First National Tricity Finance Ltd v OT Computers Ltd

Insurance against contractual liability falls within the Third Parties (Rights Against Insurers) Act 1930. The statutory language is not confined to tortious liability or contractual liability resembling tort.

On the insured’s insolvency, its rights under the policy pass to the third-party claimant as contingent or inchoate rights. The insurer’s obligation to pay ordinarily arises only when the insured’s liability is established and quantified.

A person claiming that an insolvent insured is liable must usually receive reasonably required information about the insurance before establishing that liability. The information enables the claimant to discover whether any rights passed on insolvency and whether proceedings are worthwhile.

OT Computers Ltd and its subsidiary supplied computers with extended warranties. First National Tricity Finance Ltd financed consumer purchases and was jointly liable with the suppliers under section 75 of the Consumer Credit Act 1974. After the suppliers became insolvent, the finance company met customers’ warranty claims and asserted subrogated rights against OT Computers.

The administrators disclosed that insurance had been obtained for liabilities under the warranties but refused to provide the policies or their terms. The Vice-Chancellor refused the finance company’s application for information under section 2 of the Third Parties (Rights Against Insurers) Act 1930.

The appeal concerned whether the Act covered contractual liabilities, when rights under the insurance passed to third-party claimants, and whether insurance information could be obtained before the insured’s liability had been established. A further contention that the warranty providers acted as insurers within section 1(5) was left for possible further argument.

1. Appeal allowed unanimously. The applications for information were to be granted, subject to delaying the drawing up of the order for 21 days so that the administrators could elect whether to pursue their section 1(5) argument.
2. Section 1(1) of the Third Parties (Rights Against Insurers) Act 1930 uses general language encompassing contractual liabilities. It cannot be confined to tortious liabilities or contractual liabilities analogous to tort. The particular policy may nevertheless limit cover to liabilities in damages or for damage. The customers’ claims for breach of the extended warranties were therefore capable of being liabilities to third parties under the Act.
3. The court further considered, obiter, that the statutory expression extends to liabilities in debt. Tarbuck v Avon Insurance Plc [2002] QB 571 should no longer be followed. T&N Ltd v Royal & Sun Alliance Plc [2003] EWHC 1016 (Ch.), so far as it treated the Act as confined to tortious liabilities and contractual liabilities akin to them, should no longer be regarded as authority.
4. The insured’s policy rights pass to the third party when the statutory insolvency event occurs. If the insured’s liability has not then been established and quantified, the transferred rights are contingent or inchoate. The transfer does not give an immediate right to payment: that right arises only when liability is established by judgment, award or agreement, subject to the policy terms.
5. Section 2(1) usually entitles a person claiming that the insolvent insured is liable to obtain reasonably required information before establishing liability. The claimant needs to know whether insurance exists, its terms and whether proceedings are worthwhile. The words “if any” recognise that the inquiry may reveal that no effective rights were transferred. Woolwich Building Society v Taylor [1995] 1 BCLC 132 was overruled on this issue, and Nigel Upchurch Associates v The Aldridge Estates Investment Co Ltd [1993] 1 Lloyd’s Rep 535 was no longer authoritative.
6. The court did not determine whether the extended warranties made OT Computers and Tiny insurers within section 1(5). If pursued, that issue required a further hearing after notification of the Department of Trade and Industry and appropriate discovery of the insurance arrangements.

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The finance company was entitled to the insurance information sought, subject to possible restoration of the section 1(5) issue.
2. High Court, Chancery Division: The Vice-Chancellor refused the application after following the existing first-instance authorities on the scope of sections 1 and 2 of the Third Parties (Rights Against Insurers) Act 1930. No citation for that decision is stated.