Damages for late payment:

Section 13A of the Insurance Act 2015

Ben Crook and Neil Beresford are holding a Breakfast Briefing on Wednesday 26 April 2017 to highlight for insurers the issues arising and practical steps needed in advance of the introduction of a new right for insured's to claim damages from insurers for late payment from 7 May 2017.

Why is this change significant?

From 7 May 2017, insurers and reinsurers who do not investigate and pay valid claims "in a reasonable time" may be obliged to pay damages to their (re)insured. That is damages, in addition to the insured's valid claim and interest. An award of damages in addition to the claim and interest could mean insurers are obliged to pay more than policy limits. There will also be reputational risk for the insurer of an adverse finding. This is a significant change to insurance law and we expect property and liability insurers in particular will be taking note.

How is this change made?

This change in the law is made by insertion of Section 13A into the Insurance Act 2015 and comes into force on 7 May 2017. Section 13A incorporates into every contract of insurance and reinsurance an implied term such that, following a claim, the (re)insurer must pay sums due under the policy/contract "within a reasonable time". If they do not, an insured can claim for damages caused by that breach of contract. It reads: "It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time."

How can an insurer avoid liability for damages under the new rule?

To avoid having to pay damages an insurer must either:

  1. pay any sums due "in a reasonable time"; or
  2. if the claim is disputed, handle the claim in a reasonable way.

What is a "reasonable time" and what is required to show a claim has been handled in a reasonable way?

While there is guidance as to the topics to be considered, the Act does not specify what would qualify as a reasonable time for payment of a claim, nor does it specify what would constitute reasonable grounds for disputing a claim. With this in mind, at the Breakfast Briefing we will be considering with you:

  • the latest judicial comments as to what the Court should consider "reasonable" in these circumstances and guidance that can be inferred from the experiences in other jurisdictions;
  • the types of policies, claims and insureds who are more likely to give rise to such claims;
  • practical steps insurers should consider to mitigate the risks (including how to contract out of the change for non-consumer policies); and
  • the time limits for such late payment damages claims to be brought by an insured;
  • how, for non-consumer policies, insurers can contract out of the new rule.

The Breakfast Briefing will be on Wednesday 26 April 2017.

To view the full article please click here.

UK Property & Liability Legal Update - Issue 1, 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.