Simon Arnold discusses: Entitlement to Damages for Late Payment of Insurance Claims Comes into Force TodayPark Square Barristers
From today, 4 May 2017, a term will be implied into all insurance contracts entered into (and variations to such contracts) that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of that claim within a reasonable time.
A reasonable time includes a reasonable time to investigate and assess the claim. What is reasonable will depend on the relevant circumstances. The Enterprise Act 2016, which amends the Insurance Act 2015 to, imply the contractual obligation on insurers to make payment within a reasonable period of time, identifies certain factors which may need to be taken into account when assessing a reasonable time:
- The type of insurance
- The size and complexity of the claim
- Compliance with any relevant statutory or other regulatory rules or guidance
- Factors outside the insurers control
An insurer may investigate coverage issues, but the obligation is on the insurer to demonstrate that it had reasonable grounds for disputing the claim (whether as to the sum due or whether anything is due). The period of that investigation may not necessarily put the insurer in breach of its obligation to pay within a reasonable period of time but the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that obligation was breached and when.
The remedies provided for by the amended section 13A of the Insurance Act 2015 are in addition to and distinct from any right to enforce payment of the sum due and any right to interest on those sums due whether under the terms of the insurance contract, under another enactment or at the court’s discretion or otherwise.
An insurer cannot contract out of its implied obligation to pay within a reasonable period of time in a consumer contract and any provision in such a contract which purports to put the consumer in a worse position than she/he would be in by virtue of the implied terms at section 13A of the Insurance Act 2015, will have no effect.
As to non-consumer insurance contracts, the position is different. The insurer can opt out, but if the insurer breached the term of the non-consumer contract in a deliberate or reckless manner (defined to mean that either the insuer knew it was in breach or did not care that it was in breach), then such terms will have no effect.
If the breach was not deliberate or reckless the insurers opt out of the implied terms in a non-consumer contract is only valid if the insurer has complied with the transparency provisions at section 17 of the Insurance Act 2015, in particular the insurer should have:
- Taken sufficient steps to draw the insured’s attention to the disadvantageous terms before the contract is agreed or the variation entered into and
- The disadvantageous term must be clear and unambiguous as to its effect
An action for damages for breach of the implied term must be bought within a year of the date on which the insurer has paid all the sums due in respect of the claim made under the terms of the insurance policy. In addition, any sum paid in extinguishment of the insurer’s liability under the policy is to be treated as payment of the claim for the purposes of calculating the limitation period.
Most commercial entities will welcome this reform allowing damages for late payment of insurance claims. In complex insurance arrangements, such as D&O and Contractor’s All Risk policies (by way of example) significant delays in payment may often be encountered whilst insurers investigate the claim and any disputes as to the construction and application of the policy terms to the claim are identified and resolved.
Insurers and those advising them in connection with the claim are likely to be mindful that their conduct may well be a relevant factor in determining whether there was a breach of the implied obligation.
Before being called to the Bar, Simon Arnold was a solicitor and partner at DAC Beachcroft for a number of years specialising in claims concerning construction professionals. In addition to his significant construction dispute experience which spans over 18 years, Simon has a number of years experience advising insurers on coverage issues and conducting litigation involving coverage disputes.