It was only in February 2015 that the Marine Insurance Act 2015 was given Royal Assent. As underwriters, claims teams and brokers began the task of implementing changes to their systems in anticipation of the Act coming into force in August 2016, some may have thought that they had at least seen off one of the Law Commission’s most controversial proposals: to introduce punitive measures against insurers who fail to pay claims within a reasonable time. However, that relief will be short-lived.
The new Enterprise Bill had its first reading in the House of Lords on 16 September and Part 5 of the Bill proposes to introduce an implied term to the Insurance Act 2015 that places an obligation on insurers to pay claims within a reasonable time. The Bill is part of the government’s wider strategy to assist start-ups who suffer from poor cash flow. One of the aims of the implied term is to help get businesses back on their feet after suffering a loss.
Insurers, however, will be concerned at the likely impact the implied term will have on how they deal with claims, particularly the prospect of facing significant claims for consequential losses. Undoubtedly insurers will face extra pressure to pay claims, even when legitimate investigations are being carried out, for a fear of facing a claim themselves. No doubt the proposal, if it is enforced, will lead to increased litigation, not least to establish precisely what is ‘reasonable time’. Inga Beale, chief executive of Lloyds, has warned the Treasury that the new law is ‘fundamentally flawed.’ The suggestion made by Beale is the proposed law should exclude ‘large risks.’
According to the Bill, ‘reasonable time’ will include time to investigate and assess the claim, and ‘all relevant circumstances’, including the type of insurance and the size and complexity of the claim, along with factors outside the insurer’s control, will be considered.
The second reading of the Enterprise Bill in the House of Lords was on 12 October. The next step is for the Bill to go to the House of Lords’ Committee stage.
The Law Commission has also given an optimistic assessment of the potential cost implications to the insurance industry. It estimates that the industry will incur implementation costs of c.£200,000, litigation costs of c.£500,000, spread over five years; and further costs of c.£3.77 million to deal with unmeritorious late payment claims over a 10-year period.