nature and extent of third party access
The various rights are not limited by the different types of loss or damage or types of
insurance, except to the extent referred to above. The third party can recover fully,
but only to the extent that the insurance is actually available.
a. Fully?
Yes
e. Other?
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
The circumstances in which a third party may make a claim directly against an
insurer will be governed by the specific rules applying to those circumstances. In
most cases a claim by the insured against the insurer would not be required. The
5
claimant is “put into the shoes” of the insured as against the insurer.
A third party may initiate court proceedings against a liability insurer in certain
circumstances.
4
Motor Accidents Act 1988 (NSW), s. 54(1); Motor Accident Insurance Act 1994 (Qld), s. 52(2); Motor Vehicles
Act 1959 (SA), s. 113(1); Motor Vehicle (Third Party Insurance) Act 1943 (WA), s. 7(2); Motor Accidents
(Liabilities and Compensation) Act 1973 (Tas), s16(1).
5
Green (Arimco Mining Pty Ltd) v CGU Insurance Ltd (No 2) (2008) 15 ANZ Insurance Cases ¶61-774; [2008]
NSWSC 825.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
The legislation allowing for direct access to an insurer generally requires the
third party to apply to court for leave to proceed against the insurer. For
example, s. 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)
states that no action against an insurer to enforce the charge created under s.
6(1) may be commenced in any court except with the leave of that court.
In Tzaidas v Child (2004) 208 ALR 651 Giles JA said:
[17] The purpose of the leave requirement has been described in various
ways; for present purposes, it is sufficient that it was intended to protect
insurers from unwarranted direct actions by claimants upon their
insureds. The prohibition is a gloss upon the leave requirement …
[18] For the prohibition to apply the court must be satisfied of two things:
first, entitlement to disclaim liability, and second, taking necessary
proceedings. Satisfaction as to taking necessary proceedings can not be
passed over. The application for leave pursuant to s 6(4) can not amount
to taking necessary proceedings, since the necessary proceedings must
be something outside the application. CGU submitted that proceedings
were necessary only if the insurer’s entitlement to disclaim liability was
not obvious. I do not think that is right. The proceedings are those
‘necessary to establish’ the insurer’s entitlement to disclaim liability
(emphasis added). “Establish” means what it says. The Court does not
decide, additionally to its satisfaction that the insurer is entitled to
disclaim liability, whether or not the entitlement is obvious, and even if it
did that would not establish the entitlement to disclaim liability. So long
as the insurer’s entitlement to disclaim liability is in issue, other
proceedings are necessary to establish it.
The decision as to whether or not leave should be granted to proceed directly
against the insurer is discretionary. There are two predominant considerations:
first, whether the plaintiff has shown an arguable case against the insurer; and,
second, whether there are sufficient reasons for the plaintiff to bring the action
6
against the insurer.
These are not the only considerations. The High Court has explained s. 6(4) by
7
saying:
This provision is not directing the court that leave be denied only in a
case where it is satisfied both of entitlement to disclaim liability and that
6
Green (Arimco Mining Pty Ltd) v CGU Insurance Ltd (No 2) (2008) 15 ANZ Insurance Cases ¶61-774; [2008]
NSWSC 825 at [14].
7
Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 448, McHugh and Gummow JJ.
14
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. If no, does the liability insurer have remedies or recourse against the
insured?
At the outset, in claims for direct access against an insurer under the Law Reform
(Miscellaneous Provisions) Act 1946 (NSW). the court will not grant leave to proceed
with the action against the insurer if it is satisfied that the insurer is entitled under the
terms of the contract of insurance to disclaim liability, and that any proceedings,
including arbitration proceedings, necessary to establish that the insurer is so
12
entitled to disclaim, have been taken.
8
Tatterson v Wirtanen (unreported, Vic Sup Ct, Gillard J, 30 September 1998).
9
Lois Nominees Pt Ltd v Hill [2011] WASC 53.
10
CGU Insurance Ltd v Bazem Pty Ltd [2011] NSWCA 81.
11
See for example Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399.
12
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s6(4).
15
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Assuming that leave is granted, the legislation provides that the insurer shall not be
liable for any greater sum than that fixed by the contract of insurance between the
13
insurer and the insured.
The proceedings by the third party against the insurer are assimilated to those
14
against the insured. Therefore, the insurer may defend the third party's proceedings
by relying on the same defences that the insurer would have against its own insured.
5. Are there any further conditions for allowing a third party to have direct
access?
The bankruptcy or insolvency of an insured can impact the possibility of a third party
claiming directly under an insurance policy, but this is usually as a consequence of
the drafting of the relevant policy wording and not as a matter of substantive or
procedural law.
Liability insurance policies often exclude claims in circumstances where the insured
is bankrupt or insolvent or otherwise contain provisions which allow the insurer to
adjust its liability or the terms and conditions of cover in the event of the insured
becoming bankrupt or insolvent.
The rights of a third party claiming under an insurance policy are always subject to
the insurer having a liability, either directly to the third party or to the insured, in
accordance with the terms of the policy. Often (but not always) policies will be
drafted so as to limit the liability of an insurer in the event of the insured becoming
bankrupt or insolvent. Where that is the case, a third party may be prevented from
claiming directly, or at all, under an insurance policy.
Section 562 of the Corporations Act 2001 (Cth) permits a third party to gain access
to insurance moneys paid to an insured that becomes insolvent or to the relevant
13
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s6(7).
14
Kinzett v McCourt [1999] NWCA 7.
15
JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432.
16
Beneficial Finance Co Ltd v Price Waterhouse (1996) 68 SASR 19; CE Heath Casualty and General Insurance
Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256; Interchase Corporation (in liq) v FAI General Insurance
Co Ltd [2000] 2 Qd R 301; [1998] QCA 180.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
liquidator provided the insurance moneys were paid in respect of the liability owed by
the insured to the third party.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
There are specific rules relating to third party claims in the case of bankruptcy.
In the event that the insured corporation is deemed insolvent, the third party is
able to directly claim against the insurer.
Section 117 of the Bankruptcy Act 1966 (Cth) protects the interests of a third
party in the event that a bankrupt is or was insured against liabilities to the third
party and a liability against which the bankrupt was so insured has been
incurred (whether before or after he or she became a bankrupt). The right of the
bankrupt to indemnity under the policy vests in the trustee of the estate of the
bankrupt and any amount received by the trustee from the insurer under the
policy is to be paid to the third party.
17
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. Are the defence costs of the insured excluded from attachment and
seizure?
There is no legislation expressly excluding defence costs from attachment or
seizure.
17
A recent decision in the New Zealand High Court concerning a New Zealand
legislative provision which is drafted in similar terms to s. 6 of the Law Reform
(Miscellaneous Provisions) Act 1946 (NSW) reveals the risk that defence costs
of the insured will be subject to the charge and therefore not available to the
insured. This has become an area of concern in relation to all liability policies
but in particular directors and officers liability insurance. The matter is currently
the subject of an appeal.
17
Steigrad v BFSL 2007 Limited [2011] NZHC 1037
18
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Reactions to this case have ranged, with insureds considering whether policy
wordings can be drafted in a way that clearly isolates defence costs or looking
to be covered separately under a stand alone defence costs policy.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
There is no legal requirement that an insurer or insured must consider the interests
of a third party when requesting payment under an insurance policy. However, both
parties will be guided by their obligations under the relevant insurance policy. The
position would be different if the insurer is on notice of the third party's claim.
a. Would a settlement between the insurer and the insured be binding on the
third party?
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
The provisions referred to above are the most relevant provisions with respect to
direct access by a third party.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
10. Is there anything else you would like to add that could be of interest to this
project?
No.
Clayton Utz
18
By Peter Mann and David Gerber
1 Bligh Street
Sydney NSW 2000
AUSTRALIA
18
The authors acknowledge the contribution to this article of Craig Hine, Lawyer, Clayton Utz and Nicholas Rudd,
Lawyer, Clayton Utz.
20
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
BELGIUM
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Yes.
a. Fully?
Article 86 of the Non-Marine Insurance Contracts Act of 25 June 1992 (Act)
allows a third party to claim indemnification of the third party’s loss or damage
from the liability insurer directly.
e. Other?
Transport or marine insurance remains regulated by the former Insurance
Contract Act of 11 June 1874 , which does not provide for direct claims by a
third party against a liability insurer. For these types of insurance, Belgian law
does not provide for third-party claims.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
There are no specific conditions that an injured third party is required fulfil to
initiate court proceedings against a liability insurer. The only issue is that, before
21
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
initiating such proceedings, the third party must be aware of the identity of the
liability insurer. Article 23 of the Act requires an insured to disclose to an injured
party the identity of the insured’s liability insurer and the policy conditions.
Disclosure of this information can be obtained in summary proceedings.
b. If no, does the liability insurer have remedies or recourse against the
insured?
An insurer has the right to reimbursement from the insured of the
indemnification paid to a third party by the insured if the insurer could have
refused payment of, or reduced the amount of, the indemnification. To make use
of this right, the insurer must notify the insured of this intention as soon as the
insurer is aware of the facts justifying the insurer’s decision (article 88 of the
Act).
5. Are there any further conditions for allowing a third party to have direct
access?
No. However, a third party has a five-year limitation period to file the claim with the
liability insurer starting on the date of the loss-causing fact, which in practice is
usually the date of the loss (article 34(2) of the Act).
22
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
As a general rule (except for marine insurance and transport insurance), an
insurer indemnifies a third party directly. Direct access is granted to the insurer
specifically to avoid a situation of an insured becoming insolvent and unable to
indemnify an injured party. On claiming direct indemnification from the insurer,
the third party prevents payment of the indemnification to the insured. This
avoids competition with insured’s other creditors.
b. Are the defence costs of the insured excluded from attachment and
seizure?
23
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
No, but in principle this is not an issue because of the direct claim made against
the liability insurers.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
a. Would a settlement between the insurer and the insured be binding on the
third party?
A settlement between an insurer and an insured is not binding on a third party,
because of the principle of privity of contract (article 1165 of the Belgian Civil
Code).
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
The Third Party Motor Liability Insurance Act provides for a third party to have a
direct claim against a motor liability insurer. The 2004 Clinical Trials Act also
provides for a clinical trial participant to have a direct claim against the liability
insurer of the organiser. Furthermore, article 106 of the Belgian International Private
Law Act provides specific rules on the applicable law for a direct claim against a
liability insurer. Such a direct claim will always be allowed if it is allowed by the law
applicable to the insurance contract.
24
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
10. Is there anything else you would like to add that could be of interest to this
project?
Our experience is that most international insurance practitioners are rather surprised
by the rather expansive direct claims system in Belgium. In addition, practitioners
should also realise that under Belgian law liability insurers are under a statutory
obligation to defend their insured in the case of the insured’s liability (article 79 of the
Act). In litigation, both the insured and the insured’s liability insurer are often
defended by the same legal counsel. The Belgian Bar has specific conflict of interest
rules for legal counsel in this situation.
Lydian
25
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
DENMARK
Introduction to the Danish law on third-party rights in direct claims against a liability
insurer.
Under Danish law, the position of a third party (a person who is not a party to the contract) to
benefit from the contract is poor. The general rule is that no one may enforce all or part of a
contract to which he or she is not a party.
However, section 95 of the Danish Insurance Contracts Act (Consolidated Act no. 999 of 5
October 2006) provides for a third party to be able to claim directly under a liability
insurance. It lays down the rule that if the liability of the insured to pay compensation to the
third party has been ascertained and the amount of the compensation determined, the third
party is entitled to all the rights and remedies belonging to the insured against the insurer (in
so far as the third party has not been satisfied).
The third party is also entitled to the rights and remedies of the insured against the insurer if
the third party’s claim for compensation falls within the bankruptcy, composition with
creditors or debt rescheduling of the insured. In so far as the third party’s claim is not
covered by the insured in such circumstances, the full claim for compensation may be raised
against the insurer directly.
The following sections concern the position of third parties’ direct access to liability insurance
under section 95 of the Danish Insurance Contracts Act.
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
Yes.
e. Other?
26
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
If the third party is allowed to claim directly against the liability insurer, the insured
may not prevent this. But as the third party takes the position of the insured, the third
party will not have a valid claim if the insured does not have a valid claim.
Yes.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Once the third party is allowed to claim directly, the third party may exercise all
rights of a claimant, including the right to initiate proceedings.
Yes.
b. If no, does the liability insurer have remedies or recourse against the
insured?
N/A
5. Are there any further conditions for allowing a third party to have direct
access?
No. However, as the third party is entitled to all the rights and remedies belonging to
the insured against the insurer, the validity of a third party claim under Danish law
27
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
depends on the legal relationship (e.g. the insurance policy) between the insured and
the insurer. We refer to the principles laid down in section 27 of the Danish Debt
Instruments Act (Consolidated Act no. 669 of 23 September 1986).
Hence, the rights of the third party against the insurer are subject to the same terms
and conditions as the rights of the insured. The third party’s claim is as a main rule
subject to all defences that were available to the insurer against the insured.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Yes, please see the introduction above.
28
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
If the third party is not allowed to claim directly against the insurer (because the
liability of the insured to pay compensation to the claimant has not been ascertained
or the amount of the compensation has not been determined), the insured’s claim
against the insurer is not exigible.
Danish law does not allow seizure or prejudgment attachments of future claims or
claims that are not exigible. Danish law does not provide for the seizure or
attachment by a third party of an insured's claim against a liability insurer before the
liability of the insured to pay compensation to the claimant has been ascertained and
the amount of the compensation has not been determined.
In order to protect its interest, the third party may give notice of the claim to the
insurer. According to section 96 of the Insurance Agreement Act, the insurer — once
notified of an insurance event — may not negotiate a reduction or forfeiture of the
third party’s rights with the insured (in accordance with section 95 of the Danish
Insurance Contracts Act).
b. Are the defence costs of the insured excluded from attachment and
seizure?
According to section 511(3) of the Danish Administration of Justice Act, a party
to a mutually obligatory contract may object to the seizure or attachment of
contractual payments if that party’s interests are prejudiced. In so far as
prejudgment attachment or seizure of payments of defence costs would
prejudice the insured’s defence and thus the insurer’s liability under the policy,
the insurer may object to the seizure and pay defence costs directly to the
insured or the defence counsel.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance, but the
third party has not yet requested payment?
Yes. Under Danish law, the insurer is required to take the interest of a third party into
account if the insurer has notice of occurrence of an insurance event.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Further, the insurer may not pay out the insurance sum in full on a “first come, first
served” basis, as section 95 of the Insurance Agreement Act lays down the rule that
where several claimants are entitled to the compensation payable in respect of an
insurance event, and where their aggregate claims against the insurance company
exceed the liability of the insurance company, the insurer is obliged to satisfy the
claimants proportionately, unless otherwise agreed in the policy.
To reduce the risk of paying more than the insured amount the insurer may in such
situations protect insurer’s position by paying the insured amount into escrow.
a. Would a settlement between the insurer and the insured be binding on the
third party?
No. Where the insurer has notice of the occurrence of an insurance event, it
may not, by negotiation with the insured, cause a reduction or forfeiture of a
third party’s rights, pursuant to section 95 of the Danish Insurance Contracts
Act. We refer also to section 96 of the Danish Insurance Contracts Act.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
Under Danish law, insurance brokers, insurance agents and auditors are required to
take out professional liability insurance that allows a third party to file directly against
the insured a claim for compensation for the loss or damage suffered as a result of
negligence by the auditor, insurance broker or insurance agent.
Further, under Danish law it is compulsory to take out motor vehicle liability
insurance that allows the injured third party to claim directly against the insurer of the
motor vehicle.
