Can a Third Party Cure an Insured’s Breach of Policy Terms?

One of the key issues in Archer v R’N’F Catering¹ is whether it is possible for a third party claimant to cure an insured’s breach of the notification and co-operation provisions under a third party liability insurance policy, by doing everything they can to comply as soon as they acquire rights under the Third Parties (Rights Against Insurers) Act 2010. Not surprisingly, the court found in the insurer’s favour, answering this question in the negative.

Background

The Claimant issued a personal injury claim against the insured restaurant business in July 2022 after alleging that she contracted a gastrointestinal illness at the insured’s restaurant in July 2019, leading to permanent and serious health consequences. The restaurant had a “Small Business/SME” restaurant insurance package for the relevant period. The policy contained various “General Conditions” and “General Claims Conditions” which were stated to be conditions precedent, including:

1. General Condition 2 – to “take all reasonable precautions to prevent or diminish loss, destruction, damage or injury”
2. General Claims Condition 1(a) – “On the happening of any event or circumstance which could give rise to a claim by the Insured under the Policy or on receiving verbal or written notice of any claim the Insured shall…as soon as reasonably possible give notice to the Insurer… “
3. General Claims Condition 1(e) – “…supply full details of the claim in writing to the Insurer together with any relevant evidence and information that may be reasonably required … for the purpose of investigating or verifying the claim… within ….30 days of the event or circumstances in the case of any other claim or other request from the insurer”.
4. General Claims Condition 6 – “provide all help and assistance and cooperation required by the insurer in connection with any claim”.

Third Parties (Rights Against Insurers) Act 2010

As a brief reminder, the Third Parties Act operates where the insured becomes a “relevant person” by entering into an insolvency procedure. A third party to whom the insured owes a liability is able to bring a claim directly against the insurer to establish both the insured’s liability and coverage for the claim under the liability policy. The insured’s rights under the policy are transferred to the claimant, subject to any defence that the insurer could have raised against the insured. 

Issues

The hearing proceeded as a trial of preliminary issues on the basis of assumed facts. The two issues under consideration were:

1. Could the insurer prove that the insured restaurant was not entitled to an indemnity under the policy, due to breach of the terms of the policy?
2. Did s.9(2) of the Third Parties Act assist the Claimant by treating her actions in notifying and cooperating with the insurer (once she acquired rights under the Third Parties Act) as satisfying the policy terms?

In this briefing we concentrate on issue 2.

Preliminary issue 1:

The Court found that the insured was in breach of the Claims Conditions (set out above), as it:

• Failed to notify the insurer of the claim until November 2020, despite being initially informed of the illness by the Claimant in November 2019, and being sent a letter chasing insurance details in May 2020, a claim notification form by the Claimant in January 2020, and a letter of claim on 30 October 2020. All of these were “circumstances” which should have been notified.
• Failed to comply properly with the insurer’s requests for information after the insured finally made notification. As the claims conditions were conditions precedent, the insurer was entitled to deny an indemnity in respect of the claim, which it did in a declinature letter dated 22 February 2023. 

Preliminary issue 2:

Notwithstanding the Court’s findings with regard to the insured’s breaches, the Claimant submitted that she was nonetheless entitled to an indemnity from the insurer pursuant to s.9(2) of the Third Parties Act. The Act provides that

• S. 9(1) “This section applies where transferred rights are subject to a condition (whether under the contract of insurance from which the transferred rights are derived or otherwise) that the insured has to fulfil.”
• S. 9(2) “Anything done by the third party which, if done by the insured, would have amounted to or contributed to fulfilment of the condition is to be treated as if done by the insured.”

Claimant’s submissions

It was accepted that the Third Parties Act was applicable as the insured became a “relevant person” after it entered voluntary liquidation on 14 February 2023, and from that date its rights were transferred to and vested in the Claimant.

The Claimant argued that in all her actions after that date she sought to comply with the policy terms, including the notification provisions, and that this effectively brought the insurer back on risk.

The Claimant sought to rely on the Scottish case of Horne v The Prudential Assurance Co Ltd². This case held that when considering whether a notification of an occurrence had been made “as soon as reasonably possible” in in accordance with a policy notification clause, an assessment of the insured’s knowledge of the occurrence is required. In Horne the insured was found not in breach of a requirement to notify under the policy where it had been wound-up before the claim against it was made, and so could not be aware of it. It was argued that the Claimant was in the same position: compliance prior to February 2023 was not possible.

Further, the Claimant argued that it was relevant that the purpose of the Third Parties Act is to protect third parties (the Claimant) where the insured becomes insolvent.

Insurer’s submissions

The insurer submitted that there was no entitlement to indemnification due to the insured’s breaches of the four conditions precedent in the policy, and the Third Parties Act did not change this.

The insurer argued that compliance with s.9 of the Third Parties Act was not possible until the insured became a “relevant person” on 14 February 2023 and no acts before this would fall within the exception in s.9(2).

The insurer also submitted that compliance with the conditions precedent was required within certain timeframes, including “as soon as reasonably possible” in General Claims Condition 1(a) and “within 30 days” under General Claims Condition 1(e). Therefore, any steps taken by the insured after 14 February 2023 were too late.

Decision

Justice Kelly agreed with insurers that any steps taken after 14 February 2023 were simply too late to meet the conditions precedent under the policy. Accepting otherwise would require a resurrection of a right to indemnity already lost, and altering the timeframe for compliance under the policy would be contrary to the clear intention behind the conditions precedent.

Had the actions which the Claimant took after 14 February 2023 been taken by the insured, they would still not have fulfilled the specified time frame in the condition precedents. The facts of Horne could be distinguished from this case, and it was not authority that a third party who found it impossible to comply earlier with conditions precedent could take the benefit of rights lost by an insured who faced no such impossibility. 

Justice Kelly considered the example of how s9(2) may work in practice provided in the Explanatory Notes to the Third Parties Act which made clear that, if the insured has not given notice of the claim, but the third party does so within the time period prescribed in the insurance contract, the notice requirement is fulfilled. In other words, the third party must act within the prescribed time period for s9(2) to assist.

As such, the exception in s.9(2) did not restore the right of indemnity following the breaches of the conditions precedent.

Commentary

The court’s judgment is perhaps unsurprising, particularly given the ramifications for insurers if the second issue were decided in favour of the Claimant. This would have effectively meant insurers are at risk of being brought back on risk when insureds under liability policies enter an insolvency procedure, in circumstances where the policy period may have ended and breaches of the policy terms had already occurred, perhaps a significant time before. However, for claimants the position presents some obvious difficulties in certain circumstances.

Footnote

1. [2025] EWHC 1342 (KB)
2. 1997 SLT (Sh CT) 75