In the light of the Enterprise Act 2016, dealing with late payment damages for policies placed or renewed from 4 May 2017, the LMA has published a suite of eight model clauses for use in insurance and reinsurance contracts. The LMA’s guidance on these clauses, together with the clauses themselves can be found on the LMA website1.
The suite includes an express statement of the contractual term that will be implied into policies from May next year. It also includes a range of other clauses by which the implied term providing for late payment damages may be partially or completely excluded, insofar as permissible. In addition, there are also clauses for use in contacts of reinsurance and retrocession, which either exclude the reassured’s or the reinsurer’s liability for late payment damages, depending on how the reinsurance allocates claims handling responsibility, such as a claims control clause, as compared with a follow the settlements clause.
The LMA clauses should prove helpful to insurers getting to grips with this aspect of the changing legal landscape. There are however still some grey areas and challenges for insurers and reinsurers. For example, since the Supreme Court determined in Versloot Dredging that lies told by assureds in order to promote payment of an otherwise honest and valid claim do not invalidate such claim, insurers and reinsurers should be careful to ensure that their investigation of claims remains focussed on whether or not a claim is valid. In the absence of an express “fraudulent means and devices” clause, investigations into dishonesty by the assured, after a valid claim has been incurred, may be pointless after the Act comes into force and, as such, any resultant delay occasioned thereby could result in damages for late payment