Thus, in the case of professional liability insurance and motor vehicle liability
insurance, a third party may file a direct claim against the insurer without meeting the
conditions laid down in section 95 of the Insurance Agreement Act. In addition, unlike
the situation in a direct claim made under section 95 of the Insurance Agreement Act,
the third party’s rights in professional liability or motor vehicle liability insurance are
not subject to all the defences available to the insurer against the insured. If the
insurer is obliged to compensate a third party, the insurer may have a recourse claim
against the insured based on, for example, misrepresentation.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary
Pary Access To Liabilty Insurance
10. Is there anything else you would like to add that could be of
of interest to this
project?
The statutory limitation period of a claim under Danish law is generallly three years
from the due date of the claim,
claim i.e. the date the damage occurs.. This applies for both
the third party’s claim against the insured and the insured’s
insured’s claim against the insurer.
Further, we note that the Danish Insurance Agreement Act provides for liability
insurance on a loss--occurrence basis. However, the market practice in Denmark is
generally to agree that liability cover will be taken out on a claims-made
claims made basis.
basis
BECH-BRUUN
By Henrik Valdorf-Hansen
Hansen and Anne Buhl Bjelke
Langelinie Allé 35
2100 Copenhagen
DENMARK
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
GERMANY
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
In general, German law does not entitle a third party to make a direct claim
under a liability insurance policy.
e. Other?
Prior to the introduction of the new Insurance Contract Act, dated 23
November 2007, it had been vigorously discussed whether and to what extent
the action directe should be extended to include all liability insurance classes
compulsory in Germany. The majority of academic authors had been very much
in favour of such extension. However, at the very last minute, the bill was
modified to restrict the extension of the action directe to only two situations:
if an insolvency administration proceedings are commenced with respect to
the assets of the insured, or if an application for the commencement of
insolvency proceedings against the same has been declined for lack of
assets, or if a preliminary insolvency administrator has been appointed
over the assets of the insured; and
if the place of residence of the insured is unknown.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Under German law, many businesses and professions are required to take out
compulsory professional liability insurance cover. This applies not only to medical
professionals, but also to architects, lawyers, accountants, CPAs and others. All in
all, there are more than 100 statutes and/or regulations in Germany requiring certain
companies and business and professional people to obtain liability insurance cover
prior to being allowed to engage in the contemplated business or profession.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
This is not the case in Germany. However, where an injured third party is entitled to
make a direct claim, the third party has a legal duty to inform the insurer about the
insured event within two weeks after having become aware of the event (section 119,
para. VAG). Failure to comply with this disclosure duty does not automatically
deprive the third party of the right to make a claim. However, if such failure increases
the amount of the claim or makes it more burdensome for the insurer to investigate it,
the third party could be exposed to a proportionate reduction of the indemnification.
Apart from the compulsory insurance context, there may also be exceptional
circumstances that would allow a third party to make a claim against an insurer
without the policyholder first having to file a claim with the insurer.
A third party entitled to make a direct claim against the insurer under German law
may direct the claim either at the insurer or the policyholder, or both. Apart from the
action directe, the third party may acquire the right to make a direct claim against the
insurer if one of the conditions specified under (a) below is fulfilled.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Not for a third party entitled to make a direct claim against the insurer under
German law. Apart from an action directe, the third party may acquire the right
to make a direct claim against the insurer if one of the following conditions is
fulfilled:
(i) the insured has assigned the insured’s claim against the insurer to the third
party or the third party has acquired the latter's claim as a result of civil
proceedings (see below);
(ii) the insurer has given the third party the impression that it wants to settle
the matter with the third party rather than with the insured, for instance, by
discussing and negotiating the claim exclusively with the third party; or
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
(iii) the insured is pursuing the claim against the insurer in such a manner that
the insured is about to jeopardise the claim, for instance, by disrupting the
negotiations to such an extent that the claim could become barred by the
pertinent statute of limitation.
In the second and third cases mentioned above, however, the third party may
not be entitled to institute an action against the insurer for payment. Instead, the
third party may have to restrict pursuit of the claim to instituting a declaratory
action, unless the third party has first acquired an award against the
policyholder and has obtained an order of attachment in the third party’s favour
with respect to the policyholder's claim against the insurer.
Yes.
b. If no, does the liability insurer have remedies or recourse against the
insured?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
5. Are there any further conditions for allowing a third party to have direct
access?
In addition to fulfilling all (or at least one) of the above-mentioned conditions, the
third party will have to comply with all other requirements in order to be permitted to
file a suit against the insurer under the German Code of Civil Procedure. It should be
noted that the insured's claim against the insurer as a result of the insured being
liable for loss vis-à-vis a third party is not structured as a claim for payment but as a
hold-harmless claim. This claim would automatically become a claim for payment
once the insured has fully and finally indemnified the third party or once the third
party has a direct claim or has acquired the insured's hold-harmless claim against
the insurer.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
No.
German law avails the creditor of a prejudgment attachment and/or seizure of assets
pursuant to section 916 et seq. of the German Code of Civil Procedure. Section 917
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
could be understood to provide a creditor in nearly all instances with such protection,
because quite general terms are used to refer to a creditor enjoying such a right if
the creditor may rightfully anticipate that the enforcement of an award (after a long
lawsuit) could be foiled or even just rendered more difficult. The provision then gives
one example of where such a situation has arisen, and that is where a later award
would have to be enforced in a foreign jurisdiction that does not have reciprocity with
Germany. However, this clarification is no longer very helpful because a host of
conventions and treaties have meanwhile established that there is reciprocity
between Germany and most other nations, including obviously the entire European
Union. However, notwithstanding the fact that the German legal community is aware
of the fact that the courts in other jurisdictions—relying on similar wording in parallel
legal provisions—grant the creditor a rather broadly formulated right of prejudgment
attachment or seizure, German courts have restricted this remedy to a few very
exceptional cases. To obtain such a remedy, it is not sufficient to prove that the
potential debtor might not be able to honour an award; rather, the creditor has the
burden of establishing that the debtor has started to, or is about to, conceal or
disperse its assets with the aim of thwarting the enforcement of a future award
against the debtor. This burden of proof can hardly ever, as shown in actual practice,
be shouldered successfully.
If so, is a third party allowed to attach or seize an insured's claim against the
insurer?
If a creditor obtains an attachment order in prejudgment proceedings, the creditor
could also hypothetically seize the insurance payment on that basis. Such seizure
would be redundant, however: the third party is sufficiently protected under
section 108 of the Insurance Contract Act in as much as the insured is prohibited
from making any and all dispositions concerning the insurance cover that could have
a detrimental effect on the third party's claim for indemnification. Hence, an insurer
who pays out the indemnification for a claim to an insured without ascertaining that
the payment will actually reach the third party would have to pay the third party a
second time (whilst obviously then having a claim against the insured for a refund).
The third party having a liability claim against a wrongdoer could therefore abstain
from taking any protective measures once the third party has been informed that the
claim was covered by the pertinent liability insurance.
b. Are the defence costs of the insured excluded from attachment and
seizure?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Pursuant to section 101 of the Insurance Contract Act, the liability insurance
includes the indemnification of the insured for defence costs. For attachment
and seizure on behalf of these costs, the same principles outlined under 7
above would apply.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
Under German law, it is first and foremost the insurer that is responsible for ensuring
that the third party actually obtains the indemnification, as an insurer is not released
from its duty to pay the claim if it pays the claim to the insured and the insured does
not remit the sum to the third party (see section 108 of the Insurance Contract Act).
You will therefore not be able to find any insurer willing to settle a liability claim
without first having taken the third party on board.
a. Would a settlement between the insurer and the insured be binding on the
third party?
German law does not permit the insured to make any dispositions concerning
the claim to the detriment of the third party. A settlement agreement between
the insurer and the insured as to the claim would be considered to be a
disposition affecting the claim and would thus have no legal effect on the claim
of the third party. The third party may pursue its claim as if such settlement had
never occurred. It should be mentioned, however, that the insured could hamper
the third party's claim through certain acts or omissions, for instance, by
providing no or misleading information about the event. Such conduct, which
could normally entitle the insurer to reject a claim, might, however, be of no
consequence to the third party. This is because, according to the courts,
section 108 of the Insurance Contract Act incorporates the intention of the
lawmakers to protect a third party from such misconduct. The courts have
decided that the insurer is not released from its indirect obligation to a third
party if it pays the claim to the insured as a result of the insured having
incorrectly confirmed that the insured had previously settled the claim of the
third party. The courts have taken the position that the scope of the
aforementioned legal provision is broad enough to protect the third party from
37
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
such manoeuvres even if it is obvious that the insured's conduct has been
fraudulent.
The law affords an even higher level of protection to the third party if the insured
was compelled to take out the liability cover. In this case, practically all of the
insured’s failures in connection with the occurrence and the claim cannot be
held against the third party (see section 117 of the Insurance Contract Act). This
shield, however, provides cover only in relation to the legally required minimum
liability insurance cover.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
German law does not protect the third party's claim under just the aforementioned
provisions and other provisions of the Insurance Contract Act. In the case of
compulsory liability insurance, there are statutes and other regulations entitling a
third party to obtain information on the identity of the insurer providing the coverage.
The third party requires such information in order to be able to comply with the third
party’s duties to notify and provide information to the insurer. The third party may
thus enter into direct contact with the insurer in order to achieve an out-of-court
settlement. The information on the identity of the insurer has to be supplied to the
third party by the administrative body or authorised agency required to collect such
information from the policyholder before issuing the licence to engage in the
respective business or profession. Once the insurer has issued the policy and
informed the administrative body or authorised agency of the issuance, it will remain
liable to the third party through to the end of one month after having notified the
competent authority or agency that the policy has been terminated or has expired.
10. Is there anything else you would like to add that could be of interest to this
project?
As stated above, whenever a third party has a direct claim against the insurer, the
third party can choose to sue either the insured or the insurer, or both. As a result of
this multiple choice, lawmakers have extended the binding effect of any judgment
rejecting the third party's claim against that defendant also to the other potential
defendant. This is one of the rare extensions of the principle of res judicata to a party
that has not been participating in the litigation.
38
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Konrad-Adenauer-Ufer 23
50668 Köln
GERMANY
39
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
HUNGARY
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Section 559 of Act IV of 1959 on the Hungarian Civil Code sets out the general legal
provisions applicable to liability insurance under Hungarian law. Section 559(2) of the
Hungarian Civil Code excludes the possibility of a third party bringing a claim directly
against a liability insurer.
Act LXII of 2009 on Mandatory Motor Third Party Liability Insurance (the “MTPL Act”)
and Government Decree No. 190/2004 (VI.8.) on the mandatory MTPL insurance of
vehicle operators (the “MTPL Decree”) set out an exception to the general rule
stated above. Third parties are allowed to make their MPTL insurance related claims
directly to the liability insurer.
a. Fully?
No. Hungarian law only allows direct claims in MTPL insurance matters. Where
Hungarian law allows direct claims, the third party must be fully indemnified, i.e.
the insurer and/or the insured are obliged to compensate a third party’s full
financial loss (i.e. damage, lost profits and costs).
e. Other?
N/A
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
40
IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
In the case of MTPL insurance, a third party is entitled to submit a claim to the
insurer directly.
Generally speaking, as set out in our answer to question 1 above, a third party is not
entitled to claim directly from an insurer. Therefore, it is not possible for a third party
to initiate court proceedings for damages against an insurer.
In the case of MTPL insurance, the initiation of court proceedings against an insurer
is possible if the third party intends to claim from the insurer directly and the insurer
refuses to satisfy the third party’s claims.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
See above.
As set out above, a third party may claim directly from an insurer only under MTPL
insurance. If the third party intends to claim directly from an MTPL insurer, this
insurer may defend itself by denying coverage. In other cases, i.e. where no direct
claims against insurers are possible and thus, insurers are only entitled to participate
in a lawsuit in favour of the insured as an intervening party as set out in our answer
to question 3 above, the insurer may not refer to the lack of coverage in the lawsuit,
as the subject matter of the lawsuit between the insured and the third party is only to
establish the insured’s liability and not the obligations of the insurer.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. If no, does the liability insurer have remedies or recourse against the
insured?
According to section 559(3) of the Hungarian Civil Code, as a general rule, third
parties may not claim directly from insurers. If a claim is based on the insured’s
gross negligence or wilful misconduct, the insurer may have a recourse claim
against the insured, save where the insured proves that the damaging conduct
was not unlawful.
According to section 34 of the MTPL Act, an MTPL insurer may have a recourse
claim:
a) against any person who drove the motor vehicle without the permission of
the registered operator of the motor vehicle or lawful user;
b) in the case of several insured parties, against the insured parties jointly and
severally if they wilfully and unlawfully caused the loss or injury collectively;
c) against the driver, if the driver drove the motor vehicle while under the
influence of alcohol or any substance that has the capacity to impair one’s
ability to drive, or against any insured party that permitted such person to
drive the motor vehicle in question, unless they are able to prove that they
did not know that the driver was under the influence of alcohol or of any
other intoxicating agent at the time of the accident;
d) against the driver, if the driver did not have a driver’s licence, or against any
insured party that permitted such person to drive the motor vehicle in
question, unless they are able to prove that they had good reason to believe
that the person driving the motor vehicle did have a driver’s licence;
e) against the registered operator of the motor vehicle, if the accident is
attributable to the seriously neglected mechanical condition of the motor
vehicle;
f) from the driver, if the loss or injury was caused by the failure to provide
help, or if driving recklessly in the case of professional drivers;
g) against the registered operator of the motor vehicle or the driver in the event
of non-compliance with the obligation of disclosure or notification of
changes, or the obligation of reporting accidents and any loss or injury at
the time the contract is concluded or when the accident occurred, to the
extent of the impact this conduct had on the insurance company’s payment
obligation.
5. Are there any further conditions for allowing a third party to have direct
access?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
For the sake of clarity, we have set out below the meaning and purpose of certain
insolvency related legal instruments under Hungarian law.
Insolvency means the status where the company is unable to satisfy the due claims
of creditors.
Bankruptcy means a procedure where the debtor company and/or the creditors
intend to restore the solvency of the company by granting a payment moratorium and
seeking an arrangement with the creditors.
Liquidation means a procedure whose purpose is to terminate the company without
a legal successor and to satisfy the company’s creditors. In the case of a solvent
liquidation (or winding-up) process, the company is not insolvent and its assets fully
cover all creditors’ claims. Insolvent liquidation is where the assets of the company
do not cover all creditors’ claims. Solvent and insolvent liquidation procedures are
regulated by different laws.
As a general rule, the bankruptcy of an insured does not impact on the possibility of
a third party claiming directly under an insurance policy, since third parties are not
entitled to claim directly from the insurer.
If a claim is based on MTPL insurance, third parties may claim compensation for
losses and damages directly from the insurer irrespective of the financial status of,
and/or a possible ongoing bankruptcy/liquidation procedure against, the insured.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
We are not aware of any specific provisions. Direct damage claims by third
parties may be established against an insurer on the basis of MTPL insurance
irrespective of the financial status of, and/or a possible ongoing
bankruptcy/liquidation procedure against, the insured.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Preliminary injunction means an order of the court in respect of one or more claims
set out in the action of the plaintiff before the judgment is adopted, if this is
necessary to prevent the occurrence of imminent damages or to maintain the existing
conditions or to protect equitable and significant lawful interests of the plaintiff.
Seizure means an act whereby the competent authority acquires possession over a
specific property e.g. in the course of a judicial enforcement process as a first step to
sell such property during the enforcement process or as part of precautionary
measures.
