Insurance Law and London Buses

Today saw the enactment of the Enterprise Bill 2015 which at the stroke of the Royal pen transforms itself to the Law of the land as the Enterprise Act 2016. The significance for the insurance industry arises from sections 28 to 30 which introduce in to the Insurance Act 2015 the “late payment” clauses that were felt to be inappropriate for the Law Commissions’ special procedure for non-controversial legislation in late 2014. The Government was however persuaded of the merit of the original recommendations and included the provisions in the Enterprise Bill now enacted.

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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.

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Enterprise Bill – a contract less exceptional

The Third Reading of the Enterprise Bill in the House of Lords yesterday marks the point where the detailed scrutiny of that subsection of the Bill relating to the “late payment” clauses passes to the House of Commons. The reality is that the lower House will have little appetite for further consideration of this provision: in part because other aspects are politically more contentious; in further part because the Government has a majority for its legislation in the Commons; and finally because the Commons has little interest in insurance and acknowledges the expertise of the Lords which carefully scrutinised and improved the Insurance Act 2015 less than one year ago.
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Enterprise Bill – Government adopts one year limitation period for late payment of claims

The Bill is back in the Lords next week for its report stage debate on 15 December. As we know, the Government is introducing the new obligation to pay insurance claims “within a reasonable time” via this Bill. This is, of course, a subjective test that will depend on the type of insurance, the complexity of the claim and on other factors. An insured will have a right to sue its insurer if this obligation is breached.

A late amendment tabled by the Government on 8 December now provides for a one year limitation period for this new action. The year runs from the expiry of the “reasonable time” in which the claim should have been paid. This limitation period is quite distinct to that which applies to the right to sue for the proceeds of the claim itself.

Attempts had been made, during the Bill’s earlier stages, to provide on the face of the Bill that legal privilege would necessarily attach to advice obtained by the insurer on the merits of the claim. It may well do, but the Government refused to set that out in the Bill. That said, Ministers have  now adopted a clear test on limitation, which was another aim of those proposing the clarification around privilege.


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).

Enterprise Bill & late payment of claims – latest Lords debate

Technical amendments to the Bill’s clauses dealing with late payment of insurance claims were debated on 25 November in the Lords. The amendments concerned legal privilege attaching to coverage advice to insurers and limitation for claiming damages for late payment of the claim.

A sharply defined limitation period in the law should greatly reduce uncertainty about when an insurer’s new liability for late payment comes to an end. If the Government acts on these amendments, then that would be in place when the Bill is passed next year.

My recent post about these amendments on our RED blog (which explained how they would operate) anticipated that they would probably be adopted by Government at this stage. That has turned out not to be the case.

The Treasury Minister in charge of the Bill, Baroness Neville-Rolfe, closed the debate and called for the amendments not to be pressed. On the first, she said that the Government’s view was that “legal privilege is a complex topic [and] should not be changed in a specific context without very good reason.” She was a little more open to considering the second – limitation – saying that “it might represent an improvement to the late payment clause, which could be in the interests of both policyholder and insurer [and] would like to explore the details of this possibility further and to discuss it with all interested parties.”

These remarks echo comments earlier in the debate by Baroness Noakes, who doubted that the Government would accept the amendments on the basis that they had been tabled relatively late in the day. Baroness Noakes was a member of the Special Bill Committee that scrutinised the Insurance Act 2015, so her remarks carry some weight. She went on to encourage the Minister to consider the limitation amendment in detail before the Bill returns to the Lords for its third reading. That now looks set to happen and it’ll be covered on this blog when it does.


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).

Enterprise and compromise: glosses on the new remedy of damages for late payment of insurance claims

The Enterprise Bill is due back in the Lords on 25 November. The Government is using parts of it to introduce a new remedy of damages for late payment of insurance claims, as had been recommended by the Law Commission in an early draft of what became the Insurance Act 2015.

The remedy was dropped from that Act for procedural reasons but it will become law via the current Enterprise Bill. Attempts in the last few weeks to amend that Bill so as to exclude reinsurance and larger risks from its scope were unsuccessful and, we believe, would have been resisted by Government had they been pressed.

