Treasury has published the 12 responses it received to its consultation on a special administration regime for investment firms resolution and draft legislation that takes into account its views on the responses. One Order clarifies that the definition of “client assets” includes money, but not money held in respect of insurance mediation. The other sets out the new regime. Respondents broadly supported the proposals and favoured an approach that would require the return of all client money and assets, not just segregated ones.

By a judgment handed down on 26 October 2010 in Sugar Hut Group Ltd & Ors v Great Lakes Reinsurance (UK) Plc & Ors [2010] EWHC 2636 (Comm), Mr Justice Burton in the Commercial Court held that insurers were entitled to avoid, for a material non-disclosure of a corporate re-organisation, a policy which could otherwise have covered losses arising from a fire at the premises of the insureds.

The UK Government has announced a consultation on proposals to strengthen the administration regime for insurers, in particular to improve the protection and payment of benefits for persons insured with companies facing financial difficulties and addressing gaps in the administration regime for insurers as compared with the liquidation regime. The proposals include:

1. applying to administration the existing rules for valuing insurance contracts in liquidation; and

2. revising the objectives of administration in insurance company cases by:

The above is a new Act to make provision about the rights of third parties against insurers of liabilities to third parties in the case where the insured is insolvent, and in certain other cases.

In Clare Horwood & Others v Land of Leather Limited (In Administration) and Zurich Insurance Plc the Commercial Court was asked to consider in the context of a claim under the Third Parties (Rights Against Insurers) Act 1930 whether a compromise agreement entered into by an insured without the insurer's specific instructions in writing was in breach of a policy term. Under the compromise agreement, the insured had released a third party from an obligation to indemnify it in respect of various personal injury claims.

The Third Parties (Rights against Insurers) Act 2010 received Royal Assent on 25 March 2010. The Act modernises the Third Parties (Rights against Insurers) Act 1930 by streamlining the procedure by which a third party claimant can recover compensation from the insurer of a defendant.

On 25 March 2010, HM Treasury published a consultation paper which proposes improvements to the protection and payment of benefits for policyholders of insurers in financial difficulty. In particular, the proposals address certain gaps in the regime for insurers in administration in contrast to the regime applied in liquidation.

Treasury is consulting on how to improve protection and payment of benefits for policyholders of insurers who get into financial difficulty. Historically, few insurers have been put into administration or liquidation, and none have been so seriously affected in the recent crisis. So Treasury thinks it is time to review the regime and suggests changes that would:

Under Part 26 of the Companies Act 2006, it is open to a solvent company to enter into an arrangement or compromise with its creditors or members. Over the past 10-15 years such solvent schemes have been implemented in M&A and restructuring transactions and have proved increasingly popular in the insurance market, permitting insurers to crystallise their contingent liabilities.

Readers of our December 2009 issue will recall that we wrote about the Scottish court decision on the Scottish Lion Insurance Company scheme of arrangement. Just before this issue went to press the decision of the Scottish court of appeal (the Inner House of the Court of Session) on the issue of whether “creditor democracy” would be allowed to prevail or whether unanimity was required became known.