In the course of a lawsuit between the third party and the insured, it is not possible
for the third party to request the court to oblige the insured to satisfy the third party’s
claim from the insured’s liability insurance, and therefore, may not file such claim for
a preliminary injunction.
In the course of a judicial enforcement procedure, enforcement actions are
performed by the bailiff under the supervision of the court and third parties may not
seize or otherwise possess the insured’s claim against the insurer.
b. Are the defence costs of the insured excluded from attachment and
seizure?
N/A
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
On the basis of applicable laws and the practice of insurers, the liability insurer will
only indemnify third parties who gave notice of their claims to the insured (or to the
insurer directly in the case of MTPL insurance). The insured should give notice of the
damage to the insurer after causing the damage, but the insurer will only pay
compensation to a third party once the claim has been made by such third party.
In addition, the insured may not request payment on the basis of liability insurance,
since, according to the applicable provisions of the Hungarian Civil Code, the insurer
only pays damages directly to the third party unless the insured has already
indemnified the third party.
a. Would a settlement between the insurer and the insured be binding on the
third party?
No.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
There are a number of professions (e.g. lawyers) and there are certain situations
(e.g. operating a motor vehicle) where mandatory liability insurance applies.
However, with the exception of MTPL insurance, there is no possibility for direct
access by third parties.
10. Is there anything else you would like to add that could be of interest to this
project?
No.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Gerbeaud House
Vörösmarty tér 7/8
1051 Budapest
HUNGARY
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
INDIA
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Yes, but only for the specific types of insurance indicated below.
a. Fully?
e. Other?
In India the concept of third party liability insurance is applicable in the context of
Motor Vehicles Act, 1988 (“Motor Vehicles Act”). Pursuant to the Motor Vehicles
Act, the claimant can recover compensation directly from the insurer and in doing so
can claim fully. Such compensation applies for all types of parties suffering physical
loss /damage to themselves as well as to the vehicle.
There is also the Public Liability Insurance Act, 1991 (“Public Liability Insurance
Act”), which relates to mandatory insurance by persons handling any “hazardous
19
substance”. Here any person (other than a workman ) who suffers harm to person or
property (but not loss of profit) can claim under the insurance. However, the claim
has to be made to the Collector (Administrative Head) of the district where the
incident occurs or the person handling the ‘‘hazardous substance” is situated.
Typically a claim allowed under another policy will not be permitted if the effect is to
recover more than the actual loss from all policies put together. Such a claim is
applicable only in the case of physical damage to persons. The third party would not
be allowed to recover more than the actual loss and any further recourse available to
the third party would now be available to the insurance company which has paid
compensation to such third party.
Workmen are excluded from the purview of the Public Liability Insurance Act, 1991
because they are governed by the Workmen’s Compensation Act, 1923
(“Workmen’s Compensation Act”). This act governs the compensation to be
provided to workmen for any losses suffered by them during the course of their work.
19
A statutory term referring to a type of employee that can generally and informally be described as a “blue collar
worker”.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
There are no specific substantive conditions for a third party to comply with for
initiating court proceedings against an insurer.
It should be noted that in almost all cases, the insurer will move to make the insured
a party. This will be with a view to protect its ability to seek recourse / contribution
where the insured is at fault and/or exclusions under the policy apply.
b. If no, does the liability insurer have remedies or recourse against the
insured?
In the context of third party motor vehicles insurance, and workmen compensation
cases, although there are several grounds available to the insurer to deny
coverage/liability against the third party the courts have usually directed the insurer
to pay the third party, in spite of prima facie evidence that the policy has lapsed. This
is because third party insurance is for the benefit of the beneficiary (or third party)
and not the insured.
20
In Bajaj Allianz General Insurance Co. Ltd. V Birmati & Ors . and in Oriental
21
Insurance Co. Ltd. V Rakesh Kumar & Ors. , the court held that in order to allow
20
2012(1)TAC806
21
MAC.APP. 329/2010
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
defences to the insurer the rule of main purpose and fundamental breach has to be
proved, i.e., the defences relied on by the insurer should have fundamentally
contributed to the cause of the accident. If the insurer wishes to defend itself, the
insured is required to be joined as a necessary party to the suit.. The limited defence
possibilities available to the insurer in no way imply that the insurer is left without any
remedy. Although the courts hold in favour of the third party, they have always given
the insurer “the liberty to recover the said amount from the insured” in a separate
suit. (Please refer to our response to question 7).
In other words, the insurer can avail itself of defences to recover the amount from the
insured, but in all likelihood would not be able to avoid the full payment (by itself) of
the same to the third party.
5. Are there any further conditions for allowing a third party to have direct
access?
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
While there are no specific rules under the Motor Vehicles Act and the Public
Liability Insurance Act, the bankruptcy of an insured does not impact the claim
of a third party claiming directly under an insurance policy.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. Are the defence costs of the insured excluded from attachment and
seizure?
Yes, the defence costs form part of the entire amount due and are not excluded
from attachment and seizure.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
In general, the insurer is not required to take the interests of a third party into
account when an insured requests payment under the insurance, with the exception
of claims made by third parties.
a. Would a settlement between the insurer and the insured be binding on the
third party?
In respect of claims under the Workmen’s Compensation Act, the Motor
Vehicles Act and the Public Liability Insurance Act, no.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
There has been some judicial activism in this field as regards motor accidents.
22
In National Insurance Co. Ltd. V Parvathneni & Anr. It was held that if the insurance
company has no liability to pay at all, then it cannot be compelled by order of the
22
2009 CC 10993/2009
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
23
Court in exercise of its jurisdiction under Article 142 of the Constitution of India to
pay the compensation amount and later on recover it from the owner of the vehicle.
In the court’s opinion, Article 142 of the Constitution of India does not cover such
type of cases.
When a person has no liability to pay at all it cannot be compelled to pay. It may take
years for the insurance company to recover the amount from the owner of the
vehicle, and it is also possible that for some reason the recovery may not be possible
at all.
Hence, the Supreme Court bench hearing the matter directed that the papers of this
case be placed before the Hon'ble Chief Justice of India for constituting a larger
bench to decide these questions. But so far, no order or decision has been passed
by the larger bench hearing this issue.
Juris Corp
By H. Jayesh
23
Article 142 of The Constitution Of India
(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is
necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or
order so made shall be enforceable throughout the territory of India in such manner as may be prescribed by
or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the
President may by order prescribe.
(2) Subject to the provisions of any law made in this behalf by Parliament, the Supreme Court shall, as respects
the whole of the territory of India, have all and every power to make any order for the purpose of securing the
attendance of any person, the discovery or production of any documents, or the investigation or punishment
of any contempt of itself.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
INDONESIA
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No, direct access by a third party to claim under a liability insurance policy is not
possible under any condition.
No, a third party cannot initiate court proceedings against a liability insurer. Pursuant
to the Indonesian Commercial Code, any person committing a tort that causes loss
and damage to another person is liable to indemnify such loss and damage.
Therefore, in an act of tort, there is a legal relationship only between the tortfeasor
and the injured party. If the tortfeasor has insurance coverage for liabilities arising
from the tort, the insurer under the insurance policy is then obliged to indemnify the
loss/damages of the insured/tortfeasor that was caused by the insured/tortfeasor.
The insurer is only related to the tortfeasor under the insurance policy. In light of the
above, it is not possible for a third party to initiate court proceedings against a liability
insurer, since there is no legal relationship between them.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
N/A
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. If no, does the liability insurer have remedies or recourse against the
insured?
N/A
5. Are there any further conditions for allowing a third party to have direct
access?
N/A
A third party having a valid claim under an insurance policy will need to submit the
claims under the insurance policy to the appointed bankruptcy receiver.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
No.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. Are the defence costs of the insured excluded from attachment and
seizure?
This is at the judge’s decision, which may vary in practice.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
No, they are not required to take the interest of a third party into account, except
under Third Party Insurance (Asuransi untuk Kepentingan Pihak Ketiga).
a. Would a settlement between the insurer and the insured be binding on the
third party?
No.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
No.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
By Sunandarini
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
IRELAND
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
e. Other?
Irish law does not allow a third party to claim directly under a liability insurance policy
except in very limited circumstances. Under Irish law, in accordance with the
common law principle of privity of contract, a contract cannot generally be enforced
in favour of or against a person who is not a party to the contract. There is no Irish
equivalent of the UK Contracts (Rights of Third Parties) Act 1999.
There are however certain exceptions to the privity rule which permit a third party to
claim directly under an insurance policy. However, these exceptions are limited and
do not apply to every type of insurance contract or every third party beneficiary of an
insurance contract.
Section 62 of the Civil Liability Act 1961
The most significant exception is section 62 of the Civil Liability Act 1961.
Section 62 provides that where an insured who has a policy of liability insurance
becomes bankrupt or dies (if an individual) or is wound up (if a company) or
dissolved (if a partnership or other incorporated association), monies payable to
the insured under the policy shall be applicable only to discharging in full all
valid claims against the insured in respect of which those monies are payable,
and no part of those monies shall be assets of the insured or applicable to the
payment of debts. The monies are essentially ring-fenced to pay valid insurance
claims.
While section 62 does not expressly confer a direct right of action on an injured
party against a defendant’s insurers, in the case of Dunne v. PJ White
Construction Company (1989), Chief Justice Finlay, as he then was, expressed
the view in the Supreme Court that it was an inevitable consequence of section
62 that a right of action in favour of the injured third party is created, with the
qualification that this is a matter to be fully argued before it is finally determined.
The claimant has the benefit of the presumption that the defendant’s insurance
policy was good. The onus of proving the existence of a right to rescind or
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
repudiate the policy lies with the insurers. For the protection afforded by section
62 to come into play, monies must have been payable to the insured under the
policy of insurance. It is arguable therefore that the liability of the insured must
first be established before the injured third party can have any claim in respect
of the money, either against the insured, the liquidator or the insurers; however,
this remains to be determined by the courts.
This is an issue that is most likely to arise in the area of professional indemnity
insurance and in particular with regard to those professions that are known to
be required to carry professional indemnity insurance. Where an insurer avoids
or repudiates a policy of professional indemnity insurance (or any policy of
liability insurance), and particularly where there is a risk of a large number or
high value claims against the insured, consideration should be given to the
possibility of a claim under section 62 and steps taken to minimise the insurer’s
exposure.
Section 76(1) of the Road Traffic Act 1961
Under section 76(1) of the Road Traffic Act 1961, a claimant in a road traffic
accident can apply to court for leave to claim against the insurance company of
the owner of the vehicle in lieu of claiming against the owner if the owner is not
in the State, cannot be found or there is otherwise a just and equitable reason
for granting the application. The onus is on the third party claimant to establish
the existence of an indemnity as a matter of contract between the insured and
the insurer. Section 76(1) can only be invoked in respect of claims against
liability for which compulsory insurance is statutorily mandated.
Section 7 of the Married Women’s Status Act 1957
Section 7 provides that a policy of life assurance or endowment expressed to be
for the benefit of, or by its express terms purports to confer a benefit upon, the
spouse or child of the insured, is enforceable by that spouse or child by way of a
statutory trust.
The law of trusts
Under the law of trusts, a beneficiary can in certain circumstances enforce the
rights of the trust against an insurer. The beneficiary has the burden of proving
that the trust exists. The beneficiary must also be able to show that the
beneficiary is entitled to the benefit of the policy by proving “more than a
reasonable expectation” that the beneficiary is to benefit (Re Irish Board Mills
Limited (in receivership) (1980)).
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No. However, as set out above, the circumstances in which a third party can claim
under a liability insurance policy are very limited.
As a matter of procedure, a third party can either join the liability insurer as a
defendant to an existing action against the insured, or commence fresh proceedings
against the insurer.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Special conditions apply to applications under section 76(1) of the Road Traffic
Act 1961 and are set out in Order 91 of the Rules of the Superior Courts 1986.
Any application for an order against a vehicle insurer under this section must be
brought by motion on notice in the action in which the claimant has recovered
judgment, or if there is no such action, entitled in the matter of the Road Traffic
Act 1961 and in the matter of the intended proceeding. Where the claimant has
recovered judgment, the application must be brought within six months of the
date of judgment (although this can be extended by the Court).
The identity of the insurer must be known by the claimant before court
proceedings can be initiated; the Irish courts have recently refused in
proceedings against an insured to order discovery of documents relating to the
identify of the defendant’s insurer for the purposes of bringing a claim under
section 62 of the Civil Liability Act 1961.
Yes, however, where the third party claim is brought pursuant to section 62 of the
Civil Liability Act 1961, there is a presumption that the policy was good and the onus
is on the insurer to establish that it was entitled to deny coverage.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
While this question has not yet been fully considered by the Irish courts, it would
appear in principle that coverage could be established in the proceedings
between the third party and the liability insurer. In practice this would be difficult
as the third party will not have the necessary evidence and knowledge. This has
led insurers who feel exposed to such claims to bring declaratory proceedings
against the insured to confirm their entitlement to decline cover.
b. If no, does the liability insurer have remedies or recourse against the
insured?
Not applicable.
5. Are there any further conditions for allowing a third party to have direct
access?
In the context of section 62 of the Civil Liability Act 1961, it remains to be confirmed
by the courts whether a judgment against the insured is required to be obtained prior
to proceedings being brought against the insurer.
Yes. Section 62 of the Civil Liability Act 1961 applies in the case of a bankrupt
insured.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Section 62 of the Civil Liability Act 1961 applies to third-party claims in the case
of bankruptcy.
b. Are the defence costs of the insured excluded from attachment and
seizure?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
There is no requirement under Irish law to take the interests of a third party into
account.
a. Would a settlement between the insurer and the insured be binding on the
third party?
From a privity of contract perspective, save in the limited circumstances
permitted by law set out above, a settlement between the insurer and the
insured would not be enforceable by a third party, or against a third party,
unless the third party is a party to the agreement.
However, if the third party seeks to proceed against the insurer in the
circumstances permitted by section 62 of the Civil Liability Act 1961, it is likely
that the third party would be bound by any prior settlement agreed between the
insurer and the insured, in the same way as the third party would be bound by a
valid declinature or avoidance by the insurer. It is common practice in this
jurisdiction for insurers to bring declaratory actions against an insured to avoid
the difficulties which section 62 brings to insurers. The court order is
enforceable against a third party.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
In the current economic climate, many plaintiffs find themselves in a situation where,
if successful in litigation, the outcome will be a paper judgment against an insolvent
defendant. .Consequently, third party rights, in particular in the context of section 62
of the Civil Liability Act, which provides a possible means of recovery if an insolvent
defendant was insured, are highly relevant and have become increasingly topical.
The Law Reform Commission (LRC) has recently published a consultation paper on
Insurance Contracts and it is likely that this area of law will be subject to reform in
the coming years. The LRC considered the law in relation to third party rights in the
context of insurance contracts and has made a number of recommendations in this
area, however, it remains to be seen whether these recommendations will be
implemented by the legislature.
In particular, the LRC recommended the following:
section 62 of the Civil Liability Act 1961 should be extended to allow a third
party to proceed against the insurer where an insured cannot be found;
a third party beneficiary under a contract of insurance should be defined in
legislation as a person who is not a party to the contract but is specified or
referred to in the contract, whether by name or otherwise, as a person to
whom the benefit of insurance cover provided by the contract extends;
third party beneficiaries should not be able to invoke good faith obligations
which should be owed only to contracting parties;
a third party should be able to directly enforce the provisions in a contract
when the term expressly confers a benefit on the third party or the contract
expressly states that they may; and
a third party should have a right to rely on a term of contract which
excludes or limits the liability of a third party, provided that was the
intention of the parties.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
ISRAEL
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
e. Other?
