Late payment of insurance claims: Enterprise Bill progresses in Commons

Having passed through the Lords, the Enterprise Bill yesterday (2 February 2016) completed its next stage in the Commons. The general principles of this Government Bill were debated, after which the Bill was carried easily, by 300 votes to 62. On commencement, Part 5 of the Bill will introduce a new remedy of damages for late payment of insurance claims, which will apply to consumer and non-consumer policies alike. The Bill is expected to return to the Commons in the next few weeks and is very likely to secure Royal Assent in the second quarter of the year.

The Enterprise Bill is being steered through Parliament by the Department for Business Innovation and Skills (DBIS). Yesterday’s debate followed oral questions to DBIS Ministers earlier in the day. Given that several of those touched on the insurance response to the recent floods, some of the interventions need to be seen in that context.

During DBIS questions, Secretary of State Sajid Javid reported that senior Ministers had recently met the Association of British Insurers “to discuss the response to this issue (the floods), understand the scale of the problem and find out what more can be done.” He then added that “in the Enterprise Bill, we will bring forward measures later today to make sure that all businesses are paid on time by insurance companies.”

In the subsequent debate on the Bill, Sajid Javid returned to the floods in order to introduce the new remedy of damages for late payment of insurance claims, which is set out in its part 5. He said that “It is not just the late payment of invoices that is a problem. As we have seen all too graphically with the recent flooding, it is vital that insurance companies also pay out quickly. Doing so helps small businesses to help themselves and gets them back on their feet, but it does not always happen. Unnecessary delays by insurers can spell the end for vulnerable small companies, which hits employees, suppliers, the wider community and the economy. The Bill will create a legal obligation on insurers to pay up within a reasonable timeframe.”

Although this passage is a helpful summary of the thrust of part 5 of the Bill, it should be noted that the language used is not entirely on point. Without descending into the fine interpretation of the Bill’s clause, it obliges insurers to pay claims “within a reasonable time”, which is not quite the same as the Minister’s exhortations to “pay out quickly” and to avoid “unnecessary delays” in making claim payments.

The Bill allows for insurers to contract out of the new statutory obligation to pay claims “within a reasonable time.” The formalities for doing so are the same as those which will govern contracting out of the Insurance Act 2015 (the reality is that the Enterprise Bill will insert the late payment provisions into that Act). However, contracting out is

  • not possible at all in consumer insurance
  • possible in non-consumer insurance only for instances where the late payment by the insurer is not deliberate or reckless, and, in any event
  • hardly likely to be a commercially attractive option for fairly obvious reasons – a term along the lines of ‘we are not going to be held to paying your claim in a reasonable period’ would seem to be a difficult sell.
  • Limiting liability to a reasonable sum may be more acceptable.

Further information will be posted here as the Bill proceeds.


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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