Commentators are speculating about a possible constitutional crisis, given that the House of Lords voted yesterday – 26 October – against the Government’s proposed reforms to tax credits. The noise about this issue has probably distracted attention from the less controversial Enterprise Bill, which began its Committee Stage in the Lords on 26 October. The discussions are scheduled to resume on 28 October and on 2 & 4 November.
At some stage during these four days, the Lords will address provisions in the Bill which deal with late payment of insurance claims. What the clauses do is to imply a term into every insurance policy that the insurer will pay valid claims in a “reasonable time”. This is a subjective test, so a “reasonable time” will vary with the circumstance of the risk, the claim and the necessary investigation. The crucial element of these changes will be that if the claim is not paid in a “reasonable time”, then the insurer would have breached the implied term and would therefore be liable for damages that, under normal contractual principles, flow from the breach. This is a new remedy in English law, but not in Scottish law.
Earlier versions of the ‘late payment’ clauses had been included in pre-legislative drafts of the Bill that became the Insurance Act 2015. The new remedy was deemed to be controversial, in the sense that there were some differing views about it in the market. For that procedural reason, it could not be part of a Bill (the Insurance Bill) that was following the special Parliamentary procedure for Law Commission proposals and thus the clauses were set to one side at that time. But, as noted above, they are now contained in a Government Bill and thus subject to the rigour of full debate in both chambers. As part of a Government Bill, we would therefore expect the measures to be agreed and taken forward, even if there remain some different views in the market about the potential effect of introducing a new remedy of damages for late payment of claims.
We will report on the outcome of the Committee Stage proceedings very shortly after the late payment clauses have been debated.
Written by Alistair Kinley, Director of Policy and Government Affairs.