Section 68 of the Israeli Insurance Contracts Law - 1981 (Insurance Contracts Law)
allows a third party to bring a direct action against the liability insurer of the tortfeasor
and to claim full compensation. The law does not limit this right to specific types of
parties, loss or insurance.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
The third party's right to file a direct claim against the liability insurer is not
conditioned on the existence of an insurance claim made by the insured. However,
according to the Insurance Contracts Law, if the liability insurer intends to pay
insurance benefits to the third party, it must notify the insured 30 days in advance of
its intention in order to enable the insured to object to the payment.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. If no, does the liability insurer have remedies or recourse against the
insured?
According to the Insurance Contract Law, "any argument which the insurer has
against the insured shall be valid also towards the third party". Accordingly, the
insurer is allowed to defend itself against the third party by denying coverage, and
coverage can be established in the proceeding between the third party and the
liability insurer.
5. Are there any further conditions for allowing a third party to have direct
access?
No.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
b. Are the defence costs of the insured excluded from attachment and
seizure?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
a. Would a settlement between the insurer and the insured be binding on the
third party?
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
The Motor Vehicle Insurance Ordinance - 1970, which imposes a mandatory duty to
insure liability for physical damage resulting from the usage of a motor vehicle,
provides that the third party's right to recover from the driver’s liability insurance
depends on the existence of a court judgment against the driver. According to
Supreme Court precedent, this provision does not limit the third party’s right to
initiate court proceedings against the insurer together with the driver, even if no
judgment has yet been handed down against the driver (C.A. 33/54 Commercial
Union v. Sher, PD 8 427).
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
10. Is there anything else you would like to add that could be of interest to this
project?
57 Yigal Alon St
P.O.B. 9395 Tel-Aviv
ISRAEL
67891
Telephone: 972-3-6886768
Fax: 972-3-6886769
Email: [email protected] / [email protected]
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
MALAYSIA
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
The general rule is that insurance taken out by an insured is essentially a contract
between the policyholder and the insurer. The English common law doctrine of privity
of contract as enunciated in the House of Lords decision of Dunlop Pneumatic Tyre
Co. Ltd v Selfridge & Co. Ltd. [1951] AC 847 has been approved and applied in
Malaysia. (See notably the advice of the Privy Council in Kepong Prospecting Ltd. &
Ors v Schmidt [1968] 1 MLJ 170). Therefore, only the insured may bring a claim
directly under a liability insurance policy, except under construction or motor
insurance policies as indicated under sub-paragraph (d) below.
a. Fully?
Yes, but only in the case of motor insurance.
e. Other?
In Pacific & Orient Insurance Co. Sdn Bhd. v Lim Sew Chong & Anor [1985] 2
MLJ 60, the plaintiff had taken out insurance in his deceased father’s name. The
subject matter insured was his late father’s lorry. When the lorry was damaged,
the insurer sought to avoid liability and the plaintiff brought an action to recover
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
the insurance proceeds. The Federal Court noted that the plaintiff had a direct
cause of action against the insurer, despite the fact that the policyholder (i.e the
father) was not a party in the proceedings. The Court reasoned that the plaintiff
had acted as an executor de son tort and thus had sufficient “insurable interest”
in the subject matter insured.
In group employee policies, the third party employees have no direct access
against the insurer even where the employer expresses that the policy is for the
benefit of the employees. This is due to the doctrine of privity of contract (see
above). However, where the employer is declared a trustee and the policy
states that the employer will hold any insurance proceeds for its employees as
beneficiaries, then the third party employees will have a direct cause of action
against the insurer for the insurance proceeds. (See the High Court decision of
GR Nair v Eastern Mining & Metals Co. Sdn Bhd. [1974] 1 MLJ 176.) In such
cases, the employer acts as a bare trustee for the employee beneficiaries and
the employees would be placed in the same position as the employer, having
the rights and obligations that the employer would have had.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No claim may lie against the insurer by a third party, notwithstanding the existence of
a claim by the insured against the insurer. The third party may only bring an action
against the insured in respect of the loss and damage suffered in tort. In QBE
Insurance Ltd. v Thuraisingam [1982] 2 MLJ 62, Wong Kim Fatt JC noted:
The third party at common law may only sue the insured for tort or breach of
duty of care, if any, and, although the insurers have undertaken to indemnify
the insured, the third party in the present appeal has no right of action against
them.
Again, an exception is made for motor insurance. In motor insurance cases, there is
no prerequisite that a claim be made by the insured. The third party’s claim is
independent of the insured’s claim.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
A third party may initiate court proceedings against an insurer under a motor
insurance policy, and no specific conditions have been set as a prerequisite for
such proceedings by the Court. It was observed by the Malaysian Supreme
Court in Malaysian National Insurance Sdn Bhd v Lim Tiok [1997] 2 MLJ 165
that the purpose of compulsory motor insurance against third party risks in
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Malaysia was to ensure that innocent third parties who are injured in vehicular
accidents are given full and effective protection, regardless of the private
insurance arrangement between the insurer and the insured.
The insurer in a motor insurance policy would be very hard pressed in finding a way
to deny coverage. Both under common law and in statute, it is well entrenched that
terms and conditions contained in the policy will not bind or bar the claim of a third
party. Section 95 of the Malaysian Road Transport Act 1987 (“RTA 1987”) provides
very extensive grounds on which the insurer may not rely on to avoid liability.
Similarly, it is a common term in most motor insurance policies that an insured must
bring an action against the insurer within a certain time frame or the insured’s claim
would be time barred. Whilst this term would bar the insured’s claim out of time, it
would not bar a claim by a third party. (See section 94 of the RTA 1987 and Revell v
London General Insurance Co. Ltd. [1934] All ER Rep. 744).
b. If no, does the liability insurer have remedies or recourse against the
insured?
Yes, the insurer in a motor insurance policy has a recourse because it may in
turn require the insured to repay the monies that it had paid out to the third
party. This is found in the proviso to section 94 of the RTA 1987 and appears to
be a formal statutory requirement that an insurer must have in place in its policy
a term to require the policyholder to repay to the insurer the compensation
which the insurer has been legally obliged to pay to a third party under the
section.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
5. Are there any further conditions for allowing a third party to have direct
access?
No, there are no further conditions. For completeness, it is noteworthy that an insurer
will often reserve the right to handle claims brought by a third party against an
insured. In addition, the policy would also usually impose a duty on an insured not to
make any admission of liability to a third party. Graham Rogers J in Terry v Trafalgar
Insurance Co. Ltd. [1970] 1 Lloyd’s Rep. 524 upheld the aforesaid term despite a
challenge made that the term is contrary to public policy.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
No, there are no such specific rules for third party claims in the case of
bankruptcy, except in the case of housing insurance policies. Under such
policies, a third party may bring a direct action against the insurer in the event
the insured becomes insolvent, though in Normid Housing Association Ltd v
Ralphs [1989] 1 Lloyd’s Rep. 265, the Court held that the third party is only
entitled to succeed on the rights of the insured AFTER the insured becomes
insolvent. This turned on the interpretation of the terms of the policy itself and is
persuasive authority in Malaysia.
Under section 100 of the RTA 1987, the rights of the third party to claim under a
motor insurance is preserved notwithstanding the solvency (or otherwise) of the
insured.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Yes, prejudgment attachments and seizures of assets are provided for under section
19 of the Debtors Act 1957. Prejudgment attachments and seizures are also allowed
by the common law under Mareva injunctions and Anton Piller orders.
b. Are the defence costs of the insured excluded from attachment and
seizure?
The defence costs of the insured may be excluded from attachment and seizure
at the discretion of the Court under section 20 of the Debtors Act 1957.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
a. Would a settlement between the insurer and the insured be binding on the
third party?
Generally, in a motor insurance policy, a settlement between the insurer and the
insured would not bind the third party. The third party would always stand in a
better position than the insured in this way. (See the New Zealand Insurance
case above).
Furthermore, in the case of motor insurance, under section 99 of the RTA 1987,
no settlement between the insurer and the insured can defeat or affect the rights
of a third party. The section states : “...no agreement made between the insurer
and the insured after liability has been incurred to a third party...shall be
effective to defeat or affect the rights transferred to the third party”. Under
section 101 of the RTA 1987, the third party must be made a party to such a
settlement or the settlement would not be valid.
Conversely, in Kitchen Design & Advice Ltd v Lea Valley Water Co. [1989] 2
Lloyd’s Rep. 221, which involved the insurance of business premises, a
settlement was concluded between the insurer and the third party. It was held
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
that the third party was protected against possible suits by the insured as the
court deemed the insurer an agent of the insured. This case is persuasive
authority in Malaysia.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
No.
20th Floor
Ambank Group Building
55 Jalan Raja Chulan
50200 Kuala Lumpur
MALAYSIA
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
NETHERLANDS
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
Under Dutch law, a third party does not have a general right to claim directly
under a liability insurance policy. There are, however, exceptions to this rule, as
set out below.
At first sight, this provision appears to imply that only an injured individual can
claim directly from the insurer. However, it has been argued in the Dutch legal
literature that if another individual or legal entity pays the medical costs (or
funeral costs) of an injured individual, this loss could be claimed under article
7:954(1) of the DCC.
The right to claim payment is not transferable, and it does not apply to the
extent the injured person is indemnified or to the extent an independent right of
indemnification for his loss against the insurer is vested in him by law. This
implies that another insurer having recourse cannot demand payment on the
basis of article 7:954(1) of the DCC.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Also, article 55 of the Flora and Fauna Act allows third parties suffering loss
arising out of hunting rifle accidents to claim directly from the insurer covering
this type of damage in the context of the hunter’s insurance.
Under the WAM and the Flora and Fauna act, the third party has an
independent right of indemnification, instead of merely the right to demand
payment.
e. Other?
For the purpose of this project, this contribution focuses on the right to claim
payment pursuant to article 7:954 of the DCC.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
Under article 7:954 of the DCC, a third party can claim directly from the insurer only
if the insurer has been notified by the insured of the materialized risk. The insured is
obliged to notify the insurer of the materialization of the risk as soon as reasonably
possible.
However, for purposes of long-tail risk, an exception applies if the insured is a legal
entity that has ceased to exist. In this event, if the obligation to indemnify the injured
party has not been transferred to someone else, the injured party may demand
payment without prior notification.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Yes. Pursuant to article 7:954(1) of the DCC, only if the insurer is liable to make a
payment may the third party demand payment. Therefore, the insurer may deny
coverage as a way of defending itself against a third party.
b. If no, does the liability insurer have remedies or recourse against the
insured?
N/A.
5. Are there any further conditions for allowing a third party to have direct
access?
No.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
No, the bankruptcy of an insured does not impact the possibility of a third party
claiming directly under an insurance policy.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. Are the defence costs of the insured excluded from attachment and
seizure?
Dutch courts have ruled that defence costs are not excluded from prejudgment
seizure. However, in the case of prejudgment seizure, an insured could be
unable to mount a defence because of financial restraints. If that were the case
in proceedings to lift the attachment, it would not be unlikely for the balance of
interests to shift towards the insured. In that case, a judge may very well rule
that the outcome of weighing these various interests is that the seizure has to
be lifted. This would depend on all the other circumstances of the case as well.
It is noted that there is only limited lower-court case law on this point.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
Yes, in the case of death or personal injury. Article 7:954(3) of the DCC provides that
if an insured requests payment under the insurance, but the third party has not yet
requested payment, the insurer cannot indemnify the insured and be discharged of
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
its obligation against the third party, unless four weeks have passed after the insurer
requested the third party to notify him whether the third party will exercise his right.
The insurer may also pay the insured if the third party has waived his right to request
payment.
This rule does not apply in the case of other loss or damage, but it is noted that
special rules apply under the WAM and the Flora and Fauna Act.
a. Would a settlement between the insurer and the insured be binding on the
third party?
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
No.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Houthoff Buruma
Telephone: +31 (0)20 605 6116 / +31 (0)20 605 6946 / +31 (0)20 605 6910
Fax: +31 (0)20 605 67 04
Email: [email protected] / [email protected] / [email protected]
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
NEW ZEALAND
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Yes. In appropriate circumstances, a third party may claim directly under a liability
insurance policy. By s. 9 of the Law Reform Act 1936 (Act), if the insurance policy
indemnifies the insured against liability to pay any damages or compensation, the
amount of the insured's liability to the third party will be a charge on all insurance
money that is or may become payable in respect of that liability. The charge arises at
the time of the event giving rise to the claim against the insured, regardless of
24
whether the amount of liability has been determined at that time. The charge is
25
enforceable by way of an action against the insurer.
a. Fully?
The charge is enforceable against the insurer in the same way as if the action
26
were to recover damages or compensation from the insured. The full amount
of the claim may be charged up to a maximum of the whole of the unexhausted
policy limit at the date when the event takes place (ie the claimant cannot
27
recover a greater sum than that recoverable by the insured).
24
s. 9(1), Law Reform Act 1936 (NZ).
25
s. 9(4), Law Reform Act 1936.
26
s. 9(4), Law Reform Act 1936.
27
American Home Assurance Company trading as Chartis v Houghton, High Court, Auckland, CIV-2011-404-7152,
2 December 2011, Rodney Hansen J. This proceeding was transferred to the Court of Appeal to be heard in
conjunction with the appeal in the Steigrad matter referred to below.
28
s. 9(1), Law Reform Act 1936.
29
Kelly & Ball, Principles of Insurance Law at [14.0040.5].
30
Ruscoe & Anor v Canterbury Policy Holders (2011) 9 NZBLC 103, 483, [2012] 2 NZLR 438 at [13].
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
e. Other?
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No. The charge is created (and therefore enforceable) immediately upon the
32
happening of the event giving rise to the claim —regardless of whether the insurer
has received or accepted a claim from the third party or the insured. Whilst it is not
mandatory for the insured to have claimed against the insurer before the charge
33
arises or before a third party can initiate its claim , the claimant will need to
establish that the insured is entitled to cover in respect of the insured's liability to the
claimant in order to enforce the charge (see below).
Yes. The charge is expressly enforceable by way of action by the third party against
the insurer in the same way, and in the same court, as if the action were to recover
34
damages or compensation from the insured.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
In some cases, the claimant will require leave of the court before it is able to
initiate court proceedings directly against an insurer. The only circumstance in
which leave is not required is when the insured is insolvent on the happening of
35
the event giving rise to the claim for damages or compensation. To grant
leave, the court must be satisfied that: (i) the third party has a prima facie claim
against the insured; (ii) the insured has a prima facie claim under the insurance
policy; and (iii) the insured is not a "perfectly good common law defendant" (ie
36
there are doubts as to the insured's capacity to meet the claim).
31
s. 9(1), Law Reform Act 1936.
32
s. 9(1), Law Reform Act 1936.
33
Steigrad v BSFL 2007 Limited (2011) 16 ANZ Insurance Cases 61-910 at [28]. An appeal against this decision
has been lodged.
34
s. 9(4), Law Reform Act 1936.
35
Chow v Thomson, High Court, Auckland, CIV-2009-404-4865, 15 March 2012, Peters J at [12].
36
Chow v Thomson at [13].
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Yes. A liability insurer can defend a third party claim by denying coverage under the
insurance policy. Where the insurer establishes that it is entitled to disclaim liability
under the policy or where there is a vitiating factor in its formation, no charge will
37
exist.
b. If no, does the liability insurer have remedies or recourse against the
insured?
N/A.
5. Are there any further conditions for allowing a third party to have direct
access?
Under the statutory scheme, where an injured third party can and does claim directly
against an insurer, the parties have the same rights and liabilities as if the third party
38
had sued the insured. The third party is therefore subject to the same limitation
period as would have applied had the proceedings been against the insured rather
than against the insurer. The limitation period runs from the date of the event giving
39
rise to the insured's liability to the third party.
