The Enterprise Bill 2015-16 (“the Enterprise Bill”) was introduced by the Department for Business, Innovation and Skills. On 4 May 2016, the Enterprise Bill received Royal Assent and is now known as the Enterprise Act 2016 (“the Enterprise Act”). The Enterprise Act follows the Insurance Act 2015 (“the Insurance Act”) (see the October edition of our Foundations e-briefing), which the Government described as “the biggest reform to insurance contract law in more the a century”. The insurance provisions of the Enterprise Act will come into force on 4 May 2017 and will apply to insurance contracts entered into after this date. The provisions will therefore not have retrospective effect.
Business Secretary Sajid Javid said:
“The Enterprise Act will help deliver the growth and security that benefits every single person in the country. It is proof that this government is delivering on its commitment to back the business owners who are the real heroes of our economic recovery.”
The current position
At common law, insurers are under no duty to pay valid insurance claims within a reasonable time. If an insurer delays in paying, or fails to pay at all, an insured can only claim the sums due under the policy and interest. If the insured has suffered additional losses as a result of the delay, it cannot claim damages for late payment.
The position under the Enterprise Act
The Enterprise Act introduces a new section 13A to the Insurance Act, which received Royal Assent on 12 February 2015. The Enterprise Act requires insurers to pay insurance claims within a reasonable time and, if they do not, to pay contractual damages to the insured.
The Enterprise Act does not define what will be considered “reasonable” in any given case, but it will depend on the relevant circumstances including the type of insurance, size and complexity of the claim, compliance with relevant statutory and regulatory rules or guidance, and factors outside of the insurer’s control.
It should be noted that an insurer does have a defence under these new provisions. It will not be breach of the implied term where an insurer fails to pay either the entire or part of a claim and has reasonable grounds for doing so. Again, the reasonable grounds are not defined but the manner in which the claim is handled may be a relevant factor in determining whether the term was breached.
The Enterprise Act also introduces a new section 16A to the Insurance Act. This allows parties to a non-consumer insurance policy to contract out of section 13A, provided that the insurer satisfies the transparency requirements set out in the Insurance Act and that the breach of the implied terms is not deliberate or reckless.
The insurance provisions detailed above are welcome news for insureds, as they will now have some security over timescales for payments under insurance claims. However, it should be noted that insureds will still need to demonstrate the standard causation, remoteness and mitigation before any claim for damages can succeed. These factors should be taken into account when presenting an insurer with claims under a policy.
Furthermore, as insurers will only be liable in principle for foreseeable losses, insureds should take particular care when presenting risks to insurers to ensure that they are alerted to losses that may be suffered as a result of late payment of claims. Insureds should also ensure that they respond promptly and efficiently to any insurers’ request for claims information.
As a final note, given the new section 16A, business insureds should take particular care when negotiating and reviewing their policies, in the event that insurers wish to contract out of the new provisions.