BAE Systems Pension Funds Trustees Ltd v Royal & Sun Alliance Insurance Plc

Section 2 of the Third Parties (Rights against Insurers) Act 2010 is engaged where a claimant claims transferred rights against an insurer, even though the insured’s liability or policy coverage has not yet been established. The claimant may therefore commence proceedings seeking declarations concerning both the insured’s liability and the insurer’s potential liability.

Where the policy provides for a foreign court or arbitration to determine coverage, the court may join the insurer but stay the coverage declaration. The court may continue determining the insured’s liability, while preserving the insurer’s opportunity to challenge coverage in the contractually chosen forum.

BAE brought proceedings concerning alleged defects in a warehouse slab and sought to join RSA, the insurer of Twintec, which was in administration. BAE relied on the Third Parties (Rights against Insurers) Act 2010 and sought declarations concerning Twintec’s liability and RSA’s potential liability.

RSA disputed coverage under the policy and relied on clauses providing for French law, the French courts or arbitration. The application required the court to decide whether section 2 was available before coverage had been established and, if so, how the jurisdiction and arbitration provisions affected the proceedings.

1. Joinder and statutory machinery. Section 2(1) of the Third Parties (Rights against Insurers) Act 2010 is engaged where the claimant claims to have rights transferred under section 1. It is not necessary first to establish either the insured’s liability or that the liability is covered by the policy.
2. The purpose of section 2 is to provide the machinery for determining those issues. The claimant may seek a declaration as to the insured’s liability under section 2(2)(a) and a declaration as to the insurer’s potential liability under section 2(2)(b). The claimant must ultimately establish both the insured’s liability and that the liability is insured, but those matters are not preconditions to engaging section 2.
3. The court rejected the argument that disputed or possibly inapplicable cover prevented joinder. A plainly unarguable claim might be struck out, but there was a genuine issue as to whether the policy covered the alleged defects. RSA was entitled to respond to the liability claim and could choose whether to participate substantively or seek determination of coverage as a preliminary issue.
4. The policy’s dispute-resolution clauses were sufficient to require the coverage dispute to be determined either by the French courts or by arbitration. The court therefore should not determine RSA’s potential liability under section 2(2)(b), although it could allow the claim to be issued and stay that part of the proceedings.
5. The application was granted to join RSA. Proceedings concerning Twintec’s liability under section 2(2)(a) were allowed to continue. Proceedings concerning RSA’s liability or potential liability under section 2(2)(b) were stayed.