37
Steigrad at [30].
38
s. 9(4), Law Reform Act 1936. Note also the requirements explained above.
39
Laws of New Zealand at [477].
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Yes. The statutory direct recourse regime is intended to operate primarily when the
40
insured is insolvent. The statutory charge survives any insolvency, bankruptcy or
winding up of the insured, provided that the insolvency commenced "not later" than
41
the happening of the event giving rise to the claim.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Leave Requirements: If the insured is insolvent on the happening of the event
giving rise to the claim, the third party will not be required to obtain leave from
the court before initiating proceedings under the Act. In all other circumstances,
leave will be required.
Priority of Claims: The Act alters the priority of claims against the assets of
such an insured by removing the monies payable under the insurance policy
from the pool of funds available to meet debts owing to the other creditors of the
42
insured. Every charge created by the Act has priority over other types of
charges affecting the insurance money. Where the same insurance money is
subject to two or more charges under s. 9 of the Act, those charges are
prioritised between themselves in the order of the dates of the events out of
43
which liability arose.
40
Ludgater Holdings Limited v Gerling Australia Insurance Co Pty Limited [2010] 3 NZLR 713 at [21], Supreme
Court.
41
s. 9(2) and (4), Law Reform Act 1936.
42
Steigrad at [23].
43
s. 9(3), Law Reform Act 1936.
44
s. 303, Companies Act 1993.
45
ss. 231 and 232, Insolvency Act 2006.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
The following responses are given in the context of enforcing a charge under s 9 of
the Act and do not relate to prejudgment attachment or seizure of assets:
b. Are the defence costs of the insured excluded from attachment and
seizure?
This is a point of contention in New Zealand. In 2011, the High Court held that
where an insurer has agreed to provide an indemnity against legal liabilities and
defence costs and the maximum amount payable under the policy is a single
aggregate limit, the amount charged is the whole of the unexhausted policy limit
48
at the date when the event takes place. The insurer and/or insured is therefore
not entitled to prefer its defence costs over any amounts payable to the third
49
party by reason of the charge. The effect of this decision has caused concern
within the insurance sector as it arguably means that, where the policy has a
single aggregate limit for legal liabilities and defence costs (combined):
(i) unless there are sufficient funds available to satisfy the insured's maximum
liability to the third party and meet any legal costs, any payments towards
defence costs are voluntary on the part of the insurer;
(ii) to the extent that such payments of defence costs affect the amount
recoverable by the third party from the insurer under the insurance policy, the
insurer may be required to pay the amount of the defence costs payments into
the pool (and thus effectively pay the amount twice); and
46
s. 9(1), Law Reform Act 1936.
47
s. 9(7), Law Reform Act 1936.
48
Steigrad. See also American Home Assurance Company (Chartis) at [2].
49
Steigrad at [60].
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
(iii) given that the charge is enforceable notwithstanding that the claim may not
yet have been quantified, claimants may be encouraged to overstate their
claims at the outset in an attempt to prevent the insured from having defence
costs paid by insurers.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
The statutory charge arises upon the happening of the event regardless of whether
the insurer has accepted the claim. The charge created by the Act is designed to
prevent an insured from receiving and disbursing the proceeds of an insurance claim
for purposes other than satisfying the liability in respect of which the insurer made
the payment. The charge also prevents an insured from entering into a corrupt
bargain with the insurer that would frustrate the claimant's ability to gain access to
50
the monies payable under the policy held by the insured. However, any payment
made by the insurer under the contract of insurance without actual notice of the
51
charge shall, to the extent of that payment, be a valid discharge to the insurer.
a. Would a settlement between the insurer and the insured be binding on the
third party?
It is unlikely that a settlement between the insurer and the insured would be
binding on the third party (unless the third party was a party to the settlement).
The third party is entitled to claim against the insurer to the full extent of the
third party's loss (capped at the maximum payable under the policy). If the
insurer settled with the insured without actual notice of the charge, the insurer
may be released from any claim by the third party to the extent of that
settlement; however, the insurer would likely still be liable for any additional
insured loss within the policy limits that is proved and payable.
50
Steigrad at [24].
51
s. 9(6), Law Reform Act 1936.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
N/A.
10. Is there anything else you would like to add that could be of interest to this
project?
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Simpson Grierson
Level 27
88 Shortland Street, Auckland
NEW ZEALAND
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
NIGERIA
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Generally, a third party cannot claim directly under an insurance policy. A person has
to be a party to an insurance contract before that person could enforce the contract
for his or her right to any benefits under it.
Under the Motor Vehicles (Third Party Insurance) Act 1950 Cap M22 LFN, 2004,
certain steps are prescribed to ensure that third parties who obtain judgments
against an insured are not prejudiced by settlements between an insured and an
insurer, in the event of death or bodily injury.
In addition, under the Motor Vehicles (Third Party Insurance) Act 1950 Cap M22
LFN, 2004, there is a statutory obligation to pay out the judgment sum (including
costs and interests) notwithstanding the fact that the insurer may be entitled to avoid
or cancel the policy.
(1) Where-
(a) civil proceeding are taken in respect of any claim relating to any risk
required to be insured against under this Act or any other law; and
(b) a judgment is obtained against the person insured then,
notwithstanding that the insurer be entitled to avoid or cancel or may
have avoided or cancelled the policy,
the insurer shall, subject to this section, pay to the person entitled to the
benefit of such judgment the sum payable (including costs and interest
sum) not later than 30 days from the date of delivery of the judgment.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
as a joint interest policy rather than a single party contract for the benefit of a third
party.
a. Fully?
Once the conditions set out above have been fulfilled, then a Third Party can
fully recover to the extent of the judgement sum and other associated cost and
interest.
e. Other?
Apart from the above, third parties cannot claim directly under liability insurance
under Nigerian law.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
In the case of motor vehicle insurance and mandatory insurance, the third party does
not need to wait until the insured make a claim against his insurer. There is however
a need for the third party to establish liability of the insured before proceeding
against the insurer.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Judgment must first be obtained against the insured before a recourse is had to
the liability insurer and not otherwise. See the explanation above.
A liability insurer can only defend itself if a condition precedent to the claim is not
fulfilled by the third party (e.g. notice of the action to the insurer or filing a suit
outside the statutory time allowed).
Under section 10(2) of the Motor Vehicles (Third Party Insurance) Act the following
defences can avail the insurer against the third party:
a. failure to notify the insurer of the action against the insured before or within 7
days of the commencement thereof;
b. a stay of the execution of the action against the insured pursuant to an appeal;
c. cancellation by mutual consent of the policy by the insurer and the insured, or
surrender of the policy by the insured prior to the event giving rise to the liability;
or
d. a court declaration of non-disclosure of material facts by the insured, obtained
by the insurer in an action commenced by the insurer before or within 3 months
of the action of the third party against the insured.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
will have already been established. Consequently, there is in such case no need
to establish coverage in the proceedings between the third party and the
insurer.
b. If no, does the liability insurer have remedies or recourse against the
insured?
This is a moot question. One would contend that the right of the insurer would
then fall on the principles of deemed contract whereby non payment of premium
(for example) could be recovered as a simple debt claim by the insurer against
the insured.
5. Are there any further conditions for allowing a third party to have direct
access?
It is reiterated that, generally, there is no direct access for third parties. In the
exceptional cases of motor insurance and mandatory insurance, there are no
conditions other than the conditions set out above.
No. In the case of bankruptcy, third parties can still claim directly under a liability
insurance policy, but only in case of motor vehicle insurance and mandatory
insurance.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Under section 11 of the Motor Vehicles (Third Party Insurance) Act, the rights of
the insured under the applicable insurance policy are transferred to the third
party in the case of (amongst other things) bankruptcy. This section provides as
follows:
(1) Where under a policy issued for the purposes of this Act a person,
hereinafter referred to as the insured, is insured against liabilities to third
parties which he may incur, then-
(a) in the event of the insured becoming bankrupt or making a
composition or arrangement with his creditors; or
(b) in the event of the insured being a company and a winding up order
being made or a resolution for the voluntary winding up of the
company being passed in respect of the company or a receiver or
manager of the company’s business or undertaking being duly
appointed or in the event of possession being taken by or on behalf
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Once a judgment is obtained against the insured, the third party may initiate so
called garnishment proceedings, in which the third party can collect what is owed
from the insured by reaching the insured's property in the hands of insurer.
Garnishment is similar to lien and attachment. Liens and attachments are court
orders that give a creditor an interest in the property of the debtor. Garnishment is a
continuing lien against the non-exempt property of the debtor. Garnishment is not,
however, an attachment. Attachment is the process of seizing property of the debtor
that is in the debtor's possession, whereas garnishment is the process of seizing
property of the debtor that is in the possession of a third party.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
Only to the extent of the coverage, or to the extent of the judgment obtained
against the insured, whichever is less.
b. Are the defence costs of the insured excluded from attachment and
seizure?
No, defence costs are not excluded. The insured could however request special
dispensation of the court.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
No. Generally, neither the insurer nor the insured has an obligation to look after the
interest of the beneficiary. However, the following exceptions will apply:
(i) the policy expressly provides for the interest of the beneficiary to be taken into
account; or
(ii) the policy provides for notification to the third party of the claim made under the
insurance by the insured by either the insurer and/or the insured, prior to
payments made under the insurance; or
(iii) the policy names the third party as the loss payee.
b. Would a settlement between the insurer and the insured be binding on the
third party?
Section 15(1) of the Motor Vehicles (Third Party Insurance) Act specifically
provides as follows:
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
10. Is there anything else you would like to add that could be of interest to this
project?
It will interest you to note that insurance claims are usually not litigated in Nigeria
due to cultural and religious beliefs. There is therefore a paucity of authority to rely
on to buttress the responses above.
Delaw Chambers
By Kamar Raji
2nd Floor
15, King George V Road
Onikan, Lagos
NIGERIA
Telephone: 234-1-740-1758
Email: [email protected]
Website: www.delawchambers.com
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
NORWAY
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
e. Other?
This is a question that must be considered by reference to the Norwegian Insurance
Contracts Act 1989 (the “ICA”). The ICA sets out mandatory rules that are applicable
to insurance contracts governed by Norwegian law. Among other things, the ICA
grants a third party the right to direct action against an insurer. Section 7-6 of the ICA
states as follows:
“When the insurance covers the liability of the Insured for compensation, the
injured party may claim compensation directly from the Insurers. The Insurers
and the Insured are under a duty to inform the injured party upon request
whether liability cover exists.
When a claim for compensation is advanced against the Insurers, they shall
notify the Insured without undue delay and keep the Insured informed about the
further handling of the claim. Any admissions by the Insurers to the injured party
are not binding on the Insured.
If legal action is brought against the Insurers they may request that the injured
party claims against the Insured in the same action.
The Insurers may raise those objections against the claim which the Insured has
as regards the injured party. The Insurers may also raise their own objections
against the Insured unless the objections are related to the Insured’s
circumstances after the insurance event occurred.
An action against the Insurers under this section must be brought in Norway
unless anything else follows from Norway’s obligations under international law.
The provisions of this section shall not preclude that a business trader in
relation to the Insured waives the right to claim compensation for a business
loss directly from the Insurers. Any such agreement will nevertheless not be
legally enforceable in the event of the Insured’s insolvency.”
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
The general rule is that the ICA is mandatorily applicable to all insurance contracts.
However, there are some exceptions. It follows from section 1-3 of the ICA that
insurance contracts relating to business operations of a certain size are generally not
subject to the ICA. This means that the insured and the insurer may agree on terms
in the insurance contract that depart from the provisions in the ICA.
Where insurance contract terms do not depart from the ICA, the ICA rules will “fill in
the gaps” in the insurance contract. Therefore, if an insurance contract contains no
provision expressly prohibiting direct action, such as a “pay to be paid” clause in
marine insurance contracts, the direct action rules in the ICA will nevertheless apply.
The second paragraph of section 1-3 of the ICA provides that liability insurance in
accordance with section 7-8 of the ICA will always be mandatory. Section 7-8
provides that the rules on direct action under section 7-6 (and under section 7-7 in
relation to compulsory liability cover) are always mandatory where the insured is
insolvent regardless of any express provisions to the contrary.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Yes, please see below for clarification.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
If proceedings are brought against both the insured and the insurer, the two cases
may be heard before the same court under section 15-2 of the CPA.
The answer to this question is not a clear yes or no. Please see below for a
clarification.
b. If no, does the liability insurer have remedies or recourse against the
insured?
As set out in paragraph four of section 7-6, an insurer may rely on the insured’s
defences to the claim. The insurer may also rely on a defence available under the
insurance contract, provided such a defence is not based on the insured’s breach of
an insurance contract term after the insured event occurred. For example, if the
insured fails to notify the insurer of the insured event, this is a defence that the
insurer may not rely on against the injured third party.
If the insurance is compulsory under Norwegian law, the insurers’ defences are
regulated by section 7-7 of the ICA, which significantly reduces the defences
available to direct action by third parties. According to this section, the insurer may
not rely on the defences that they would have had against the insured under the
insurance contract.
5. Are there any further conditions for allowing a third party to have direct
access?
No.
Yes, the bankruptcy of an insured impacts the possibility of a third party claiming
directly under an insurance policy.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Section 1-3 of the ICA provides that liability insurance in accordance with
section 7-8 of the ICA will always be mandatory. Section 7-8 provides that the
rules on direct action under section 7-6 (and section 7-7 in relation to
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
compulsory liability cover) are always mandatory where the insured is insolvent
regardless of any express provisions to the contrary.
[N/A]
Yes, prejudgment attachment is allowed in Norway. The basic premise is that the
third party may attach any assets belonging to the debtor. There are a number of
rules limiting this right, but not with regard to claims under a liability insurance.
b. Are the defence costs of the insured excluded from attachment and
seizure?
No, money to be used for defence costs is not explicitly excluded from
attachment.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
As stated above, a third party’s right to direct action under the ICA is not conditional
on the insured’s actions after the insured event has occurred.
According to section 7-6 of the ICA, the insurers and the insured are, on request,
under a duty to inform the injured party whether liability cover exists.
a. Would a settlement between the insurer and the insured be binding on the
third party?
No, a settlement between the insurer and the insured will not deprive the third
party of this right.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
There are a number of laws that give an injured third party a right to direct action.
The most important is the Norwegian Merchant Shipping Act, which provides direct
action to third parties in the case of oil and bunker pollution. There are also rules
concerning direct action in the Motor Vehicle Liability Act and the Workers
Compensation Act.
10. Is there anything else you would like to add that could be of interest to this
project?
N/A
Thommessen
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
POLAND
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
Yes, under article 822 § 4 of the Polish Civil Code, a person entitled to
indemnity in connection with an event covered by a contract of third party civil
liability insurance may vindicate claims directly from the insurer (action directa).
Thus, in the case of any liability insurance contract, a third party that is entitled
to indemnity may claim directly from the insurer.
e. Other?
N/A
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
The claim of a third party entitled to indemnity is not conditional on any action by the
insured. Thus, even in the absence of any activity by the insured, the third party may
claim directly from the insurer if the third party establishes that the insured is covered
by the liability insurance provided by the relevant insurer.
Yes, under the general rules of civil procedure, a third party can initiate court
proceedings against a liability insurer.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
General rules of civil procedure, i.e. those that apply in ordinary court
proceedings, will apply. The insurer "enters into” the legal situation of the
insured; therefore, a third party can sue the insurer instead of suing the insured.
The third party will need to prove that the loss or damage caused by the insured
was insured under a liability insurance contract and that the claim is legitimate
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
(e.g. that the event causing the loss or damage is covered by the insurance,
etc.).
