Insurer Concerned, Section 152 of the RTA Act 1988
21 September 2011
By Ed Tomlinson, Financial Planner
Whether an insurance company is considered a secure funder of periodical payments is covered in section 2(3) and 2(4) of the Damages Act 1996 as amended.
(3) A court may not make an order for periodical payments unless satisfied that the continuity of payment under the order is reasonably secure.
(4) For the purpose of subsection (3) the continuity of payment under an order is reasonably secure if:
(a) it is protected by a guarantee given under section 6 of or the Schedule to this Act,
(b) it is protected by a scheme under section 213 of the Financial Services and Markets Act 2000 (compensation) (whether or not as modified by section 4 of this Act), or
(c) the source of payment is a government or health service body.
The Financial Services Compensation Scheme (or FSCS) is the “scheme under section 213 of the Financial Services and Markets Act 2000”. For an insurance company to be covered by the scheme they must be authorised by the Financial Services Authority (FSA) at the time the insurance contract was undertaken. It is against the law for insurance companies to enter into insurance contracts without being authorised by the FSA.
It is therefore usually straight forward to ensure a defendant insurer would be deemed reasonably secure with a simple check on the FSA register. This is usually enough to ensure that a company is secure for providing periodical payments and this is where our investigation usually stops, however in a recent case we were involved in, the insurer was “insurer concerned”.
For those who do not know (as I didn’t) it means that there is no contract of insurance between the defendant and their insurance company, rather the insurer has to pick up the bill because of section 152 of the RTA Act 1988.
This may not sound important, however at 1.3.3 in the FSA COMP Handbook (the rules applied by the FSCS when considering whether to pay out compensation) brings this into sharp focus:
FSA Handbook COMP 1.3.3
Q1 What do I need to do in order to receive compensation?
A1 In order to receive compensation:
(1) you must be an eligible claimant;
(2) you must have a protected claim;
(3) you must be claiming against a relevant person;
(4) the relevant person must be in default.
FSA Handbook COMP 5.2
A protected claim is:
(2) a claim under a protected contract of insurance
In “normal” claims all 4 criteria are met. For an “insurer concerned” claim there is no contract of insurance and therefore it is not immediately clear that a claimant would have a protected claim as there is no contract of insurance leading to the claim. Thankfully, further into the Handbook there is further clarity as to what constitutes a protected contract of insurance.
FSA Handbook COMP 5.4.7
The FSCS must treat liabilities of an insurance undertaking which is in default, in respect of the following items, as giving rise to claims under a protected contract of insurance:
(4) claims by persons entitled to the benefit of a judgement under section 151 of the Road Traffic Act 1988 or Article 98 of the Road Traffic (Northern Ireland) Order 1981.
This means that any periodical payment provided would be protected by the FSCS and therefore deemed to be reasonably secure. This has separately been confirmed by the FSCS in writing.
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