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
The letter to be delivered on Wednesday to the European Commission will have the most profound consequences for this country: your own view as to whether this will be for good or ill will probably reflect your position as a Remoaner or a Brexiteer. What is however certain is that whether the UK’s Article 50 letter is brief and to the point or rather longer as a positioning paper, the devil will rest in the detail of the subsequent negotiations of how Britain and Europe untangle 43 years of EU Law and jurisprudence. The knottiness of the problem is illustrated by a report (in fact merely the 17th report of the session) published by the House of Lords EU Committee which considers some of the access to justice issues that are entangled with Brexit.
The 2016 Queen’s Speech included a “Modern Transport Bill” which was intended to set out the compulsory arrangements for insuring automated driving on UK roads. This title has been shelved and today the Vehicle Technology and Aviation Bill was introduced in Parliament to address this issue.
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
The Government’s preferred approach here is described as “the amended Directive option”. It is probably more pragmatic than the alternative “comprehensive option”, which could give rise to significant complications and unintended consequences for insurers and users of a wide range of motorised vehicles.
A big problem, however, is that we don’t know either what the amendment to the Directive might look like or what might be the timeframe for change – there has been nothing visible from the Commission since the change of the lead Commissioner necessitated by Lord Hill’s resignation after the UK’s EU referendum in June. To this extent, the DfT’s consultation may be in the unenviable position of aiming at a moving target – or even an unknown one.
Nevertheless, it remains important to engage with DfT on the consultation and we shall continue to arrange meetings to address the detail in the 61 page paper. The attached one page summary may offer an easier way in, and please get in touch if you would like to get involved.
About the Author
Alistair 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).
With Amazon’s Echo and Echo Dot speaker systems amongst the most popular gifts under the Christmas tree last month, speech recognition and voice control has taken a big step closer to becoming mainstream. What would have appeared cutting edge technology only a few short years ago is now available to households everywhere, at consumer prices. We can now control our homes using our voices. Feeling a bit cold? Ask Alexa to turn up the heating. Shuffle your music, set an alarm, order groceries or consult the internet. We can do all of this and more with our voices and now it seems that our voices can also help in diagnosing our symptoms and reveal if we have an illness.
The story of Lemonade’s “world record” three second claim caused me to reflect on a number of ‘legaltech’ issues that flickered across my screen in the last month or so. Firstly the launch of the ‘smart Will’ by Legacy: downloadable to your smartphone for £5 per month. Legally irrelevant without the hard copy and ‘wet’ signature duly witnessed and expensive to boot where an old fashioned (effective) will can be obtained for just a few months’ worth of fees. But that said it does show where the law may be struggling to keep up with the virtual world. An e-probate that supplied the password to your next of kin for your vast Apple iTunes library of content would get around the “virtual” problem that was worrying Bruce Willis in 2012.
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.