Third party rights

The Third Parties (Rights against Insurers) Act 1930 allows the third party victim of an insured person to bring a direct action against the assured’s liability insurers in the event that the assured has become involved in an insolvency procedure. Law Society of England and Wales v Shah [2007] EWHC 2841 (Ch) addresses a problem not previously considered, namely, the effect of the discharge of the assured’s bankruptcy by the court. The statutory effect of a discharge is to prevent any action against the discharged bankrupt. It follows that if the 1930 Act is to operate then the liability of the assured to the third party has to be established and quantified during the currency of the bankruptcy itself and not thereafter. In Shah, Floyd J has held that the admission of a claim by the trustee in bankruptcy is sufficient to satisfy the establishment and quantification requirements, so that the 1930 Act is in principle capable of being used against the liability insurers of a discharged bankrupt even in the absence of any judgment, award or settlement against the bankrupt before his discharge.