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Southampton Law School

The Third Way: guiding new policy over third-party insurance

Influential work on insurance law by Professor Rob Merkin led directly to the repeal of the outmoded and increasingly unpopular Third Parties (Rights Against Insurers) Act 1930.

A new Act makes it simpler, faster and cheaper for a third-party claimant to recover compensation from an insurer without starting proceedings against the insured. The Act earned Royal Assent in 2010.

Research challenge

The Third Parties (Rights Against Insurers) Act 1930 stood for more than three quarters of a century, during which time the issues to which it principally related, insurance and insolvency, gradually changed beyond recognition.

In the early 1990s the English Law Commission reviewed the concept of privity of contract in common law, the doctrine that provides that a contract cannot confer rights or impose obligations on any person other than the parties to it. Its 1991 consultation paper, Privity of Contract: Contract for the Benefit of Third Parties recommended general reform but remarked: “There are various exceptions to privity, including the 1930 Act, which works very well.” Professor Merkin contacted the Commission to highlight the deficiencies of the 1930 Act. Following further consultation, including with the Law Society’s Insurance Law Sub-Committee, the Commission resolved to investigate the Act in full.


Rob Merkin, Professor of Commercial Law at Southampton Law School, has been conducting research in the field of insurance law for more than 20 years. He co-founded the School’s insurance law research group (ILRG), now comprising nine members of academic staff.

As part of their activities, they deliver professional development courses in the UK and overseas and contribute to the renowned Short Course in Maritime Law taught in Southampton and Singapore by the University of Southampton’s Institute of Maritime Law for an audience of market practitioners such as solicitors, barristers and insurance and shipping professionals.

Our solution

Following Professor Merkin’s response to the English Law Commission, he was asked to supply written evidence of the shortcomings of the old Act. In the summer of 2009, using a new system for the rapid enactment of Law Commission reports, the government decided to implement the 2002 report in legislation. A Bill was introduced into the House of Lords in November that year.

It was important that it should not need substantial amendment, as this would prevent the use of the new expedited procedure. As one of only three people invited by Lord Bach, Parliamentary Under-Secretary of State at the Ministry of Justice, to give oral evidence to a House of Lords Special Committee, Merkin was tasked with demonstrating the bill was ‘fit for purpose’ as it stood.

His research led directly to the new Act as he played a key role in shaping the legislation so as to correct the defects of its predecessor. Professor Merkin’s expertise in this field, demonstrated in written and oral evidence, provided a point-by-point basis for the House of Lords Committee to determine the feasibility of the new Act and to ensure the Bill could be passed quickly and without the need for a debate.

The Rt Hon. the Lord Lloyd of Berwick DL, chairman of the House of Lords Special Committee, told Professor Merkin at the end of the hearing: “It could not have gone better.” The House of Commons passed the Bill in less than an hour.

Our impact

Over the years the 1930 Act had attracted mounting concern over its encouragement of time-consuming procedures and unnecessary costs. The 2010 Act made it easier, quicker and less expensive for a third-party claimant to recover compensation from an insurer without first having to institute proceedings against the insured. One of the 1930 Act’s foremost critics, Professor Merkin drew on his research to argue for the need for change and personally directed the Law Commission’s attention to its shortcomings.

Chief among the new Act’s improvements is that a third party has a direct claim against an insured’s insurers, ensuring policy moneys go to pay the victim’s claim instead of being diverted to the insured’s other creditors.

The effects of this should include ensuring the victims of asbestos exposure obtain compensation; allowing victims to obtain information about the adequacy of any insurance before proceedings begin; and preventing insurers from relying on policy conditions affecting claims where those conditions have been disregarded by an insolvent insured.

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