Timely payment following an insurance claim is imperative to your business continuity. The purpose of the new legislation is to support your business when you need it most.

That was then

Under previous legislation, you could only recover the amount owed under the policy. Damages for late payment of claims were not recoverable from insurers.

This is now

Under the Enterprise Act 2016 (the “Act”), you now have the potential right to request compensation for damages caused by the late payment of the claim. As of 4 May 2017 this applies to every (re)insurance policy placed or renewed on or after that date. It is now an implied term of every contract of insurance that once a claim is made, the insurer must pay any sums due within a reasonable time.

Time matters

A “reasonable time” allows the insurer to investigate and assess the claim. What a “reasonable time” is depends on the relevant circumstances. Examples may include:

• The type of insurance.
• The size and complexity of the claim.
• Compliance with relevant statutory or regulatory rules or guidance.
• Factors outside the insurer’s control.

Failure to pay the claim in a reasonable time will not in all cases result in a breach of the implied term. For instance if an insurer can prove there are reasonable grounds for disputing the claim and fails to pay the claim while the dispute is ongoing.

It is worth noting there are time limits for seeking compensation as a result of a breach of the implied term. Any claim needs to be sought no later than one year from the date on which the insurer has paid all the sums due in respect of the claim. Any claim for damages against the insurer, after the expiry of that one-year period, will be time-barred.

Taking time out

As long as the insurer meets the “transparency requirements” in the Insurance Act 2015, the Act can allow parties to contract out of the implied term. However, where there has been a deliberate or reckless breach of the implied term by the insurer such contracting out will not be valid. Insurers are not permitted to contract out in respect of consumer insurance policies.

Last minute wisdom

The Act is a powerful tool providing you and your broker an additional negotiating point with insurers. In some cases, damages for late payment of claims may offer an important solution and should provide an incentive for insurers to process and pay claims promptly.

There are significant hurdles to successfully claim for late payment and evidence would need to be provided to show:

• The insured had a valid claim under the policy
• The insurer failed to pay within a reasonable time
• The insured had suffered loss, which was caused by the insurer’s breach of the implied term
• The loss suffered by the insured was foreseeable (that is, the loss suffered was the type of loss that would have been contemplated by the insurer and the insured at the date the insurance contract was entered into, had thought been given to the issue).

Additionally, it will not be possible to recover any loss that could have been avoided by taking reasonable steps. The Act does not give free rein to claim damages from insurers in all cases. The courts would no doubt take into account the fact that claims – particularly complex ones – can take considerable time to investigate.

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