Yes, in principle, an insurer can defend itself on the basis of general rules and raise
any justifiable objections concerning the coverage. It should be noted, however, that
the insurer cannot raise any objections based on a breach by the policyholder or the
insured of duties (either under the contract or the general insurance conditions) if the
breach occurred after the insured event took place.
b. If no, does the liability insurer have remedies or recourse against the
insured?
N/A
5. Are there any further conditions for allowing a third party to have direct
access?
No, as stipulated above, there are no preliminary formal conditions for a third party to
have a direct claim against the insurer, apart from establishing the existence of the
liability insurance and the insurer that concluded this liability insurance.
The answer to this question is not a clear yes or no. Please see below.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
With regard to compulsory insurance coverage, Polish law expressly provides
that the bankruptcy of an insured has no influence on the insurance contracts
concluded by the insured. With regard to other (voluntary) insurance contracts,
bankruptcy of the insured generally does not have an influence on whether a
third party files a claim against the insured. However in the case of the insured's
bankruptcy, the executor has certain rights regarding the insurance contract,
e.g. in certain circumstances the executor may cancel the contract and claim
reimbursement of the insurance premium.
This question refers to a kind of legal action instituted by a third party against an
insurer even before the statement of claim against the insurer is filed with the court,
the purpose being to secure payment of the claim if the insurer loses the case (e.g.
by seizure of the insurer's assets). There are such proceedings in Polish law but in
order to obtain such security from the court, the plaintiff has to establish that certain
conditions are met. Generally the court will provide such security in cases where
denying it would significantly hinder, or make impossible, the execution of the
judgment. In the case of legal proceedings concerning liability insurance cover
instituted against the insurer by a third party that suffered certain damage, such a
situation is very unlikely. The insurers are subject to restrictive supervision and must
have appropriate assets to pay the claims resulting from the insurance cover
provided. Therefore in practice it would be quite difficult for a plaintiff (third party) to
obtain such security against the insurer, but it is possible.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
b. Are the defence costs of the insured excluded from attachment and
seizure?
It is the court's decision whether to include such costs when granting the
security. It also depends on the scope of the application for such security filed
by the claimant.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
According to Polish law, anyone may notify an insurer of the occurrence of an event
(e.g. loss triggering the insurer's obligation to pay the benefit relating to a third party
liability insurance contract). Therefore, an insured may notify the insurer of such
event. In this event, the insurer must institute appropriate proceedings in order to
investigate the case and verify whether the insurance benefit should be paid.
Generally, the rules regarding such proceedings and the rights of the person entitled
to the insurance benefit are the same regardless of who notified the insurer of an
event.
a. Would a settlement between the insurer and the insured be binding on the
third party?
No, such settlement would have no impact on the legal situation of the third
party.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
Generally the most important provision regarding third party liability insurance is art.
822 of the Civil Code, which states as follows:
"Article 822. § 1. By the contract of civil liability insurance the insurer shall
assume the obligation to pay the indemnity specified in the insurance contract
for a damage done to third parties to whom the insurance taker or insured is
liable for the damage.
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§ 2. If not agreed otherwise by the parties, the contract of civil liability insurance
shall cover the damage referred to in paragraph 1, being a consequence of an
event envisaged in the contract, which event occurred during the period of
insurance.
§ 3. The parties may provide that the contract will cover damage that took place,
was disclosed or the notice of which was submitted during the insurance
period.]
§ 5. The insurer shall not raise against the party entitled to indemnity any
objection referring to the breach by the insurance taker or insured of duties
resulting from the contract or general insurance conditions, if the breach
occurred after the accident."
There are also certain provisions regarding such contracts in other statutes (e.g. the
Insurance Activity Act dated 22 May 2003), but they are not as significant as the
above-cited provision.
10. Is there anything else you would like to add that could be of interest to this
project?
N/A
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Radca Prawny
ul. Nowogrodzka 50
00-695 Warsaw
POLAND
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SPAIN
1. Does the law in your jurisdiction allow a third party to claim directly under
liability insurance policy?
a. Fully?
52
Yes. According to article 76 of the Spanish Insurance Contract Act (hereinafter
ICA):
the injured third party or his heirs shall have a direct right of action
against the insurer to enforce its obligation to indemnify, without
prejudice to the insurer’s right to recover from the insured in the event
that the damage caused to the third party is due to the insured’s wilful
misconduct. The direct action shall be immune to the defences that the
insurer may raise against the insured. The insurer may, nonetheless,
raise the exclusive fault of the injured party and any personal defences
that the insurer may have against him. For the purposes of the exercise
of the direct action, the insured is obligated to communicate to the injured
third party or his heirs the existence of an insurance contract and its
contents.
In short, the third party injured or harmed by the insured may sue either the
insured or the insurer or both.
52
Insurance Contract Act 50/1980, 8th October.
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e. Other?
Under article 76 of the ICA, the insurer is not allowed to raise against the third
party those defences that the insurer may raise against the insured, e.g., failure
to pay the premium. However, the insurer may raise the exclusive fault of the
injured third party and whatever personal defences the insurer may have
against it. We refer to this issue again under question 5.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No. The claim against the insurer by the insured is not required for a third party to be
able to claim directly. The injured third party has a personal right arising out of the
law against the insurer.
Nevertheless, the right of the injured third party to claim against the insurer requires
the following:
(i) There must be a valid obligation on the part of the insured to indemnify the
third party for the loss or damage caused by an act or omission specified in
the insurance contract.
(ii) There must be a validly existing insurance contract between the insurer
and the insured.
Yes. A third party can initiate court proceedings against a liability insurer.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
The third party must refer in his claim to the insurance policy. To do this the
third party may request the disclosure of the policy to the insured either in court
or out of court. There is a pre-lawsuit court proceedings (diligencias
preliminares) which the third party can instigate to compel the insured to
disclose the policy if the insured refuses to do so voluntarily.
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Yes. The injured third party’s right to claim directly against the insurer arises only in
connection with the risks covered by the liability insurance contract and within the
limits set out in the policy.
b. If no, does the liability insurer have remedies or recourse against the
insured?
5. Are there any further conditions for allowing a third party to have direct
access?
As suggested above, the general requirements or conditions for the third party action
are mainly two-fold: the claim of the third party must be covered by the policy and the
insured must be liable for the loss.
The insurer will not be liable to the third party if the claim falls outside the scope of
coverage under the policy. However, as explained in more detail below, there are
reservations because it is not always easy to determine if and when a claim falls out
of the insuring grant. Occasionally there are contractual clauses limiting or restricting
the insured’s rights or even exclusions that may add to the confusion. These limits
and/or exclusions cannot necessarily be raised against the third party. However, the
third party must also abide by the limits of indemnity as set out in the policy.
The third party has certain procedural and substantive privileges. In particular, the
insurer will only be allowed to raise against the third party his possible exclusive fault
on the occurrence of the loss or any personal defences the insurer might have
against him. The insurer will not be allowed to raise defences it may have against the
53
insured, e.g., breach of duty to declare the risk to the insurer , suspension of
54
coverage for non-payment of premium , breach of the insured’s duty to declare the
55
circumstances (loss or damage) to the insurer , breach of the insured’s duty to use
53
ICA, article 10 (Duty of declaration of the policyholder).
54
ICA, article 15 (Effects of the non-payment of the premium).
55
ICA, article 16 (Duty of declaration of the loss to the insurer).
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56
all means available to mitigate the consequences of the loss , failure of the insured
57
to declare the existence of several insurance contracts covering the same risk .
Further, the insurer cannot raise defences based on: (i) the wilful misconduct of the
insured (despite the general rule that losses caused in bad faith by the insured are
uninsurable under article 19 of the ICA); (ii) clauses that limit or restrict the insured’s
rights; and (iii) exclusions contained in the policy which by nature do not delimit and
specify the coverage afforded by the insurer. Clauses specifying the risk are those
relating to the subject matter or object of the insurance, the sum insured, the period
of insurance, the geographic scope and the like. The rest may be the so-called
limitative clauses or exclusions, which to be valid must be accepted explicitly by the
policyholder/insured and singled out in bold letters in the contract. This is not
required where so called "large risks" (as defined) are concerned since these are not
subject to the otherwise mandatory provisions of the ICA. In these cases the insurer
may recover from the insured but cannot oppose the third party’s claim on the basis
of such clauses. It should also be noted that the case law (e.g., Decision of the
Supreme Court of 30 November 2011, RJ\2012\3519) has drawn a subtle (and not
always too clear) distinction between clauses delimiting cover and clauses delimiting
the rights of the insured or providing for exclusions. Occasionally, these exclusions
have been described as delimiting cover objectively and therefore in pure theory they
could be raised against the third party. A key exercise is therefore to examine each
contract on a case-by-case basis. This is particularly true in the case of motor
insurance, for example.
To sum up, the insurer has a very narrow margin of opposition against the third
party. The insurer will be entitled to oppose the claim successfully solely if the loss
was caused by the exclusive fault of the third party or if the claim falls outside the
scope of coverage under the policy and related terms and conditions (sum insured,
territory, period of insurance). Other than that, the insurer will have to pay, although
the insurer will generally be able to recover from the insured. This is not necessarily
a good prospect, particularly if the insured is insolvent.
No. The insolvency or bankruptcy of the insured does not affect the right of the
injured third party to claim directly against the insurer. It should be recalled that the
56
ICA, article 17 (Duty to use all means available to mitigate the consequences of the loss).
57
ICA, article 32 (Multiple Insurance).
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action of the third party against the insurer arises by operation of the law and is
independent of, and additional to, the actions/claims that the third party may have
against the insured.
a. Are there any specific rules relating to third party claims in the case of
bankruptcy?
No.
Since the injured third party has a direct right of action against the insurer to claim
damages it would make no sense to attempt attaching the insured’s claim against the
insurer under the liability policy.
b. Are the defence costs of the insured excluded from attachment and
seizure?
No, but please refer to a) above.
58
Civil Procedure Act 1/2000, 7th January.
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The insurer could argue that the civil procedural requirements for the court to
grant provisional measures have not been met. These requirements are as
follows: the claim must “appear” to have a legal foundation (this would entail
looking into coverage); and there must be a sound indication of danger or risk
that the delay involved in the lawsuit may hinder or prevent the eventual
enforcement of the judgment.
8. Is the insurer or the insured (or both) required to take the interest of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
It is customary for policies to require or permit the insured to give notice of the
circumstances that could eventually give rise to a claim or the claim itself within a
certain period of time. Once notice of the claim has been given, under normal
circumstances the insurer will handle it and pay the third party. The third party will be
required to sign a full release in favour of both the insured and the insurer. If this is
not the case, it is difficult to see how the insurer will pay the insured without a claim
being filed by the third party. In that unlikely event, the insurer would have to take the
interest of the third party into account, but on its own behalf because the third party
would maintain his action against the insurer. This means that the insurer would have
to make sure that payment has been made to the third party from whom a full release
would be required.
a. Would a settlement between the insurer and the insured be binding on the
third party?
No. As mentioned, the injured third party has a personal right to claim directly to
the insurer, and that settlement would not bind him.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
Duty to declare the existence of the insurance contract and its contents.
Article 76 of the ICA requires the insured to disclose the existence of the policy and
its contents thereof to the injured third party or his heirs. This is intended to facilitate
the direct action of the injured third party against the insurer.
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preliminary inquiry procedure. Costs will be generally ordered against the insured if
the court compels the insured to disclose the information.
10. Is there anything else you would like to add that could be interest to this
project?
As a general rule the insurer cannot recover from the insured, unless the loss or
damage was caused by the insured’s wilful misconduct. Also, valid clauses delimiting
the rights of the insured may be enforced allowing the insurer to recover from the
insured.
By Jorge Angell
Lagasca, 88 - 4º
28001 - Madrid
SPAIN
LCRODRIGO
ABOGADOS
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SWEDEN
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
The general rule under Swedish contract law is that a contract confers rights and
obligations only on the parties to the contract. Thus, the default position under
Swedish insurance law is that an injured party does not have a right to claim
indemnification directly from an insurer under a liability insurance policy held by the
59
liable party. The insured interest is generally considered to be the liability of the
insured. However, there are exceptions where the injured party’s interest in being
compensated has been deemed to justify direct third party access under the liable
party’s liability insurance policy. Under Chapter 9, section 7, of the Swedish
Insurance Contracts Act (2005:104) (“ICA”), a third party may claim indemnification
directly from the insurer if:
(i) the insured has a statutory obligation to have third party liability insurance
covering the loss;
(ii) the insured has been declared bankrupt or an order has been issued for public
composition; or
b. Fully?
In cases where direct third party access to liability insurance exists and the
claim is also included in the scope of the coverage (and falls within any caps or
limitations), the injured party has a right to be fully compensated for its claim.
59
In Sweden, the following scenarios are typically not considered cases of direct third party access to liability
insurance:
i) the injured party can claim directly against the insurer pursuant to the terms of the policy,
ii) the insured voluntarily transfers the right to indemnification to the injured party,
iii) the injured party, after having received a judgment for damages against the insured, seizes the insurance
compensation; or
iv) the injured party has a claim for damages against the insurance company for negligence.
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
f. Other?
Under the old Insurance Contracts Act (1927:77) (the “Old ICA”), which applies
to some insurance policies issued prior to 1 January 2006, an injured party is
entitled to have the right to claim insurance compensation transferred from the
insured if the insured becomes bankrupt (section 95, paragraph 3, of the Old
ICA). Accordingly, under the Old ICA, the insured must transfer its right to
compensation when placed in bankruptcy. This differs from the current ICA,
which came into force on 1 January 2006, under which an injured party
automatically has a right to direct third party claims against the insurer if the
insured becomes bankrupt.
In addition, the possibility of an injured third party claiming compensation
directly from the insurer can naturally also originate from the terms and
conditions of a liability insurance policy.
Moreover, an issue that is not quite clear under Swedish law is whether there
are any circumstances in which an insurer (instead of the insured) can claim
set-off against a third party claim directed towards the insurer.
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2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No, where Swedish law allows a third party to claim directly under a liability
insurance policy, a claim against the insurer by the insured is not required for the
third party to be able to claim under the liability insurance policy. However, under
Chapter 9, section 7, paragraph 3, of the ICA the insurer shall, if possible,
immediately notify the insured of such third party claims.
In the Swedish legal literature, it has been argued that it is somewhat unclear
60
whether certain clauses in an insurance contract, such as “pay-to-be-paid clauses”
61
and “judgment clauses” , would be binding in conjunction with direct third party
claims. In our opinion, it is uncertain whether such clauses would be binding because
they would most likely be in conflict with mandatory law. Moreover, in situations
where the interpretation of a clause in an insurance contract is unclear, the clause is
generally interpreted to the benefit of the insured or, as the case may be, the injured
party.
Yes.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
No, nothing prevents a third party from initiating court proceedings claiming
indemnification directly from a liability insurer. However, in order for the third
party to be successful in its submission, the legal action must be based on a
right of direct third party access to the liability insurance.
60
A clause in an insurance policy that requires that payment must be made by the insured before insurance
indemnification can be received.
61
A clause in an insurance policy that requires that the liability must be established or declared in a certain form.
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An insurer may submit the same objections to liability as the insured would be able to
do.
The insurer may also argue that the injury falls outside the scope of the insurance
coverage or that the injury occurred before the insurance policy was in force.
However, an insurer may not always submit the same objections against the injured
party as it would be able to make against the insured. For instance, regarding
subsidiary extended liability within consumer insurance, the insurer may not object to
the insured’s gross negligence, violation of safety regulations or failure to mitigate
loss. In these situations, the insurer is left with the possibility of recovering
indemnification from the insured.
b. If no, does the liability insurer have remedies or recourse against the
insured?
