It has long been an anomaly of English law that insurers are not responsible for the consequences of failing to pay a valid claim within a reasonable time. Although there is no evidence of systemic failure by insurers following consultation the Law Commission suggested the law should be reformed. For reasons of process those proposals were not included in the Insurance Act 2015. However all parties in the House of Lords agreed that they should be reintroduced as soon as possible. This has now happened with the Enterprise Bill.
The draft bill states that it is an implied term of every insurance contract that the insurer pay claims within a reasonable time and that failure to do so can lead to compensation for any loss that results. The bill provides guidance on what is a reasonable time. For example insurers should have adequate time to investigate claims and courts should take into account issues such as the size and complexity of the claim and factors outside insurers’ control. In short insurers will not be liable for delays caused by genuine disputes.
The reform will bring general insurance law into line with contract law, life insurance, FOS practice and most other jurisdictions. It will also provide more protection to insurers than the Supreme Court could have done had it overturned the current authorities.
A small number of insurers have expressed concern that despite the protections in the bill the change may be exploited by policyholders and particularly those used to bad faith litigation. However insurers will be able to contract on different terms if they wish.
Please take a look at the Time for Change document, which includes the updated late payment clause.
Written by David Hertzell, Consultant