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New Consequences for Insurers regarding Late Payment of Claims – Enterprise Act 2016 comes into force on 4 May 2017

  • United Kingdom
  • Insurance and reinsurance
  • Litigation and dispute management

21-04-2017

Following implementation into law last year of the Insurance Act 2015, the Enterprise Act 2016 provides for further legislative amendments in relation to insurance.

The Enterprise Act 2016 received royal assent on 4 May 2016, and will come into force on 4 May 2017. It amends the Insurance Act 2015 by introducing a new Section 13A, which creates an implied term in every insurance contract that an Insurer pays any sums due to its Insured within a “reasonable time.‟

Section 13A will create an implied term in every insurance contract allowing an Insured party to seek damages for the losses suffered as a result of an Insurer’s failure to pay out, in addition to its existing right to enforce payment of the claim (and recovering interest on the unpaid claim).

The law in its current state does not permit Insured parties to recover damages when the Insurer wrongly refuses payment, or delays payment in the face of a valid insurance claim

The new Section 13A obliges Insurers to pay any sum due in respect of a claim within a reasonable time. What is meant by “reasonable‟ has not been defined but will depend on the relevant circumstances including:-

  • the type of insurance;
  • the size of and complexity of the claim;
  • compliance with any relevant statutory or regulatory rules or guidance; and
  • factors outside the Insurer’s control.

Section 13A will give Insurers a “reasonable time” to investigate and assess a claim. The Insurer will have a defence if it can show that genuine grounds exist for disputing a claim or its quantum. Again the Court will determine what is reasonable time to handle a claim. However, it is of note that the Enterprise Act shifts the onus on to Insurers to show that they have taken a reasonable amount of time to assess a claim.

In order to make out a claim for damages, the Insured will need to show causation of the loss and establish the quantum claimed. Such a claim will need to be brought by the Insured within 12 months of the date the insurer has paid the claim.

Contracting Out

A further section (Section 16A) will be added by the Enterprise Act 2016 to the Insurance Act 2015. This will allow commercial parties to contract out of the implied terms. However, the Insurer will be required to comply with “transparency rules” contained in the Insurance Act.

The Enterprise Act is a welcomed development for Insured parties. It is likely to incentivise Insurers to the timely payment of claims and give Insureds a remedy to enforce should they not do so. Brokers who handle claims for insureds need to be aware of the changes so they can rely on them as a means of arguing for speedier resolution of claims, in particular by setting out “reasonable” timeframes for paying claims. Further, brokers should also include within claims any heads of loss relating to damages for late payment, where applicable.

For more information contact

Chris Ives, Principal Associate

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