On 4 May 2016 Royal Assent was given to the government’s Enterprise Bill. Among other changes this statute inserts a new section into the Insurance Act 2015, giving policyholders the right to claim damages from insurers for late payment of claims for the first time under English law.
Our bullet point guide explains the changes.
- What contracts are affected? Contracts agreed from 4 May 2017. The new rules will apply to both consumer and commercial insurance.
- How will it work? A term will be implied into every insurance contract that insurers must pay claims within a reasonable time. This is in addition to, and distinct from, insured’s existing rights to enforce the insurance contract and to claim interest (although in some cases the insured’s loss may just be loss of interest, in which case the new rules will not add anything).
- What is a 'reasonable time'? There is no set timeframe. The new rules say a 'reasonable time' includes a reasonable time to investigate and assess the claim. What is reasonable will depend on all the relevant circumstances, including the type of insurance; the size and complexity of the claim; compliance with statutory or regulatory rules/guidance; and any factors outside the insurer’s control.
- Is lapse of time the only criteria for awarding damages? No. If an insurer does not pay a claim, and can show there are reasonable grounds to dispute liability or quantum, this may not breach the implied term that claims be paid in a reasonable time but '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'.
- How soon must policyholders bring claims under the new rules? Insureds must issue proceedings before the expiration of one year from the date the insurer pays a claim.
- Can insurers contract out? Yes but not if the insurer deliberately or recklessly failed to pay the claim within a reasonable time.
These changes are already affecting policy wordings in the market and raise a range of issues for insurers, brokers and insureds alike.