Proposals by the English and Scottish Law Commissions to introduce statutory remedies for late payment of claims were not ultimately included in the final text of the Insurance Act 2015. However the Government has now launched a fresh attempt to change the current law, under which insurers are under no legal obligation (per Sprung v Royal Insurance (UK) Ltd)1 to pay valid claims within a reasonable time.
On 17 September 2015 the Enterprise Bill (the Bill) was published with the aim of addressing some of the most significant issues facing businesses today. Late payment of insurance claims has been identified by HM Treasury as one of these, described in a Government press release as “a major problem”. The proposed solution is to amend the Insurance Act 2015 (due to come into force in August 2016) to oblige insurers to make prompt payments of claims or face paying damages to policyholders.
The Bill seeks to make it an implied term of every insurance contract that insurers will pay claims within a reasonable time. “Reasonable time” is not conclusively defined in the Bill; it is said to be dependent on circumstances and to include “a reasonable time to investigate and assess the claim”, taking into account factors such as the type of insurance, the size and complexity of the claim and factors outside the insurer’s control. The Bill makes clear that the implied term will give rise to a right to claim damages in addition to any right to enforce payment of the claim and any interest on the sum.
The Bill does propose to provide a defence in circumstances where payment is withheld pending resolution of a dispute with the policyholder, but it places the burden upon the insurer to show that there were reasonable grounds for disputing the claim. The draft wording also includes a clause which states that “the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.”
In line with many other provisions of the Insurance Act 2015, it is anticipated that insurers will be able to contract out of this new implied term when the policyholder is not a consumer (though not when there has been deliberate or reckless breaches of the implied term).
The Insurance Bill, which resulted in the Insurance Act, followed the special procedure for uncontroversial Law Commission Bills. By contrast the Enterprise Bill must go through the full process of parliamentary debate in both Houses, beginning with the first debate in the House of Lords on 12 October 2015. It remains to be seen whether these proposals will survive intact and, if so, how long they will take to become law.