Large insurance excesses in place block injured claimants from obtaining compensation due to the actions or omissions of companies that have since ceased trading.
At common law, if a person is injured and the company liable to pay compensation to them goes bankrupt or into liquidation, any money paid out by the insurance policy will go to the liquidator and form part of the insured’s assets and go into the pot for distribution to all creditors. You would therefore be an unsecured creditor and fall in line with all other creditors of the company which could take a long time, and for little or no compensation depending on the assets/creditors.
The Third Party (Rights Against Insurers) Act 1930 was introduced and In August 2016 the 2010 Act came into force. This allowed Claimant’s to obtain compensation for injuries and losses caused by companies who had “gone bump” and become insolvent from the liability insurance in place covering the risk at the time of the incident. This allowed the claimant to bring proceedings directly against the insurer which would then avoid the need to have the company restored to the Register of Companies before it was sued.
Whilst the right to claim compensation remains, the prospects of success are likely to be smaller than if a company is still trading. Even when liability has been admitted, in this type of situation the outcome will depend on what level of excess has been placed on the policy.
If insurance was in place before the company went into administration and the costs of the insurance paid, the policy would remain effective however the excess cost would then become an issue. The excess can range from £1,000 right up to 5 and 6 figure sums. This means that if the value of the claim made is £20,000 and the excess is £10,000, then you would receive £10,000 once the excess had been deducted. In the majority of cases, this excess is likely to be higher than the value of the claim, and as the administrator will not be able to pay the excess for any claim made, this means that you would be prevented from receiving any compensation at all.
This may be something that is required more and more, particularly with the current economic uncertainties surrounding businesses with Covid-19 and restrictions imposed, who despite their best endeavours, have no choice but to cease trading.
Despite the fact that there are provisions to bring insurance companies into proceedings in an attempt to protect the Claimant, by the insurance companies being able to set extremely large policy excesses, they are able to escape payment of compensation to injured people which appears to be particularly unfair.