The Contracts (Rights of Third Parties) Act 1999: The Insurance Implications

Tim Hunt, partner in Merricks Solicitors, looks at the insurance implications of some aspects of this Act which come into force from May of this year.

Following the passing of the Contracts (Rights of Third Parties) Act 1999, agreements entered into after 11 May 2000 may expose the contracting parties (and their insurers) to new and uncertain liabilities. The Act substantially modifies the doctrine of privity of contract (the principle that only a party to a contract or its lawful assignee may sue on that contract) and allows non-parties to a contract to enforce a term of that contract. Given that the terms of the Act extend the liabilities of contract parties, those insuring those parties in particular professional indemnity insurers, must have particular concerns that the parties do not expose themselves, and their insurers, to significant future obligations.