As explained in our answer to question 4 above, the insurer may, in cases of
subsidiary extended liability, be prevented from objecting to the insured’s gross
negligence, violation of safety regulations or failure to mitigate loss. In these
situations, the insurer is thus left with the possibility of recourse against the
insured.
5. Are there any further conditions for allowing a third party to have direct
access?
No.
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Yes, as further explained in our answer to question 1 above, an injured third party
has an automatic right to direct third party claims against the insurer if the insured
has been declared bankrupt or an order has been issued for public composition.
The requirement may entail the injured party filing a petition for the insured’s
bankruptcy in order to achieve the right to direct third party claims against the
insurer. A court order to the insured for company reorganization
(företagsrekonstruktion) or debt relief (skuldsanering) does not generate a right to
direct action for the injured party.
If the injured party does not have a right to make direct claims against the liable
insured party’s insurer, and if the liable party becomes bankrupt during the liability
proceedings, the injured party will automatically be granted direct third party access
to the liability insurance in accordance with the provisions explained above under
question 6(a).
Moreover, it should be noted that the insurer, under certain circumstances, may be
obliged to pay indemnification to the injured party, even though the equivalent
amount has already been paid out to the insured (please see our more
comprehensive answer under question 8 below).
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy.
Yes, such provisions can be found in Chapter 9, section 7, of the ICA. Please
see our answer to question 1 above.
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b. Are the defense costs of the insured excluded from attachment or seizure?
Yes. Under Chapter 15, section 1, of the Code of Judicial Procedure, the court
may order the provisional attachment of as much of the opponent’s property as
may be assumed will be enforced in the claim. According to the case-law,
defence costs are to be excluded from attachment (NJA 1966 p. 541), but
service costs for future enforcement may be included.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
Yes, the insurer is obliged to take the injured party’s interest into account in
connection with paying out indemnification under a liability insurance policy. If the
insurer pays indemnification to the insured and later learns that the injured party did
not receive equivalent indemnification from the insured to which it was entitled, the
insurer is obliged to indemnify the injured party for any shortfall. However, such
amount should not exceed the amount paid by the insurer to the insured (Chapter 9,
section 8, of the ICA).
a. Would a settlement between the insurer and the insured be binding on the
third party?
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No, as explained under question 1 above, the general rule under Swedish
contract law is that a contract confers rights and obligations only to the parties
of the contract.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No.
10. Is there anything else you would like to add that could be of interest to this
project?
As explained under question 1 above, the insurer’s limited options for objecting to the
liability of the insured in cases of subsidiary extended liability only applies to
consumer insurance, not to business insurance. The design of this provision can lead
to unsatisfactory results, since it does not take into account whether the injured party
is a natural person (consumer) in need of extended protection or a legal entity.
In addition, where several injured parties are entitled to indemnification for injury
covered by a liability insurance policy, but the policy limit is not enough to satisfy all
claims, including any potential claims, the indemnification should be calculated
proportionate to each party’s individual claim. The insurer may thus also have to take
into account the interest of other potential third parties. However, the aforementioned
does not apply if there is reason to believe that an injured party must cover its own
loss or if two years have passed since the first claim (Chapter 9, section 9, of the
ICA).
Finally, it is uncertain whether the insurer would be able to successfully argue that a
claim is statute-barred in relation to the injured party on the grounds that the claim is
statute-barred with respect to the insured. If so, an injured party’s claim could in fact
be statute-barred before the injured party becomes aware of the possibility of
directing a third party claim against the insurer. This would not occur if the limitation
period began when the injured party became aware of the possibility of claiming
indemnification directly from the insurer. The position under Swedish law must be
considered unclear on this issue.
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Mannheimer Swartling
Norrlandsgatan 21
P.O. Box 1711
SE-111 87 Stockholm
SWEDEN
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IBA Insurance Committee Substantive Project 2012 Direct Third-Pary Access To Liabilty Insurance
SWITZERLAND
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Except for certain specific areas of strict liability in tort where liability insurance is
mandatory and the insured activity requires a public licence or concession, the
injured third party has no direct claim against the liability insurer of the party which
caused the damage. Only the insured is entitled to claim against its insurer.
Instead, the Swiss Insurance Contract Act (ICA) provides for a statutory pledge of
the injured third party. It is regulated in article 60 of the ICA which reads as follows
(unofficial translation):
1
The injured third party has, to the extent of its claim for damages, a pledge of the claim for
indemnification derived from the insurance against the consequences of statutory liability. The
insurer is entitled to pay the indemnification directly to the injured third party.
2
The insurer is liable for every action which curtails the right of the third party.
The rationale behind article 60 ICA is that since there is no direct claim by the injured
third party against the liability insurer under the ICA, the injured third party would risk
being left without indemnification if its debtor, i.e. the party which caused the loss,
became insolvent. In the case of bankruptcy proceedings, the insured's claim against
its liability insurer would fall into the insured's estate and all creditors would be
entitled to recovery according to the statutory order of distribution. As a result, the
claim of the injured third party would be impaired, at least to a large extent. In order
to avoid this, article 60 of the ICA establishes a legal lien for the benefit of the injured
third party on the right of recovery under the policy and allows the insurer to pay
directly to the insured third party. In addition, the law states that the insurer is legally
liable if the insurer makes payment to the insured without the consent of the injured
third party, and the injured third party suffers a loss as a consequence of this. Thus,
if the insurer pays directly to the insured or if the insurer enters into a settlement
agreement with the insured without having obtained the consent of the injured third
party, the insurer is exposed to the risk of having to pay twice. This risk is not
dependent on any fault of the insurer.
If there are several injured third parties, the insurer is liable to each individual injured
third party for any loss arising out of the failure to comply with the statutory lien. The
risk of being held liable under article 60(2) ICA can only be excluded by way of an
agreement between the insurer and all injured third parties.
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As mentioned above, Swiss law allows an injured third party to claim directly under a
liability insurance policy in specific areas of strict liability in tort where liability
insurance is mandatory and the insured activity requires a public licence or
concession. There are a number of statutes providing for such a right to a direct
claim. The most important one in practice is the Road Traffic Act
(Strassenverkehrsgesetz). Article 65 reads as follows (unofficial translation):
1
Within the framework of the contractual insurance cover, the injured party has a direct claim
against the insurer.
2
The insurer is not entitled to raise coverage defences based on the insurance contract or the
Insurance Contract Act.
3
The insurer has a right of recourse against the policyholder or the insured to the extent it would be
entitled to refuse or reduce its performance under the Insurance Contract Act.
The following comments refer to the regimes under these special laws, in particular
under the Road Traffic Act.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No. The injured third party is entitled by law to claim against the insurer. It is an
independent claim not requiring any action or participation on the part of the insured.
Yes.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
No. The direct third party access to the liability insurance is triggered by the
liability of the insured vis-à-vis the injured third party only.
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The insurer is only liable within the limit of indemnity, the amount of coverage. Apart
from that, the insurer is not entitled to deny coverage. Immediately on the occurrence
of the insured event, a legal relationship between the injured third party and the
insurer comes into existence, which has a statutory basis, not a contractual one. As
a consequence, the insurer is not entitled to assert statutory or contractual defences
under the insurance contract. For example, the insurer is not entitled to reduce its
payment because the insured caused the insured event in a grossly negligent way
(which in the direct relationship between the insurer and the insured would in fact
legitimate the insurer’s reduction of the indemnification according to the degree of
the insured's fault).
Yet, the insurer is entitled to assert any defences arising from the legal relationship
between the insured and the injured third party. The right to a direct claim against the
insurer must not extend or increase the third party's liability claim. Rather, the insurer
is to be liable under the same conditions and to the same extent as the insured, the
amount of coverage being the upper limit of the insurer's liability.
b. If no, does the liability insurer have remedies or recourse against the
insured?
Yes. Because the insurer must not assert defences under the insurance
contract against the injured third party's claim, there is an inherent risk that the
insurer has to pay more to the third party than it had to according to the terms
and conditions of the ICA and the insurance contract. The adjustment takes
place in the relationship between insurer and insured by way of recourse.
However, a claim of recourse against the insured is only possible after
indemnification of the third party. Thus, the insurer fully bears the risk of the
insured's insolvency.
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5. Are there any further conditions for allowing a third party to have direct
access?
No. The direct third party access to the liability insurance is not tied in with the third
party itself but with its claim. In the case of assignment or subrogation, it passes on
to the legal successor.
No. In the event of the opening of bankruptcy proceedings against the insured, the
injured third party is still entitled to assert its claim directly against the liability insurer.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
No. As far as the injured third party is concerned, its claim against the insurer is
not affected by the bankruptcy of the insured. As far as the insurer's possible
claims of recourse are concerned, it is put on a par with any other creditor of the
insured.
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6. if the creditor holds against the debtor a title to definitively set aside the objection against the
summons to pay in summary proceedings.
However, a freezing order can only be obtained by the creditor with respect to an
unsecured claim. As the insured's claim against its liability insurer is pledged by law
for the benefit of the injured third party (article 60 ICA; see para. 1 above), it would
be difficult to imagine a situation where the conditions for an attachment order could
be fulfilled.
In the scope of the direct claim of the injured third party against the insurer, an
attachment would appear possible if one of the above mentioned six grounds for
obtaining a freezing order is fulfilled. In practice, only nos. 5 and 6 can come into
consideration. For example, if an insurer refused to indemnify an injured third party in
spite of a final judgment confirming the insurer's obligation to do so, it would be
possible for the third party to obtain a freezing order against the insurer.
In this case, the attachment would encompass the entire claim of the third party
against the insurer, and the insurer would not be allowed to defend itself against the
attachment by denying coverage.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
See the answer to question 1 above regarding the mechanism of article 60 ICA.
a. Would a settlement between the insurer and the insured be binding on the
third party?
No, unless the injured third party has agreed to the settlement as well. This is
true for both: for the ordinary situation under the ICA where the third party has
no direct claim against the insurer (see question 1 above); and for the third
party's direct claims which cannot be affected by agreements between the
insurer and the insured from the outset.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
For the sake of completeness, reference should be made to article 113 of the Swiss
Code of Obligations: Where an employer has taken out liability insurance and the
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Pary Access To Liabilty Insurance
10. Is there anything else you would like to add that could be of interest to this
project?
The ICA is currently under revision. According to the governmental draft, which is at
the parliamentary debate stage, the statutory pledge pursuant to article 60 of the ICA
is to be replaced by the injured third party's
party's direct claim against all liability insurers. It
is intended that third parties will be able to file direct claims for personal injury and
for physical loss. For other losses, namely for pure economic losses, however, the
direct claim must be specifically agreed upon by the parties to the insurance
contract. As far as voluntary liability insurance contracts are concerned, the insurer is
to be entitled to all defences under the insurance contract.
It is unclear today if and when the new law will enter into
o force and what exactly the
suggested direct third party access will ultimately look like.
By Christoph K. Graber
Mühlebachstrasse 6
CH-8008 Zürich
SWITZERLAND
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TAIWAN
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
Under Taiwanese law, if an insured has been determined liable for indemnification,
an injured third party may claim payment directly from the insurer within the scope of
the insured amount and based on the settled ratio.
Generally, whether an injured third party may claim under a liability insurance policy
used to be a subject of debate in Taiwan until the amendment of the Insurance Act in
2001. The prevailing theory and the main view held by the courts was that an injured
third party could not claim under such a contract because liability insurance is not a
third-party beneficiary contract and the general principle of privity of contract applied.
However, the trend of liability insurance reform has gradually shifted towards
protecting the injured in addition to compensating the economic losses of the
insured. The 2001 amendment made it abundantly clear that an injured third party
may claim directly under a liability insurance policy. Article 94 Section 2 provides,
“Where the insured has been determined liable to indemnify a third party for
loss, the third party may claim for payment of indemnification, within the scope
of the insured amount and based on the ratio to which the third party is
entitled, directly from the insurer.”
a. Fully?
Yes. Article 94 Section 2 allows for compensation based on the ratio to which
the third party is entitled. If the claim falls within the scope or other limits of the
coverage, an injured third party may recover fully.
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e. Other?
Liability insurance policies seen in Taiwan are generally “occurrence based” or
“claim based.” Claim-based insurance policies were propagated to limit insurers’
exposure to long-tail liability. Long-tail liability is liability for claims that do not
proceed to final settlement until a length of time beyond the policy year.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No. An injured third party may directly claim under a liability insurance policy
pursuant to Article 94 Section 2 of the Insurance Act as discussed above. A claim
against the insurer by the insured is not a precondition.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
An injured third party may directly claim under a liability insurance policy,
including by initiating court proceedings. There are no specific conditions under
the Insurance Act for a third party to initiate such court proceedings.
A liability insurer is allowed to defend itself against a third party by denying coverage
to the insured. Article 9 of the Enforcement Rules for the Insurance Act provides,
“Where a third party, in accordance with Article 94, paragraph 2 of the Act,
claims for payment of indemnity directly from the insurer, the insurer may
raise a defense against the third party based on any of the reasons for
defense against the insured as stipulated in the insurance contract.”
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Yes. Coverage can be established in the proceedings between the third party
and the liability insurer referred to in the answer to Question 3(b).
b. If no, does the liability insurer have remedies or recourse against the
insured?
Not applicable.
5. Are there any further conditions for allowing a third party to have direct
access?
There are no further conditions proscribed by law for allowing a third party to have
direct access to the liability insurance of the insured.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
As explained earlier, an injured third party may claim directly under an
insurance policy. Under the insurance policy, if bankruptcy of the insured is not
a cause for the insurer to deny coverage to the insured, then the injured third
party may claim irrespective of the bankruptcy of the insured.
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b. Are the defence costs of the insured excluded from attachment and
seizure?
There is no requirement of mandatory attorney representation in the court of
first and second instances, and representation by a compensated counsel is not
a protected right in Taiwan. While the defence costs of the insured may be a
separate amount in the insurance policy, a creditor may sue for a lump sum and
the defence costs are not excluded from attachment and seizure.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
a. Would a settlement between the insurer and the insured be binding on the
third party?
The insured may only request indemnification when it receives a claim from the
third party. The extent of indemnification provided by the insurer to the insured
is determined by the claims of the third party. Also, the insured may only be
indemnified to the extent that it compensates the injured third party. Hence a
settlement between the insurer and the insured, without the involvement of the
third party, has no binding effect on the third party.
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9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
No, the relevant provisions in Taiwan with respect to direct access are summarised
above.
10. Is there anything else you would like to add that could be of interest to this
project?
Following the 2001 amendment, the current unknown is how the insured can be
“determined liable” for the purpose of Article 94 Section 2. Conceptually, a person
may be “determined liable” through a variety of methods, including litigation,
settlement and arbitration. To be fair to the insurers, the model insurance liability
policy provides that insurers have the right to participate as a party in any of these
proceedings. Article 93 allows insurers to deny coverage if a settlement is entered
into by the insured and injured.
By Mark J. Harty
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TURKEY
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
e. Other (?)
Until recently, insurance contracts were mainly governed by the insurance section of
the Turkish Commercial Code numbered 6762 and dated 29 June 1956 (“the old
TCC”). A new Commercial Code numbered 6102 (“the new TCC”)62 was published on
14 February 2011. It entailed a new, broader section on insurance contracts (both life
and non–life) and entered, to a significant extent, into force on 1 July 2012. The
relevant provisions of both the old and the new TCC will be described where relevant
in our explanations below.
