Two recent decisions of the Irish High Court have provided useful clarification as to the nature and extent of a third party's rights against an insurer pursuant to section 62 of the Civil Liability Act 1961. Section 62 provides a means by which a third party with a claim against an insolvent insured can bring a direct claim against the insured's liability insurer and, as such, operates as an exception to the established principle of privity of contract.
Section 62 provides that:
Where a person (hereinafter referred to as the insured) who has effected a policy of insurance in respect of liability for a wrong, if an individual, becomes a bankrupt or dies or, if a corporate body, is wound up or, if a partnership or other unincorporated association, is dissolved, moneys payable to the insured under the policy shall be applicable only to discharging in full all valid claims against the insured in respect of which those moneys are payable, and no part of those moneys shall be assets of the insured or applicable to the payment of the debts (other than those claims) of the insured in the bankruptcy or in the administration of the estate of the insured or in the winding-up or dissolution, and no such claim shall be provable in the bankruptcy, administration, winding-up or dissolution.
Both recent decisions arose in the context of applications by liability insurers to strike out claims brought directly against them under section 62 by employees injured at work on the basis that they were the employer's insurer at the time of the accident and the employer was insolvent.
In McCarron v Modern Timber Homes Limited (In Liquidation)1, the plaintiff employee sued his employer and its insurer, Quinn Insurance ("Quinn"). Quinn had declined cover of the claim on the basis of a breach of a notification condition of the policy.
Importantly, the plaintiff had not obtained any judgment or order against the insured employer at the time he joined Quinn as a co-defendant.
Referring to the judgment of the Supreme Court in Dunne v P.J. White Construction Company Limited (In Liquidation)2, which stated that it had "long been established that an insured person's rights of indemnity under a policy of insurance for a liability to third parties does not arise until the existence of the amount of that liability to the third party has been established, either by action, arbitration or agreement", the court held that a claim against an...