2017 is now upon us, meaning that implementation of the “late payment” amendment to the Insurance Act 2015 on 4 May is fast approaching. This amendment, set out at part 5 of the Enterprise Act 2016 introduces an implied term into all insurance contracts (and variations) entered into after this date that claims will be paid “within a reasonable time”.
While it is the aim of all insurers to pay claims in a timely manner, sometimes, particularly with claims where concerns arise over potential fraud, payment may be delayed while the claim is validated, potentially giving rise to a claim by an insured for late payment.
Insurers will still be allowed “a reasonable time to investigate and assess” an insurance claim. What is “a reasonable time” is not defined in the Act and is very likely to be decided on a case by case basis, with what is reasonable in a large complex commercial claim being different from a more straightforward household claim.
Screening for fraud indicators at an early stage of a claim is carried out by most insurers, and is good practice. However, further investigations and enquires resulting from such screening may cause delays, for example if more time is needed to trace and interview witnesses, and lengthen the time needed to decide about paying the claim.
Insurers should also be mindful of fraud indicators that are known to generate a large number of false positives and should ensure that enquiries in such cases are kept under strict review and not allowed to drag on. Appropriate records and notes should also be kept on the claim file so that it should be possible to show, in the event of a subsequent claim for late payment, what concerns gave rise to the enquiries and how and when the relevant investigations were carried out.
In all claims where fraud is a concern, insurers should ensure that any necessary enquiries start as soon as possible and that claims service suppliers (such as loss adjusters or third party administrators) carrying out further investigations do so in a proactive and timely manner. In addition, as far as is possible the insured should be kept informed so that the risk of complaint is minimised. Again, detailed records of the actions taken and the reasons for them should also be kept. Instances of the insured being asked to provide information should be noted, as well as any delays in the provision of the information by the insured, so that a full picture of the insurer’s conduct during the handling of the claim can be built up.
If a claim for “late payment” is made, either in discussions with the Financial Ombudsman Service or by way of a pre-action letter, the insurer’s file notes and records will serve as crucial evidence of the reasonableness of its conduct, why concerns about fraud had arisen and why further investigations were necessary.
It should also be borne in mind that if a claim for late payment is made and ultimately ends up in court, the claims handler may have to give evidence explaining the delay and why the actions taken were reasonable in the circumstances. Such a task is made far easier if good contemporaneous notes have been made, rather than relying on the handler’s recollection of the detail of the claim a number of months, or even years, down the line.
Whether the actions and enquiries undertaken by an insurer during the claims process were reasonable and justified are likely to be factors considered in any claim for “late payment”. For example, investigations may ultimately not find evidence of fraud and thus the claim is paid – albeit later than it would otherwise have been, and as long as the actions of the insurer in carrying out those investigations were reasonable and proportionate, then the insured would not automatically succeed in claiming compensation for late payment.
The Act is very clear that “if the insurer shows that there were reasonable grounds for disputing the claim… the insurer does not breach the term implied… merely by failing to pay the claim (or the affected part of it) while the dispute is continuing.” So, in summary: to defeat a late payment claim it is not essential for an insurer to prove it was right in its fraud suspicions, but is necessary to show that the steps taken in investigating the claim were reasonable in light of the circumstances at the time.
Rosemary Scott, Solicitor, BLM