Eighteen months since the Insurance Act 2015 came into force the FCA is presently considering whether (and how) more SMEs should fall within the jurisdiction of the Financial Ombudsman Service. At present only smaller SMEs (“micro- businesses”) with €2m turnover and fewer than 10 staff can seek a FOS adjudication on disputed insurance issues. The FCA Consultation, concluding on 22 April, is seeking views on whether eligibility should be extended to small businesses with annual turnover of less than £6.5m and fewer than 50 employees. It is estimated that such an extension would provide an additional 160,000 businesses with access to the Ombudsman. In assessing how to respond to this consultation it is useful to consider the impact of the Insurance Act since the commencement on 12 August 2016. Continue reading
At midnight tonight the insurers’ faithful servant expires: the last commercial insurance policy based on the Marine Insurance Act 1906 will end and on renewal the Insurance Act 2015 will apply. There may be some wrinkles around contracting out and perhaps a multi-year policy could see some limited application of life support to rare atypical policies but Saturday August 12th 2017 marks the first anniversary of commencement of the Insurance Act 2015. From that point the MIA1906 will start to fade until the last claim has been presented, adjusted and paid. Whilst “full” implementation of the Law Commissions’ extensive programme of Insurance Reform will only be in place on May 4th 2018 (the date which marks the first anniversary of the commencement of the “late payment” term) to all intents and purposes the IA2015 is the only show now in town.
Today marks the first anniversary of the commencement of the Third Party (Rights against Insurers) Act 2010. It is, as we have discussed, a successor to an Act of the same name dated 1930. It modifies and brings up to date the protections available for a claimant bringing an action against an insured but insolvent defendant. Despite the overhaul of the UK’s insurance legislation (CIDRA 2012, Insurance Act 2015 and of course TPRAIA 2010 there has been very little “insurance” case law on the new statutes but in the last few weeks a number of cases considering the new TPRAIA have been reported.
Peel Port v Dornoch was a case arising from a fire, causing damage of more than £1m at Sheerness Docks. In this instance the defendant was not in liquidation but the PL insurer, Dornoch Ltd relied on a “hot working” endorsement and alleged that their insured was in breach of the condition. The insurer had provided details of terms but not the policy. The claimant made an application for pre-action disclosure of the policy. Pointing to the information that the new Act requires to be provided and suggesting that as the substantial claim was likely to trigger an insolvency that it would save costs and the court should exercise its discretion to order disclosure. It was accepted the policy would be a disclosable document in coverage proceedings (between policyholder and insurer) and would form part of the statutory disclosure required by TPRAIA 2010 but the judge noted that policyholder was not insolvent and possibility (or even likelihood) of insolvency of policyholder did not comprise sufficiently exceptional circumstances to exercise discretion and order pre-action disclosure of the insurance policy.
BAE Pension Fund Trustees v Bowers & Kirkland was a case that arose from defects in the design of a concrete slab which was laid by D3, a company which had become insolvent. An application was made to join D3’s insurers as a co-defendant. The policy provided that disagreement about coverage would be subject to French Law and any coverage dispute should be arbitrated. The insurer argued that the breach of a condition meant that there was no insurance and that TPRAIA 2010 did not apply. In addition the jurisdiction clause meant that an English Court could not hear the case. The court noted that s2 provided a mechanism for determining precisely the sort of dispute that the insurer argued ousted the Court’s ability to determine the dispute. It was not necessary for the claimant to establish that it was entitled to a policy indemnity for it to join the insurer as a party. The legislation allowed the insurer to pursue the coverage arguments but this was the time to argue those issues and they did not form an argument to resist being joined as a defendant.