The old TCC does not contain any provision with respect to the right of direct
claim/court action by third parties against a third party liability insurer (except for
Article 1310 of the old TCC on fire third party liability insurance). Certain other Codes
such as the Highway Traffic Act63, the Highway Transportation Act64, the Turkish
Code of Obligations65 (with respect to employee liability policies) and general
conditions of some of the third party liability insurance types 66 (prepared by the
Insurance General Directorate of the Turkish Treasury) also explicitly provide for
such right. The Turkish Court of Appeal however has long recognized with respect to
all types of third party liability policies the right of direct claim/court action by the third
62
According to the report of the Commission in charge of the preparation of the draft on the Section on Insurance
Contracts of the new TCC, current developments in the insurance laws of Germany, France, England and
Switzerland have been considered in the drafting of the insurance section of the Code. The first and major
source was the German `Versicherungsvertragsgesetz` enacted in 30.05.1908 as amended and applicable at
the time of the preparation of the draft of the insurance section of the new TCC. German and English general
conditions constituted the second source of reference considering the high effect of especially the English
general conditions on Turkish as well as world insurance practice.
63
Numbered 2918 and dated 13 October 1983
64
Numbered 4925 and dated 17 July 2003
65
Numbered 818 and dated 22 April 1926
66
E.g., General Conditions of Environmental Pollution Liability Insurance, Mandatory Maritime Passenger
Transportation Liability Insurance, Mandatory Liquefied Petroleum Gas Liability Insurance, Mandatory Highway
Passenger Transportation Liability Insurance, Mandatory Private Security Liability Insurance, Mandatory Sea
Pollution Liability Insurance for Coastal Plants.
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party against the third party liability insurer, although many aspects in that regard
have remained unclear or controversial due to lack of provisions in the old TCC and
lack of court precedents.
In this respect, a very important improvement in the new TCC is the introduction of
an entire section of special provisions applicable to third party liability insurance
(which does not exist under the old Code) including a specific article in relation to the
right of direct court action by third parties suffering a loss. The new TCC under
Article 1478 explicitly provides the right of the third party to bring a claim/court action
against the insurer subject to time limitation period applicable to the insurance
contract and the insurance sum.
Article 1478 states as follows:
The third party who incurred a loss, is entitled to claim its loss directly from the
insurer subject to the insurance sum and the time limitation period applicable to
the insurance contract.
Although the heading of the article refers to the right of direct action, the wording of
the article also refers to the direct claim of the loss by the third party without referring
to a condition for a court action. Also Article 1475 of the new TCC on the duty of the
insured to notify the insurer of events leading to the loss, refers to the option of
“application to the insurer by the third party”.
The new TCC defines third party liability policies in Article 1473. This article explicitly
provides that the insurer makes the payment to the third party. Whereas in the old
TCC there was no provision in that regard, in practice payments have been usually
made directly to third parties. Current general conditions with respect to certain types
of third party liability policies67 reserve the right of the insurer to direct payment to the
third party and prevent the insured to negotiate and settle with the third party
claimant etc. without the consent of the insurer, although they do not provide for the
right of direct claim/court action by third parties. However these provisions of the said
general conditions were not based on any provision of the old TCC.
The conditions for such a claim and court action were established in practice and are
now explicitly provided in the new TCC as follows:
67
E.g., General Conditions of Employer Liability Insurance, Elevator Accidents Liability Insurance, Environmental
Pollution Liability Insurance, Mandatory Maritime Passenger Transportation Liability Insurance, Mandatory
Highways Motor Vehicles Liability Insurance, Mandatory Sea Pollution Liability Insurance for Coastal Plants,
Professional Liability Insurance, Optional Motor Land Vehicles Liability Insurance, Mandatory Private Security
Liability Insurance, Mandatory Liquefied Petroleum Gas Liability Insurance, Mandatory Highway Passenger
Transportation Liability Insurance.
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(i) The claim is covered under the relevant third party liability policy (in
principle, the conditions for liability of the insured must also be met).
(ii) The claim remains within the limits of the insurance sum of the relevant
policy.
(iii) The claim does not fall outside the time limitation period applicable to the
insurance contract.
No other condition is required for bringing a direct claim/action against the liability
insurer by the third party suffering a loss. There is no restriction in terms of types of
loss/damage, identity of third parties, or types of the insurance either in the old TCC
or in the new TCC.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
There is no provision in the old TCC in that regard, although the provisions on
notification and claim and also the general provisions applicable to different types of
third party liability policies refer to the notification of the claim by the insured. Article
1475(2) of the new TCC, however, also refers to ”application to the insurer” by the
third party having the same effect as the notification of the insured. It is therefore
possible to say that no claim against the insurer by the insured is required for a third
party to be able to claim under a liability insurance policy.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
Court proceedings can be initiated against both the insurer and the insured.
However, if such proceedings are initiated only against the insurer, the participation
of the insured would not be required where the liability of the insured can be
established between the third party and the liability insurer. Under current practice
third parties usually bring an action against both the insured and the liability insurer.
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b. If no, does the liability insurer have remedies or recourse against the
insured?
There was no specific provision in the old TCC on whether the liability insurer can,
against a third party, raise defences that can be raised against its insured. The
General Assembly of the Turkish Court of Appeal recognized in a judgment68 that an
insurer is entitled to raise its defences (i.e. those which can be raised against the
insured) against a third party, and coverage and liability can be established between
the third party and the liability insurer. Also in practice denial of coverage is raised as
a defence against the third party. However, if there is any special provision in an
applicable Code preventing the use of such defences, the insurer would have to pay
the third party and will then recourse against its insured on the basis of its defences
against the insured.
For example, there is a provision preventing the use of such defences against a third
party under Article 95 of the Act on Highway Traffic. Accordingly, a mandatory traffic
liability insurer is not entitled to raise any defences against a third party which would
lead to the removal of, or decrease in, the insurer’s liability for payment of insurance
indemnity. Under the regime of the old TCC, the Turkish Court of Appeal and the
doctrinal views suggested that the referred rule foreseen for Mandatory Highway
Traffic Liability Insurance were also applicable to all other mandatory liability
insurance types considering the nature of such types of insurance.
Now the new TCC under Article 1484 explicitly provides the following in terms of
mandatory third party liability insurance:
(i) Even if the insurer has been entirely or partially relieved from its liability
against its insured, its liability against the third party continues up to the
insurance sum.
(ii) The expiration of the insurance relationship shall bear its consequences
against a third party only within a month following the notification of the
expiration by the insurer to the relevant authorities.
(iii) The insurer is relieved from its liability against the third party to the extent
the third party is indemnified by the social security institutions.
68
The Decision of the General Assembly of the Court of Appeal dated 25.04.1989 and numbered 1998/5101-2606
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5. Are there any further conditions for allowing a third party to have direct
access?
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
69
Under Articles 1302 and 1457 of the old TCC regulating the same principle, the period foreseen for securing a
guarantee is regulated as three (3) days.
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this, it is possible to say that the insurance indemnity may be deemed an asset of the
third party which will not be affected by the bankruptcy of the insured.
b. Are the defence costs of the insured excluded from attachment and
seizure?
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
a. Would a settlement between the insurer and the insured be binding on the
third party?
70
Numbered 2004 dated 19 June 1932.
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9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
N/A
10. Is there anything else you would like to add that could be of interest to this
project?
N/A
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UNITED KINGDOM
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
No. In the absence of insolvency, and with the exception described at 1(d) below,
third parties do not usually have a direct cause of action against insurers.
The doctrine of privity of contract in English law generally prevents a third party from
enforcing a term of a contract, even if the contract benefits the third party.
The Contracts (Rights of Third Parties) Act 1999 (the "1999 Act") has qualified this
doctrine to some extent by providing that a third party can bring an action under a
contract made for the third party’s benefit if:
(i) the contract expressly provides for this; or
(ii) the contract confers a benefit on the third party.
In practice, however, the 1999 Act will rarely apply as these strict requirements are
rarely met. Furthermore, the 1999 Act is often specifically excluded by agreement in
insurance policies.
The usual rule changes if the insured is insolvent. Under the Third Parties (Rights
Against Insurers) Act 1930 (the "1930 Act"), a third party acquires the right to claim
directly under a contract of insurance if the insured has become liable to the third
party before or after an insolvency event, as defined by section 1(1) of the 1930 Act.
In order to bring a claim against the insurer, the third party must first establish and
quantify the liability in relation to its claim against the insured. Liability can be
established and quantified by securing a judgment, arbitration award or, in some
cases, a binding settlement. The third party then gets a direct claim against the
assured's liability insurers by way of statutory assignment or subrogation.
The 1930 Act is due to be replaced by the Third Parties (Rights Against Insurers) Act
2010 (the "2010 Act"), which is still awaiting a commencement date. The basic
principle that a third party can only bring a direct action against an insurer where the
insured has become insolvent will remain unchanged. The definition of insolvency
however is more widely defined under the 2010 Act.
a. Fully?
If any of the conditions set out above are fulfilled, a third party will be fully
entitled to claim directly under a liability insurance policy.
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e. Other?
Individual voluntary arrangements are not captured under the 1930 Act as an
insolvency event but will be under the 2010 Act.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No, but as explained above, a third party will be able to claim under the insurance
policy only where the insured is insolvent, in which case the insured's right to claim
against the insurer will have transferred to the third party under the 1930 Act.
a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
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Yes. The first condition that must be satisfied, whether the proceedings are
brought under the 1930 Act or the 2010 Act (when it finally comes into force), is
that the insured must be insolvent.
Secondly, under the 1930 Act, a third party must establish and quantify the
insured's liability before bringing proceedings against the insurer. Liability can
be established or quantified by obtaining a judgment, arbitration award or, in
some cases, a binding settlement in respect of the insured's liability to the third
party.
This second condition will change under the 2010 Act, which allows proceedings
to be brought (though not enforced) against the insurer before liability has been
established and quantified. As the 2010 Act provides that liability may be
established and quantified by obtaining a declaration from the court, it is
expected that in practice a third party will be able to bring a single set of
proceedings for establishing and quantifying the insured's liability and for
establishing the insurer's liability under the policy.
Yes. The basis for a claim under the 1930 Act is the insured's rights against the
insurer rather than the injury suffered by the third party. The courts have held that
the third party cannot be put in a better position than the insured. Therefore, if the
insurer can show that the insured was not covered under the policy, the third party
will also have no right to claim under the policy.
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b. If no, does the liability insurer have remedies or recourse against the
insured?
Not applicable.
5. Are there any further conditions for allowing a third party to have direct
access?
No.
Yes. If the term "bankruptcy" is used synonymously with the term "insolvency", then
the relevant provisions described above will apply. "Bankruptcy" can however have a
more specific meaning under English law, which can further impact a third party's
claim.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Please see answers above for the relevant provisions under the 1930 Act and
the 2010 Act in the event that the insured becomes insolvent.
In the case of a formal bankruptcy under English law, the courts have provided
an exception for how the third party may establish its claim against the insured.
Where the insured has become bankrupt before the third party has secured a
judgment against it, the court in Law Society of England and Wales v Shah
[2008] provided that a third party would be able to establish its claim against the
insured if the trustee in bankruptcy admitted the debt; in those circumstances
there was no need for the third party to obtain a judgment, arbitration award or
settlement.
Generally, under English law, claimants can apply for a freezing injunction, which
operates to prevent the dissipation of a defendant's assets pending the outcome of
the relevant trial. Due to the draconian effects of freezing injunctions, the courts will
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grant such an injunction only in exceptional circumstances. The claimant would have
to satisfy the court that:
(i) the claimant has a good arguable case against the defendant;
(ii) the defendant owns assets against which such an order could be made; and
(iii) there is a real risk that the defendant would dispose of the defendant’s assets in
order to frustrate enforcement of a judgment in the claimant's favour.
Where the court does grant a freezing injunction, it would be in respect of any assets
in which the defendant has a beneficial interest and would be limited to the value of
the claim.
We do not think that a freezing injunction would be the appropriate mechanism for
giving the third party access to the insured's claim against the insurer. As set out in
answer to question 1 above, if the insured is solvent the third party's rights in respect
of the insured's claim against the insurer would be limited by the doctrine of privity of
contract. If the insured becomes insolvent the third party is able to claim directly
against the insurer under the 1930 Act and therefore would have no cause to seek a
freezing injunction.
c. Are the defence costs of the insured excluded from attachment and
seizure?
Not applicable.
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
They are not required to take the interests of the third party into account if the
insured is solvent.
a. Would a settlement between the insurer and the insured be binding on the
third party?
Yes, in certain circumstances.
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be binding on the third party. However, section 3 of the 1930 Act renders any
such settlement ineffective if it takes place after the insured became insolvent.
9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
The 1930 Act protects the rights of third parties in respect of the insurance policy
where the insured becomes insolvent by prohibiting any term in an insurance policy
that purports to avoid or alter the rights under the contract of insurance upon the
insured's insolvency. This protection will continue under the 2010 Act.
It was decided in Cox v Bankside Members Agency Ltd [1995] that where there are a
number of third parties with competing claims against an insurer, which together
exceed the limit of the insurance policy, the insured sums should be applied
according to the order in which the claims were received. This is commonly referred
to as a "first past the post" approach, which will remain the approach under the 2010
Act.
10. Is there anything else you would like to add that could be of interest to this
project?
Once the 2010 Act comes into force it will apply to all cases if either the liability or
the insolvency arises on or after commencement of the Act.
Atlantic House
Holborn Viaduct
London EC1A 2FG, UNITED KINGDOM
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UKRAINE
1. Does the law in your jurisdiction allow a third party to claim directly under a
liability insurance policy?
a. Fully?
According to Ukrainian insurance law, insurance payments and payments of
insurance compensation are effected by an insurer in accordance with an
insurance policy on the basis of the claim of the insured (his/her legal
successor) or a third party. Thus, Ukrainian law allows a third party to claim
directly under a liability insurance policy. Nevertheless, a different claiming
procedure may be prescribed by liability insurance rules for third parties or a
liability insurance policy concluded between the insurer and the insured.
e. Other?
There are no restrictions in this regard.
2. Is a claim against the insurer by the insured required for a third party to be able
to claim under the liability insurance policy?
No, a claim by the insured against the insurer is not required for a third party to be
able to claim under the liability insurance policy. Ukrainian law provides a third party
with the right to claim insurance payment in its favour, i.e. provides a third party with
the rights of the insured, but does not impose the latter’s obligations on the third
party.
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a. For a third party to initiate court proceedings against an insurer, are there
specific conditions?
There are no specific conditions for a third party to initiate court proceedings
against an insurer.
b. If no, does the liability insurer have remedies or recourse against the
insured?
5. Are there any further conditions for allowing a third party to have direct
access?
The bankruptcy of an insured does not impact the possibility of a third party claiming
directly against an insurer under an insurance policy.
a. Are there any specific rules relating to third-party claims in the case of
bankruptcy?
Specific rules relating to a third-party claiming directly against an insurer will not
apply.
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b. Are the defence costs of the insured excluded from attachment and
seizure?
8. Is the insurer or the insured (or both) required to take the interests of a third
party into account if an insured requests payment under the insurance but the
third party has not yet requested payment?
If the insured addresses the insurer with a claim for compensation of a third party,
such a claim will be considered on the basis of the documents presented.
a. Would a settlement between the insurer and the insured be binding on the
third party?
A settlement between the insurer and the insured will be binding on the third
party.
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9. Are there any other relevant provisions in your jurisdiction with respect to
direct access by a third party?
Legal relations regarding direct access by a third party are not strictly regulated
under Ukrainian law. Thus, general provisions in Ukrainian statutory law will apply to
a certain extent in this matter.
10. Is there anything else you would like to add that could be of interest to this
project?
N/A
Arzinger
By Natalia Ivanytska
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