The current position under English law is that insurers are not obliged to pay damages in respect of late payment for a claim. This is based on an old legal fiction that payment of indemnity under an insurance contract constitutes payment of damages, and the general principle that English law does not allow payment of 'damages on damages'. However, this is inconsistent with insurers' regulatory duties, and it has caused real hardship to some policyholders, in some cases even causing insolvency.
The first draft of the Insurance Act 2015 contained a provision to alter the position so that insurers would become liable to pay damages if they had unreasonably delayed payment of a valid insurance claim. When the Insurance Act 2015 was introduced into Parliament, the proposal was deemed too controversial, and was not included in the Act.
However, in September 2015 the proposal was incorporated into the Enterprise Bill 2015-16, which is currently before the House of Lords for approval. If enacted, the new Enterprise Act will introduce a new section in the Insurance Act 2015, which will impute into every contract of insurance a requirement on the insurer to pay sums due within a reasonable time, and provide for compensation to be payable by an insurer where a policyholder suffers additional loss because of an insurer's unreasonable delay in payment.
Proposed Amendments to the Enterprise Bill
In November 2015, Mactavish, AIRMIC, the Lloyd's Market Association and the International Underwriting Association wrote a joint 'market letter' to the Government, recommending certain amendments to the Enterprise Bill. Mactavish has suggested that, on the basis of these proposals, the London market will not encourage the tabling of further amendments to the relevant parts of the Bill.
The amendments in the 'market letter':
- Provide that insurers would not be obliged to disclose privileged information gained during the defence of the claim; and
- Introduce a one year time limit on claims for damages for late payment of claims (it is proposed that this time period would run from the date on which the insurer made the payment).
The House of Lords debated the 'market letter' amendments on 25 November 2015. It rejected the amendment regarding privileged advice, which was then withdrawn. However, it has agreed to consider the amendment regarding a limitation period for delayed payment claims.
If the Enterprise Bill 2015-16 is enacted in its current form, the key change will be that policyholders will be able to claim damages for unreasonably late payment of insurance claims for the first time. However, if the limitation amendment outlined above is introduced, policyholders will need to carefully monitor the limitation period for such claims, and ensure that they bring any claim for damages within the relevant time.