Time Is Money: A Remedy For Delay In Settlement Of Commercial Insurance Claims In The UK?

In Short

Background: English law suffered a recognized gap in remedies for valid insurance claims not settled in a timely manner.

What's Happening? Terms requiring timely settlement will now be implied into English insurance policies.

Looking Ahead: Insurers will be required to pay any sums due in respect of a claim within a "reasonable time" or will be answerable to a claim for damages.

We have previously highlighted the fundamental changes in insurance law (and benefits for policyholders) introduced by the UK Insurance Act 2015. On 4 May 2017, the final policyholder-friendly provision comes into effect.

Section 13A of the Insurance Act 2015 ("Section 13A") implies a term into insurance policies issued or varied after that date that requires insurers to settle claim sums due within a "reasonable time". This new provision could significantly improve the policyholder's lot when a claim is being settled.

Background

Students of insurance law in England and Wales are familiar with the Court of Appeal decision in Sprung v Royal Insurance ((1997) C.L.C.70), wherein a policyholder was denied the opportunity to seek to recover damages from his insurers for losses he alleged they had inflicted upon him when his business closed during the time it took them to settle his property damage claim.

English law simply did not recognise such a cause of action. The Law Commission thereafter recommended a remedy for what it saw as a legitimate expectation of a policyholder (i.e., that claims be adjusted promptly, or else a legal remedy would follow), but this was not immediately approved.

More than 20 years after Sprung, UK law will finally address this shortcoming via Section 13A.

Detail

The Act allows parties to contract out of Section 13A, but this would seem to hold no advantage to policyholders, and therefore insurer requests for the same must be carefully scrutinized.

How might this new implied term affect claim settlement?

What constitutes a "reasonable time" is not defined and will doubtless be considered on a case-by-case basis.

Section 13A makes clear that insurers must be allowed time to investigate and assess a claim, and recent English case law suggests that the courts may consider periods of two to five months to be "reasonable" periods in which to do this.

Section 13A also makes clear that in the event of a disputed claim, the conduct of the insurer in handling that claim may be a relevant factor in deciding whether (and if so, when) Section 13A...

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