UK Property & Liability Legal Update - Issue 1, 2017

Damages for late payment:

Section 13A of the Insurance Act 2015

Ben Crook and Neil Beresford are holding a Breakfast Briefing on Wednesday 26 April 2017 to highlight for insurers the issues arising and practical steps needed in advance of the introduction of a new right for insured's to claim damages from insurers for late payment from 7 May 2017.

Why is this change significant?

From 7 May 2017, insurers and reinsurers who do not investigate and pay valid claims "in a reasonable time" may be obliged to pay damages to their (re)insured. That is damages, in addition to the insured's valid claim and interest. An award of damages in addition to the claim and interest could mean insurers are obliged to pay more than policy limits. There will also be reputational risk for the insurer of an adverse finding. This is a significant change to insurance law and we expect property and liability insurers in particular will be taking note.

How is this change made?

This change in the law is made by insertion of Section 13A into the Insurance Act 2015 and comes into force on 7 May 2017. Section 13A incorporates into every contract of insurance and reinsurance an implied term such that, following a claim, the (re)insurer must pay sums due under the policy/contract "within a reasonable time". If they do not, an insured can claim for damages caused by that breach of contract. It reads: "It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time."

How can an insurer avoid liability for damages under the new rule?

To avoid having to pay damages an insurer must either:

pay any sums due "in a reasonable time"; or if the claim is disputed, handle the claim in a reasonable way. What is a "reasonable time" and...