Enterprise and compromise: glosses on the new remedy of damages for late payment of insurance claims

The Enterprise Bill is due back in the Lords on 25 November. The Government is using parts of it to introduce a new remedy of damages for late payment of insurance claims, as had been recommended by the Law Commission in an early draft of what became the Insurance Act 2015.

The remedy was dropped from that Act for procedural reasons but it will become law via the current Enterprise Bill. Attempts in the last few weeks to amend that Bill so as to exclude reinsurance and larger risks from its scope were unsuccessful and, we believe, would have been resisted by Government had they been pressed.

Late payment is a subjective test, with the Bill requiring insurers to pay claims “within a reasonable time”. This will vary by type of insurance, by complexity of claim and by other factors.  It has been recognised that the necessary subjectivity about “reasonable time” could nevertheless create some uncertainty on two matters:

  • whether legal advice sought by the insurer about the validity of the claim would be privileged and hence protected against disclosure to the insured, and
  • the limitation period in which the insured must bring its claim for damages for late payment

Two new amendments deal with these points. The first permits an insurer to evidence the fact that it obtained legal advice about the claim but makes it clear that the content of the advice should be privileged. The second provides a two-part test for the relevant limitation period: it is either one year after the insurer made the last payment in respect of the claim or, if earlier, six years after the right to sue for late payment arose.

These are not Government amendments. In fact, they are tabled in the names of the Peers who only a few weeks ago tried unsuccessfully to exclude reinsurance and larger risks. We believe that they usefully clarify the new remedy and thus will be adopted by the Government – something of a modest compromise with the Peers who had argued for restricting the scope of the late payment remedy, perhaps?

For these reasons we think it highly likely that these amendments will be approved when the Lords debates the Bill (at Report Stage) on 25 November.

About the Author

akAlistair Kinley is BLM’s Director of Policy & Government Affairs.

Alistair is responsible for BLM’s engagement with government departments and regulators on policy and public affairs issues and consultations affecting the firm and its customers. He coordinated BLM’s market-facing activities in connection with the Insurance Act 2015 and the consultations which preceded its publication and introduction in Parliament.

He is a member of the Civil Justice Council (CJC), a regular speaker and experienced commentator on legal and procedural reforms and was a contributing editor to the Law Society’s Litigation Funding Handbook (September 2014).

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