Insurance effected by the insolvent

May 2007

Part 2 – Insurance effected by the insolvent

49.20 Action required where existing cover in place

(Amended June 2012)

Where the insolvent has any type of insurance cover in force at the date of the winding-up or bankruptcy order, the official receiver should not assume that this insurance will continue. The official receiver should:

  • Obtain details of the insurance companies concerned, 
  • Obtain the policy number(s), 
  • Establish the position regarding the payment of the premium(s)
  • Establish the expiry date(s) of such cover, 
  • Check that the cover arranged by the insolvent is adequate,
  • Check whether the insurance is affected or even invalidated by the event of insolvency. 

In addition, the official receiver should ensure that all policy documents are recovered as soon as possible.

49.21 Continuance of cover

The official receiver should exercise discretion as to whether to effect new short term insurance under the Willis Insolvency Open Cover Facility (see Part 3) or to continue to allow the existing cover. Where the official receiver is satisfied that adequate cover is provided under the existing policy (see paragraphs 49.8 to 49.12), he/she should contact the insolvent’s insurers without delay to inform them of his/her interest in the relevant policies. Written confirmation of the cover still required should be sent to the insurance company and the relevant current policies should be sent for endorsement of the official receiver’s interest in them. Where an insurance policy is endorsed in the official receiver’s favour, to avoid the risk of liability being repudiated on the grounds of, for example, inadequate disclosure in the original proposal, the official receiver should seek to obtain an endorsement in the form outlined in Annex 2 to this chapter.

49.22 Cancellation of existing cover

If the official receiver considers it is preferable to terminate cover previously effected by the insolvent, he/she should notify the insurance company in writing at the earliest opportunity that cover is no longer required so that a refund of the premium can be obtained. Policy number(s) should be quoted whenever they are available.

If there are outstanding claims or the possibility of a claim on the existing insurance it may be prudent to leave the policy in force until these are resolved.       

49.23 Life Assurance

(Amended June 2012)

Where a bankrupt has an interest in any life assurance (including critical illness policies) or endowment mortgage policies, etc. they may vest in the trustee as part of the insolvent's estate.  The official receiver should recover the relevant policy documents and notify the assurance companies of the making of the bankruptcy order.  For further details see also Chapter 31.5, paragraphs 31.5.40 to 31.5.49.  

49.24 Indemnity for lost policy documents  

(Amended June 2012)

Where the policy document has not been recovered and is presumed lost, mislaid or destroyed, the official receiver may be requested to provide an indemnity to an assurance company when he/she is dealing with the surrender of life assurance policies of which bankrupts are the beneficiaries.

The indemnity provides against any liability for passing the surrender value of the policy to the official receiver. The position is the same where shares are realised for which no certificates have been recovered (see also Chapter 31.5, paragraph 31.5.55). In the case of missing life policies, the amount of indemnity required is the maturity/surrender value as advised by the life company. For lost share certificates, the amount of indemnity is the current value of the shares (taking account of any change in the value of those shares at the date of the valuation). 

As the majority of policies dealt with are of a relatively low value and the instances of the indemnity being called upon are rare, the official receiver may give an indemnity to the insurance company in respect of the value of the policy without having to obtain a counter indemnity from an insurance company.   

49.24A Motor vehicle insurance where there is no existing cover or inadequate insurance (amended October 2013)

The bankrupt may be in possession of a vehicle or vehicles at the date of the insolvency order.  If the insolvent does not have any insurance cover for the vehicles in his/her possession or the insurance he/she does have is insufficient (e.g. only third party cover), the official receiver should effect his/her own insurance using the Willis scheme (see Part 3 of this chapter and also paragraph 31.2.14).

If the vehicle is in the custody of the official receiver then the scheme operated by Willis provides coverage and no separate policy is required (see paragraph 49.13). This insurance is only activated when the official receiver has advised Willis of the details of the vehicle and the need for the vehicle to be insured. The employers’ liability and motor insurance certificates can be found on the intranet HERE. The insurance cover, documents and certificates form the requisite paperwork ready to be used once the details are recorded on Willis Online. 

Refer to Chapter 31 paragraph 31.2.7 where the insolvent informs the official receiver that a vehicle was stolen prior to the date of insolvency and the official receiver needs to make a claim for the stolen vehicle against an existing insurance policy.

49.24B Claims against the insolvent for a pre-insolvency accident

(Inserted June 2012)

Where an insolvent is at fault in an accident prior to the date of the insolvency, which has resulted in a claim against the insolvent, it is usual for the insurers of the other party to make a claim against the insurers of the insolvent for re-imbursement if they have already paid out to their client under the terms of their insurance.   If the insolvent was uninsured or the policy had lapsed at the date of the accident, it may be that the other party’s insurers will submit a claim in the liquidation or bankruptcy for the outstanding amount.  Where both the accident occurred and the debt existed prior to the date of insolvency the debt will be a provable debt [Note 1]. Refer also to Chapter 40, in particular paragraphs 40.7, and paragraph 40.12 through to paragraph 40.13.  In some circumstances whilst provable, the debt may survive the insolvency; for example where there is any liability for negligence or personal injury damages [Note 2].

49.24C Third Party (Rights against Insurers) Act 1930

(inserted June 2012)

This Act provides that where an insolvent has a policy in force when a particular event occurs e.g. an accident involving injury to a third party,  the person injured may (subject to establishing a valid claim) make a claim against the insolvent’s insurer. It is also considered, for example, that a vet could claim directly against a bankrupt’s pet insurance policy where the vet’s bill remained unpaid at the date of the insolvency order. For further information see Chapter 79.

Please note that whilst the Third Party (Rights against Insurers) Act 1930 is still in force, it is due to be repealed (subject to transitional provisions) when the Third Party (Rights against Insurers) Act 2010 comes into force. A commencement date has not yet been fixed.

 

[Back to Part 1 - Assessing insurance risks and cover required by the official receiver] [On to Part 3 - The Willis  Insolvency Open Cover Insurance Facility] 

Further Information