Late payment is a subjective test, with the Bill requiring insurers to pay claims “within a reasonable time”. This will vary by type of insurance, by complexity of claim and by other factors.  It has been recognised that the necessary subjectivity about “reasonable time” could nevertheless create some uncertainty on two matters:

  • whether legal advice sought by the insurer about the validity of the claim would be privileged and hence protected against disclosure to the insured, and
  • the limitation period in which the insured must bring its claim for damages for late payment

Two new amendments deal with these points. The first permits an insurer to evidence the fact that it obtained legal advice about the claim but makes it clear that the content of the advice should be privileged. The second provides a two-part test for the relevant limitation period: it is either one year after the insurer made the last payment in respect of the claim or, if earlier, six years after the right to sue for late payment arose.

These are not Government amendments. In fact, they are tabled in the names of the Peers who only a few weeks ago tried unsuccessfully to exclude reinsurance and larger risks. We believe that they usefully clarify the new remedy and thus will be adopted by the Government – something of a modest compromise with the Peers who had argued for restricting the scope of the late payment remedy, perhaps?

For these reasons we think it highly likely that these amendments will be approved when the Lords debates the Bill (at Report Stage) on 25 November.


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).

Update on the Enterprise Bill’s Committee Stage

During a short debate on Monday 2 November, the House of Lords discussed (in Grand Committee) the clauses in the Bill that would introduce the remedy of damages for late payment of insurance claims. The Minister, Baroness Neville-Rolfe, noted that these provisions in the Bill would “rectify a gap in the legal regime and encourage responsible payment, for the benefit of policyholders and the perception of the market. These arguments apply for all insurance contracts, including reinsurance, which are treated by the law in the same way as all other non-consumer insurance contracts.”

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Paying reasonable claims in a reasonable time

Commentators are speculating about a possible constitutional crisis, given that the House of Lords voted yesterday – 26 October – against the Government’s proposed reforms to tax credits. The noise about this issue has probably distracted attention from the less controversial Enterprise Bill, which began its Committee Stage in the Lords on 26 October. The discussions are scheduled to resume on 28 October and on 2 & 4 November.

At some stage during these four days, the Lords will address provisions in the Bill which deal with late payment of insurance claims. What the clauses do is to imply a term into every insurance policy that the insurer will pay valid claims in a “reasonable time”. This is a subjective test, so a “reasonable time” will vary with the circumstance of the risk, the claim and the necessary investigation. The crucial element of these changes will be that if the claim is not paid in a “reasonable time”, then the insurer would have breached the implied term and would therefore be liable for damages that, under normal contractual principles, flow from the breach. This is a new remedy in English law, but not in Scottish law.

Earlier versions of the ‘late payment’ clauses had been included in pre-legislative drafts of the Bill that became the Insurance Act 2015. The new remedy was deemed to be controversial, in the sense that there were some differing views about it in the market. For that procedural reason, it could not be part of a Bill (the Insurance Bill) that was following the special Parliamentary procedure for Law Commission proposals and thus the clauses were set to one side at that time. But, as noted above, they are now contained in a Government Bill and thus subject to the rigour of full debate in both chambers. As part of a Government Bill, we would therefore expect the measures to be agreed and taken forward, even if there remain some different views in the market about the potential effect of introducing a new remedy of damages for late payment of claims.

We will report on the outcome of the Committee Stage proceedings very shortly after the late payment clauses have been debated.

Portrait photograph of Alistair Kinley, Director of Policy & Government Affairs

Written by Alistair Kinley, Director of Policy and Government Affairs.

Second thoughts about late payment? Probably not…

The Enterprise Bill 2015/16 was debated at second reading in the Lords on 12 October. Provisions in the Bill (discussed here by my colleague David Hertzell) will introduce a new remedy against insurers: damages for failure to pay policyholders’ valid claims within a reasonable time. This remedy had been recommended by the Law Commission in its review of insurance contract law, but was not taken forward in the Insurance Act 2015 due to some controversy surrounding it. The recent speeches in the Lords suggest that the arguments could yet be further developed as the Enterprise Bill proceeds.

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It has long been an anomaly of English law that insurers are not responsible for the consequences of failing to pay a valid claim within a reasonable time.  Although there is no evidence of systemic failure by insurers following consultation the Law Commission suggested the law should be reformed.  For reasons of process those proposals were not included in the Insurance Act 2015.  However all parties in the House of Lords agreed that they should be reintroduced as soon as possible.  This has now happened with the Enterprise Bill.

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