Insurance and insolvency contractors
We have discovered a serious structural defect in a development we completed about seven years ago. All the indications are that this is due to defective design by the design and build contractor. The contractor is insolvent. Is there anything that we can do?
The building contract was executed as a deed, which means that you can normally start legal proceedings for breach of contract up to 12 years after practical completion of the project. The contract spelled out that, and it provided that the contractor would have the same liability to you in respect of any “inadequacy” in the design as would a reasonably competent architect or another appropriate professional designer.
Your claim is therefore not “time-barred” and you appear to have a valid claim for breach of contract against the contractor. However, the contractor is in the process of being wound up, with a liquidator having been appointed at the beginning of September 2016.
Since the 1930s, parties in your position have had certain rights to claim directly against the insolvent party’s insurers under the Third Parties (Rights against Insurers) Act 1930. However, this Act was wholly inadequate in that there were only limited rights to seek information as regards any applicable insurance policies, and a requirement that proceedings against the insurer could only be commenced after proceedings against the insured had been successfully completed. This old Act has now been replaced by the Third Parties (Rights against Insurers) Act 2010, which has finally come into effect after an inexplicable delay of some six years.
The new Act, which applies in situations where the insured incurs liability to a third party or becomes insolvent after 1 August 2016, will apply to your claim.
The first step is for you to request details of any applicable insurance policy. You can address this request to the contractor, any former director of the contractor, the liquidator, and any insurer or broker used by the contractor. The recipient of your request then has 28 days to provide the requested details of any policy which is in place and which covers the liability. If the requested information is not provided, you can enforce your request by a court order.
You should be aware that indemnity insurance of this type is written on a “claims made” basis and is taken out yearly. This means that a policy will run for a 12-month period, and will respond to claims made in that period. You may discover that there is no insurance currently in place, in that it has already expired. It may have been terminated by the liquidator. Or you may find that it has only a short period to run, in which case you will need to move quickly. But if there is valid insurance in place, your position is much improved.
Under the old Act, the claimant had to establish liability and quantum against the insolvent party before it could make a claim against the insurer. This involved significant expense and delay. However, this requirement has been swept away by the new Act: the claimant can now claim directly against the insurer, without previously having to establish liability and quantum against the contractor. You can simply issue proceedings against the insurer, provided there is a valid policy. You still have to establish that claim, in terms of liability and quantum, but can now avoid the delay and expense of having to run two sets of proceedings consequentially.
This article first appeared in Professional Housebuilder in its December 2016 edition.