Damages for late payment of insurance claims a reality as Enterprise Act receives Royal Assent
Following our commentary on the progress of the Enterprise Bill through Parliament (which can be viewed here, here and here), we can now report that the Enterprise Bill received Royal Assent on 4 May 2016, becoming the Enterprise Act 2016 ("Enterprise Act"). Provisions in the Enterprise Act will come into effect on 4 May 2017.
Of particular note to policyholders is the introduction of an implied term into insurance contracts which requires the insurer to pay sums within a reasonable time. We previously reported that it was unfortunate that reform of the law regarding the availability of damages for late payment of valid claims was not included in the Insurance Act 2016 ("Insurance Act"). The position has now been rectified by the Enterprise Act, which inserts a new clause 13A into the Insurance Act, providing that:
"It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time"
How long is reasonable for an insurer to pay sums due?
The new provision for late payments does not specifically set out a period of time that would be considered reasonable, but it does clarify that a "reasonable time" includes time for the insurer to investigate and assess the claim. Assessing reasonableness may require consideration of:
- the type of insurance;
- the size and complexity of the claim;
- compliance with any relevant statutory rules or guidance; and
- factors outside the insurer's control.
If an insurer can show that there were reasonable grounds for disputing the claim, it will have a defence to a damages claim.
What if an insurer fails to pay in a reasonable time?
Section 13A provides that remedies, including damages, are available to policyholders where an insurer has not paid sums due in a reasonable time.
A claim for damages as a result of late payment will only be available if the underlying insurance claim is valid. Moreover, the claim will be subject to the usual rules of causation and remoteness. In other words, the policyholder will have to show that its loss was caused by the late payment, and that it was foreseeable that such loss would occur if payment was delayed. Policyholders will also be expected to mitigate their losses.
Claims for breach of the implied term must be brought within one year of the date on which the insurer has paid all sums due in respect of the claim.
The introduction of a right to damages for late payment of a valid claim is a welcome change to the current law in England and Wales. The British Insurance Brokers' Association (Biba) said the new Act is "good news for the insurance sector and good news for business."
It is worth noting that it will be possible in non-consumer policies to opt out of the new Section 13A, subject to certain "transparency" requirements, so policyholders will need to take care to check their policy wordings carefully to ensure the full range of remedies is available to them.