The late payment provisions introduced by the Enterprise Act 2016 will apply to insurance policies entered into from 4 May 2017, a date that will be very soon upon us. That said, on the basis that any claim made for late payment will have to be ‘late’ as provided for by the Act it’s likely that it’s going to be some time yet before under any such policy there’s been an insurance claim made; the passage of time during which insurers have made no payment; loss sustained allegedly as a result of delay and a claim for late payment formulated. But as the insurance industry has largely recognised the time for ensuring that there’s the appropriate ‘bullets to fire’ in place to deploy by way of a defence to such a late payment claim is now.
The ability to claim damages for late payment will put insurers’ practises and systems under scrutiny probably like never before. If an insurer is to maintain a robust defence to such claims those practises and procedures will need to withstand such scrutiny which will be looking for what can be criticised. Here are some thoughts on what makes for a creditable defence:
- Comprehensive internal claims handling procedures – that are fit for purpose;
- Systematic record keeping – a well-managed file with steps taken properly documented and gaps avoided will pay dividends;
- Organised and cohesive requests for information – requests should be targeted at the crucial detail that’s needed and a piecemeal approach avoided;
- Communication with the policyholder / broker – keeping the channels of communication open; where possible explaining any delay and managing expectations;
- Adequately managing timelines – stringent case management and constant review is essential;
- Scrutiny of agents / suppliers (say) loss adjusters and experts – managing suppliers involved in the investigation process and ensuring the timely delivery of reports;
- Interim payments – to be considered for uncontroversial parts of the claim; to fund initial steps for the policyholder to get back on their feet;
- Training – staff from senior to junior to appreciate what this is all seeking to achieve and why it’s so essential.
The late payment provisions make it clear that they are intended to achieve the payment of sums due ‘within a reasonable time’ which includes time to investigate and assess the claim. It’s appreciated that what is ‘reasonable time’ is going to be very fact specific and in particular the Act lists that the type of insurance; the size and complexity of the claim; compliance with any relevant statutory or regulatory rules or guidance and factors outside insurer’s control as examples of what would need to be taken into account. If the insurer can show that there were reasonable grounds for disputing the claim the insurer will not have breached the term merely by failing to pay the claim while the dispute is continuing however the insurer’s conduct will remain a factor in the overall determination as to whether the term was breached.
So the conduct of the insurer is crucial in the investigation and assessment process and in the consideration of whether there has been late payment. Many will say that adherence to the practises and procedures outlined above simply reflect a professional approach to the handling of insurance claims and that those insurers with these already embedded have nothing to fear from the Enterprise Act. This is very much the hope but time will tell as to whether this is ultimately borne out by experience when this new right of the insured to claim damages for late payment comes to be tested. In the meantime to be forewarned is to be forearmed when it comes to being prepared for the provisions on late payment.
Written by John O’Shea, Partner, BLM