Redman v Zurich & ESJS1; a “friendly fight” between parties to establish a precedent about the TPRAIA transitional provisions and whether the 1930 or 2010 Act applies. In this instance Mr Redman died from lung cancer on 5 November 2013 some years after he had worked for a company now known as ESJS1. His former employer (now sued by his widow) was the subject of a voluntary liquidation commencing on 30 January 2014 and culminating in dissolution on 30 June 2016. All these dates precede 1 August 2016, the commencement date of the newer TPRAIA. Argument had however been raised that the insured (ESJS1) had not incurred a liability, against which it was insured under the contract of insurance, until after 1/8/16 and that, as a consequence, the 2010 Act applied. If the claimant had succeeded on the point she could have brought an action directly against the insurer – if she so chose. However this point was abandoned (the judge confirming correctly so) as the liability of the employer was incurred when the cause of action is complete: in this case when the claimant (or deceased) suffered damage. The further submission of the claimant was that the 1930 and 2010 Acts can apply in parallel. Albeit that this was, to use the Judge’s word “brave” it, also, was not successful. Mr Justice Turner confirmed that where both “triggers” (the policyholders insolvency and the occurrence of damage) pre-date the 1/8/16 commencement then only the more restrictive 1930 Act applies
In each of these case there are “no surprises” to date and indeed many of the issues and questions above have been considered in the BLM TPRAIA Flowchart. Peel Port did try to push the boundaries but as the Judge noted the availability of insurance cover is a regular feature of litigation and it is for the claimant to take the defendant as he finds him – insurance may well be commercially relevant to the litigation but coverage documents are irrelevant to the issues. Therefore Peel Ports maintains the status quo – policy documents, absent insolvency, are not discoverable in a non-coverage case. BAE Pension Fund and Redman are both determined as we would have expected.
However, it is early days as far as the new law is concerned and there will be other more complex cases that will be decided on more obscure facts and difficult interpretations of the law: perhaps to be determined before TPRAIA celebrates its second Birthday.
Written by Terry Renouf, consultant at BLM and member of the firm’s Time for Change team.
Four statutes this decade have significantly changed insurance contract law: the Third Party (Rights Against Insurers) Act 2010 (TPRAI), the Consumer Insurance (Disclosure and Representations) Act 2012, the Insurance Act 2015 and the Enterprise Act 2016. With this level of statutory reform it is perhaps hardly surprising that Mr Justice Turner decided, in Redman v Zurich on 26 July, against “an interpretation … tantamount to judicial legislation” when consider trigger dates for applying the TRPAI Act 2010 above.
The Airmic Conference this year (June 2017) saw the publication of a paper considering the experience of practitioners in the ten months since implementation of the Insurance Act in August 2016. At this point the vast majority of commercial policyholders will have been through at least one Insurance Act process and thus a report from Airmic, which championed the reforms for that sector, does carry weight. At the conference, Huw Edwards also interrogated the “C-suite” Leadership Panel of brokers and insurers on their collective experience of the Act. The conclusion: so far so good but none wanted to be involved in the first dispute. Plainly the first judgment is going to attract considerable interest and commentary and so the reputational aspect is going to act as a weighty disincentive but which of the areas of the Act are working well and where are the first disputes likely to arise? Fair presentation, remedies for breach or policy terms?
Today, Star Wars Day, May the fourth 2017, marks the completion of the reform of UK insurance law that commenced in the middle of the noughties when the Law Commission picked up the task of reforming the Marine Insurance Act 1906. That Act oversaw and provided a framework for insurance as a product that has expanded both in value and type and to policyholders that could not have been foreseen when it was enacted 111 years ago. It largely stood the test of time and its concepts were (and are) exported internationally and so underpin the sector of the UK economy that originated in and which dominates London, EC3.
The final piece of the Insurance Act jigsaw applying to all policies commencing today is the “late payment” term and gives us the chance to review some of our earlier blogs. Continue reading
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. Continue reading
In my blog yesterday (Late payment: how much?) I considered how the case of Sprung, where an award for “late payment” was declined in 1999, would be treated under the new provisions of the Insurance Act. Although awards will be able to be made and could in certain circumstances prove to be substantial, policyholders will still need to overcome the usual hurdles of establishing a legal claim for contractual damages; causation, foreseeability and mitigation.
