in the policy,
45 and the “pay to be paid” principle confirmed in The Fanti/The Padre
Island.
46
On the other hand, however, the special requirement of “to the same extent as the
assured”, in Article 1(6) of the LLMC 1976, may make the insurer unable to rely on
the provisions or defences under the liability policy or the MIA 1906 or the common
law. Moreover, where the assured has forfeited his right to limit liability, the insurer
may correspondingly lose that right and would be compelled to meet the claim of the
third party claimant in full. As pointed out by Patrick Griggs et al, such a result could
not have been intended by the drafters of the LLMC 1976/1996 or by the United
Kingdom legislature since it would fly in the face of the LLMC’s declared aim that
the new limitation regime should be based on a foundation of stable affordable
insurance cover. Fortunately, a way around the problem can be found in the wording
of Section 1(1) of the Third Parties (Rights against Insurers) Act 2010 which provides in reference to the assured that “. . . his rights against the insurer under the
contract in respect of the liability shall, notwithstanding anything in any act or rule of
law to the contrary be transferred to and vest in the third party to whom the liability
was so incurred”. Notable in this context, is that section 1(2) of that Act provides that
“the rights of the relevant person under the contract against the insurer in respect of
the liability are transferred to and vest in the person to whom the liability is or was
incurred (the ‘third party’).”
It is clear that notwithstanding Article 1(6)
47 of the LLMC 1976/1996, the
statutory transfer of creditor’s rights under the Third Parties (Rights against Insurers)
Act 2010 should be maintained. Consequently, the subrogated rights of the third
party claimant against the insurer of liability are still restricted by the insurance
contract and the associated law. In other words, the Third Parties (Rights against
Insurers) Act 2010 defines the liability of the insurer to the third party, and Article 1
(6) of the LLMC 1976/1996 only comes into play when that liability has been
determined.
48
Although the provision on transfer of creditor’s rights under the Third Parties
(Rights against Insurers) Act 2010 can protect the liability insurer’s defences under
the insurance contract and the MIA 1906, and hence relieve to some extent, the crisis
caused by Article 1(6) of the LLMC 1976/1996, the parasitical mode is not yet
recommendable since not all insurance legislation can provide sufficient protection
for the liability insurer as the English law does. For one thing, it is not certain that the
principle of statutory transfer of creditor’s rights is duly established by all insurance
legislation.
45 It should be noted that the UK Insurance Act 2015, which entered into force in August 2016, has,
to a certain extent, lessened the traditional draconian legal effect of breach of warranty. Section 10
(3) provides that: “An insurer has no liability under a contract of insurance in respect of any loss
occurring, or attributable to something happening, after a warranty (express or implied) in the
contract has been breached but before the breach has been remedied.”
46 [1990] 2 Lloyd’s Rep. 191.
47 The text of this provision is set out in the first paragraph of 5.2 above.
48 See Griggs et al. (2005), supra, note 31, p. 16.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . .
667
45 and the “pay to be paid” principle confirmed in The Fanti/The Padre
Island.
46
On the other hand, however, the special requirement of “to the same extent as the
assured”, in Article 1(6) of the LLMC 1976, may make the insurer unable to rely on
the provisions or defences under the liability policy or the MIA 1906 or the common
law. Moreover, where the assured has forfeited his right to limit liability, the insurer
may correspondingly lose that right and would be compelled to meet the claim of the
third party claimant in full. As pointed out by Patrick Griggs et al, such a result could
not have been intended by the drafters of the LLMC 1976/1996 or by the United
Kingdom legislature since it would fly in the face of the LLMC’s declared aim that
the new limitation regime should be based on a foundation of stable affordable
insurance cover. Fortunately, a way around the problem can be found in the wording
of Section 1(1) of the Third Parties (Rights against Insurers) Act 2010 which provides in reference to the assured that “. . . his rights against the insurer under the
contract in respect of the liability shall, notwithstanding anything in any act or rule of
law to the contrary be transferred to and vest in the third party to whom the liability
was so incurred”. Notable in this context, is that section 1(2) of that Act provides that
“the rights of the relevant person under the contract against the insurer in respect of
the liability are transferred to and vest in the person to whom the liability is or was
incurred (the ‘third party’).”
It is clear that notwithstanding Article 1(6)
47 of the LLMC 1976/1996, the
statutory transfer of creditor’s rights under the Third Parties (Rights against Insurers)
Act 2010 should be maintained. Consequently, the subrogated rights of the third
party claimant against the insurer of liability are still restricted by the insurance
contract and the associated law. In other words, the Third Parties (Rights against
Insurers) Act 2010 defines the liability of the insurer to the third party, and Article 1
(6) of the LLMC 1976/1996 only comes into play when that liability has been
determined.
48
Although the provision on transfer of creditor’s rights under the Third Parties
(Rights against Insurers) Act 2010 can protect the liability insurer’s defences under
the insurance contract and the MIA 1906, and hence relieve to some extent, the crisis
caused by Article 1(6) of the LLMC 1976/1996, the parasitical mode is not yet
recommendable since not all insurance legislation can provide sufficient protection
for the liability insurer as the English law does. For one thing, it is not certain that the
principle of statutory transfer of creditor’s rights is duly established by all insurance
legislation.
45 It should be noted that the UK Insurance Act 2015, which entered into force in August 2016, has,
to a certain extent, lessened the traditional draconian legal effect of breach of warranty. Section 10
(3) provides that: “An insurer has no liability under a contract of insurance in respect of any loss
occurring, or attributable to something happening, after a warranty (express or implied) in the
contract has been breached but before the breach has been remedied.”
46 [1990] 2 Lloyd’s Rep. 191.
47 The text of this provision is set out in the first paragraph of 5.2 above.
48 See Griggs et al. (2005), supra, note 31, p. 16.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . .
667