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
“Next year” is nearly upon us and in 2017 the “late payment” amendment to the Insurance Act 2015 introduced by the Enterprise Act 2016 will apply to policies entered in to (or variations) from 4 May. Time will pass incredibly quickly yet there are steps that should be considered now in relation to policy wording if the underwriter wishes to contract out of the new implied term.
In exactly six months, on 4 May 2017, the final piece of the Insurance Act 2015 jigsaw falls in to place when the “late payment” implied term will apply to all policies entered into after that date. The relevant sections (inserted at part 4A of the Act) are, ironically, a late change to the 2015 legislation. They were enacted in the Enterprise Act 2016 because the provisions did not fall within the technical ‘non-controversial’ definition that would otherwise have allowed them to be taken forward in the Law Commission’s initial Insurance Bill.
The new implied term on “late payment” addresses the problem that arises from a quite bizarre legal fiction: that an insurer’s contractual promise is to prevent the insured peril from occurring. So, for example, underwriters are regarded as promising to prevent the Royal Clarence Hotel in Exeter from burning down or to prevent the RMS Titanic from sinking.
The insurers’ empty promise arises from the analysis that the insurer is to “hold harmless” the policyholder from loss. Thus the very claim or loss itself is technically regarded as a breach of contract and the proceeds of the claim paid by the insurer are, at law, the damages flowing from the breach of contract. As there can be no recovery of damages on top of damages, the insured is therefore not entitled to recover any sum greater than the correct amount due on the claim (plus interest). No consequential losses are recoverable regardless of how of egregious the insurer’s delay or failure to pay might be.
The new policy term implied by the 2016 Act does not revoke the ‘hold harmless’ principle which remains relevant in that the event of the loss is the trigger date for the six year limitation period for claiming under the policy (for breach of contract). What the 2016 Act does is to allow the policyholder to make a claim for losses consequential on the insurer’s failure to pay the (valid) claim “within a reasonable time”.
So what are the issues that arise from this new implied new term that applies 265 days after the mainstream insurance law (with commencement of the Insurance Act 2015 on 12 August 2016) has changed? Are there any lessons to be learned from the 18 month period that was allowed for implementation of the 2015 Act itself?
BLM will consider a number of issues in the months leading up to commencement of the “late payment” term on 4 May next year:
- first we will look at the issues that arise from claims outsourcing, where late payment could arise from the fault of a party in the insurer’s supply chain
- in December we will consider whether insurers may contract out and the options available if they chose to do so
- in January we will consider complications that could arise from investigating fraud and whether they might give rise to a “late payment” claim
- we will then consider the sums that might be payable in the event of a successful “late payment” claim, and will conclude by
- considering the tactics and strategies that might be considered when dealing with such claims.
Written by Terry Renouf, partner, BLM
It is of course very early days in the history of the Insurance Act. Day 61 since implementation and a long way to go before it approaches the nearly 40,000 day life span of its predecessor. It will be some time, perhaps years, before we will have a body of law on which to make an assessment of its legal quality and this will itself turn on the happenstance or peculiar facts testing terms, no doubt under the strain of a large loss. Yet are there any lessons to be learnt at this early stage?
TODAY marks the anniversary of the enactment of the Insurance Act 2015 and leaves exactly six months before the first policy is incepted to which the new law will apply. On that date substantive parts of the century old Marine Insurance Act 1906 will be amended, varied or in effect repealed and to add to the “mix” we anticipate the “late payment” clause (see previous blogs on the Enterprise Bill) will be enacted but not yet “in force”.