Policyholders will still have to show that the loss was in the reasonable contemplation of the parties, as set out in Hadley v Baxendale  EWHC. In that case Hadley contracted with Baxendale to take a broken crankshaft to the place where it was to be repaired and to bring it back again. Baxendale delivered the part late and Mr Hadley claimed that as a consequence, the mill could not operate, resulting in loss of profit. Hadley sued Baxendale for consequential losses however, the court found that the mere fact that a party is sending something to be repaired does not indicate that the party would lose profits if it is not delivered on time. The court held that the damages were too remote.
In general, contractual damages are less generous than tortious and should reflect what was in the contemplation of the parties at the point the contract was made. Damages to feelings are not recognised as recoverable for breach of contract but may be where one of the major or important objects was to provide “enjoyment, security, comfort or sentimental benefit” or “pleasure, relaxation and peace of mind”. It seems very likely that the marketing and sales materials for many policies will encompass the anticipated benefits described in the words we have extracted from two relevant judgments. Additionally the nature of an insurance contract which requires the commercial policyholder to provide information about its business and to make a fair presentation is going to increase the risk for the underwriter that there are losses that fall within the reasonable contemplation of the parties and extend the heads of damages that could be payable. Much will however depend on the nature of the insurance policy and the information provided.
The changes do, as we have observed in previous blogs, bring insurance in to line with general contractual principles. In that respect, making insurance less unusual, is commercially and reputationally to be welcomed. We are aware of market concerns that arise from this imminent change in the law which is apparently welcome news for policyholders but it is important for insurers to remember that they should not be afraid of disputing claims where there are reasonable grounds to do so.
Written by Joanne McCartney, associate
In just ten short weeks a term will be implied in to insurance contracts that means that policyholders will be able to seek damages for late payment of insurance claims. There are limited rights to “contract out” from non-consumer contracts.
The new term (inserted by s13A of the Insurance Act) arises because insurance law in England and Wales has adopted the “hold harmless” principle, which is the legal fiction that an insurer is in breach of contract at the moment when the loss occurs. Payment of the claim under the policy is therefore treated as damages and one effect of this is that, if an insurer fails to pay their insured’s claim, an insured cannot then recover damages on top of damages.
This problem is best illustrated by the case of Sprung v Royal Insurance (UK) Limited  Lloyd’s Rep IR 111 CA. Mr Sprung owned a family business, trading in the processing and distribution of animal products. Mr Sprung’s factory was broken into by vandals and his machinery was damaged. Mr Sprung made a claim with his insurers and they refused to pay. Mr Sprung could not afford to fund the repairs to the machinery himself and the business collapsed. Several years later, Mr Sprung brought a claim against his insurers and the court found that his insurers were wrong not to pay and awarded Mr Sprung the full amount of his claim, together with interest. However, with considerable judicial disquiet, the Court of Appeal said that Mr Sprung could not be compensated for losing the opportunity to sell the business (a loss estimated at £75,000) on the basis that there can be no award of damages for the late payment of damages. This will now change and Sprung (No2) v Another Insurer (2018) would have a different outcome: the insurers having breached their implied term to pay a claim within a reasonable time.
The types and levels of claims that insurers might expect to see are difficult to predict and will vary depending on the type of insurance contract and whether the policyholder is a consumer or a non-consumer. Applying the strict laws of contract (regardless of any FOS adjudication, which has always been based more on fairness), claims may range from simple distress and inconvenience for the non-corporate policyholder (a company has no feelings!) and where damages have traditionally been modest- (moderate to low level inconvenience for example that amounts to little more than a change in routine/unnecessary admin is unlikely to attract an award in excess of £500) to substantial claims for loss of profit which could potentially be an uncapped level of loss. As Sprung demonstrates (losses valued at £75,000), losses arising from business failure could be substantial. Late payment of claims can be costly for SME-type businesses damaged by fire or flood, who are greatly dependent upon payment from insurers to get them back on track. Delays by insurers can therefore have a devastating impact on business and insurers may face significant claims for business failure.
Written by Joanne McCartney, associate
In Joanne’s second blog tomorrow, consideration is given to the likely treatment of other heads of damage by the Courts and some of the underlying issues that arise as an unusual contract (that of insurance) aligns with commercial contract law
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.