There has traditionally been no system in place within English law that allows the insured to claim damages as a result of an insurers failure to pay a sum owed in a timely manner. On 4 May 2017 the Enterprise Act 2016 will make provisions to all insurance contracts and reinsurance contracts - entered into on or beyond the aforementioned date - with regards damages owed by insurers should they fail to pay claims within a reasonable period of time.
“There are no damages payable on insurance claims under the general law; damages are available for the late payment of debts, but not damages on damages, which is how the law construes payments of indemnities on insurance policies,” explained Rhys Clift, partner at Hill Dickinson at a meeting of the Superyacht Claims Adjustment Association.
This lack of a remedy for damages was described by professor Malcolm Clark as being “a blot on English common law jurisprudence,” as it was said to be unfair, unjust, lacking principle and rewarding inefficiency and dishonesty, as well as being completely out of step with other systems of law.
Within the Enterprise Act, the insured will be entitled to the amount owed with respect to his/her original claim, interest on late payments and, additionally, damages that would have been reasonably foreseeable by the insurer should its payment occur unreasonably late. However, the insured must file any claim for damages due to late payment within a year of the original settlement to ensure that claims for damages cannot hang over insurers' heads ad infinitum.
It should be noted that in certain scenarios insurers providing a non-consumer contract will be able to contract out of the Enterprise Act’s additional provisions, so long as they meet the provisions of transparency as outlined in the Insurance Act 2015.
“Will there now be damages incurred with every so-called regular claim? Are we going to face a cacophony of demands for damages however long the claim takes to log? Will it push up claim costs?” asked Clift.
It would be easy to assume that upon implementation the Enterprise Act 2016 will cause a steep increase in claims for damages on late payments and, given that there were no grounds for such claims before, this is objectively correct. But the severity of the increase will be decided by the efficiency of the insurers.
The determining factor will be whether or not insurers are able to pay funds owed within a ‘reasonable time’. Common factors relating to the reasonability of a claim period include the type of insurance, the size and complexity of the claim, compliance with any relevant statutory or regulatory rules or guidance and factors outside the insurers control. There will, of course, be grounds for disputing the original claim and this will not be considered unreasonable when assessing the lateness of a payment provided that the conduct of the insurer for the duration of the dispute was reasonable.
Various concerns have been voiced, chief among them are the belief that in order for an insurer to prove that it has conducted its investigation in a reasonable manner, it may have to disclose otherwise privileged documents. There may also be a proliferation of unmeritorious claims, increasing pressure on insurers and individuals to rush claims procedures, additional claims costs and the need to introduce new individuals and procedures in order demonstrate reasonable action and avoid damages, as well as various other considerations to be taken into account depending on the nature of the claim.