Welcome to the thirty-third edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015
In a surprise move, the Law Commissions announced on 17th September that a section on late payment damages has been in included in the Enterprise Bill, laid before Parliament the day before.
The Bill provides that a further clause will be inserted into the Insurance Act 2015. This new clause (to be called section 13A of the Insurance Act) will provide that it is an implied term of every insurance contract that an insurer must pay any sums due in respect of a claim made by the insured "within a reasonable time" (which will include a "reasonable time" to investigate and assess the claim).
Reasonableness will depend on all the relevant circumstances, including the size and complexity of the claim, the type of insurance and factors outside of the insurer's control.
The new section will also provide that where an insurer can show that there were reasonable grounds for disputing the claim (either in full or as to quantum), the insurer will not breach the new implied term "merely by failing to pay the claim...while the dispute is continuing, 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". Thus, in principle, an insurer might breach the implied term even though it had reasonable grounds for contesting a claim (which is subsequently proved to be valid) – where, for example, the insurer has conducted the investigation unreasonably slowly, or has been slow to change its position when new facts come to light.
The remedies for breach of the new implied term are said to include damages (in addition to having the claim paid and interest).
The new section does envisage that insurers will be able to contract out of these changes (although not for consumer insurance). However, contracting out will not be valid where there has been a deliberate or reckless breach by the insurer. Recklessness in this context means where the insurer did not care whether or not it was in breach. The general contracting out rules set out in the Insurance Act will apply to terms in non-consumer policies relating to non-deliberate/reckless breaches.
The new section will not apply to settlement contracts.
The new section mirrors the clause previously inserted by the Law Commissions into the Insurance Act (and which was removed in order to allow that Act to follow the Law Commissions' uncontroversial bills route).
As we have previously reported, it has long been argued that the rule in Sprung v Royal Insurance (UK) Ltd 1999 is an anomaly which places England and Wales out of step with many other jurisdictions (including Scotland). However, insurers have expressed concern that the late payment damages clause will introduce considerable uncertainty for their working practices and might require additional expenditure, such as the recruitment of additional staff to handle claims. There is also a perceived risk that, when suing insurers, policyholders might include a claim for damages for late payment in order to pressure insurers into dropping defences.
Exactly how much time will be reasonable for investigation and payment will become fully clear only with further future case law on the point. However, it might be worth noting that the FOS (which hears complaints from consumers and micro-businesses) already applies a remedy of damages for late payment, with broad acceptance from the industry. Consumers and micro-businesses are, in any event, far more likely to sustain losses as a result of late or non-payment of a claim than larger businesses, which in general will have better cash flows to cope with delayed insurance claims. Furthermore, insurers' ability to (largely) contract out of the change when covering business risks might go some way to alleviate concerns.
This week's caselaw:
Alpha Bank Cyprus v Senh
CJEU decides whether service out of the jurisdiction is valid if defendant not told of right to refuse to accept documents
Regulation (EC) No 1393/2007 (the service regulation) provides that certain documents should be served on a defendant where service is being made out of the jurisdiction of the claimant (and the defendant is domiciled in another Member State). In this case, the English defendants argued that service had been invalid because various documents had not been served on them (including an English translation of the order giving permission to serve outside of Cyprus and a standard form annexed to the regulation). It was said that the English receiving authority "did not consider it useful" to serve on the defendants information about their right to refuse to accept a document if it is not translated..
The CJEU has now ruled as follows:
- The receiving authority must tell the defendant about its right to refuse to accept the document if it is not translated (ie Annex II of the regulation). The receiving authority has no discretion about whether to do this.
- However, where the form in Annex II is not served, that can be remedied: "the fact that the receiving agency, when serving a document on its addressee, fails to enclose the standard form set out in Annex II...does not constitute a ground for the procedure to be declared invalid, but an omission which must be rectified in accordance with the provisions set out in that regulation".
Santander UK v RBS Plc
Master decides whether a Norwich Pharmacal order should be made where payments were mistakenly made to third parties
http://www.bailii.org/ew/cases/EWHC/Ch/2015/2560.html
In an earlier decision, Master Matthews refused the claimant's applications for Norwich Pharmacal orders against various banks. A Norwich Pharmacal order is a common law right which requires a respondent who is "mixed-up" in wrongdoing (whether innocently or not), so as to facilitate that wrongdoing, to provide "full information" on the alleged wrongful act. In this case, the applicant is a bank which mistakenly made electronic payments to the wrong bank accounts (the respondents to the applications are the various banks at which these accounts are held).
The Master had held that there had been no "wrongdoing" when the payments had been made to the wrong accounts – such wrongdoing would only arise if the account holders subsequently refused to repay (and there was no evidence of such refusals) – and hence the recipient bank had not been "mixed up" in any wrongdoing.
However, Birss J has since granted Norwich Pharmacal orders to the claimant in respect of other recipient banks (see Weekly Update 30/14). Birss J had found that a claim in restitution (unjust enrichment) was a "wrong" capable of justifying a Norwich Pharmacal order. Although he felt bound to follow that decision, Master Matthews said he thought that view represented a "significant extension" of the earlier law and that a distinction should be drawn between a claim to trace funds and "a mere debt" (and that there is no legal wrong in a third party merely receiving payments). Furthermore, the Master noted that the recipient banks had done nothing to "facilitate" the mistake in this case.
Although bound to follow the decision of Birss J ("unless and until a different view is reached at High Court judge level or above"), the Master said that he would order disclosure of only the customers' names and addresses (if the previously refused applications were renewed). He said it would be "unduly intrusive and unnecessary" to order details of email addresses, telephone numbers and dates of birth to be disclosed (and, indeed, Birss J had also refused to order the disclosure of dates of birth). Such details were not needed for the claimant to commence proceedings.
Finally, any order would require an undertaking by the claimant "not, without the permission of the court, to use any documents or information obtained...except for the purpose of enforcing its legal rights in connection with the mistaken payment".
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