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.
The Enterprise Bill figured in the Queen’s Speech earlier in the year. As a key Government Bill, it will therefore be enacted in this session of Parliament. Parts of the Bill are designed to amend the Insurance Act 2015 by introducing the following implied term into polices: “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”. Breach of this obligation would entitle an insured to damages for consequential loss arising from the late payment (to be assessed under ordinary contractual principles).
This new remedy stems from the Law Commission’s work on reforming insurance contract law. The Commission’s “careful and detailed recommendations” resulted from its close “work with stakeholders to develop the criteria in the Bill”, as Business Minister Baroness Neville-Rolfe stated when opening the debate.
The ‘late payment’ provision had not been taken forward in the Insurance Act 2015 because of controversy associated with its impact. That was because the 2015 Act followed a special procedure for Law Commission Bills which can only be used for non-controversial measures.
In the recent second reading debate, Conservative Peer Lord Patten spoke in support of the reform, which appears at clause 20 of the Bill. His party colleague, Lord Flight, was a good deal more sceptical, however. He reported that the LMA, Lloyd’s and the IUA had written to the Treasury repeating concerns about the reform and encouraged the Government to “come forward with their own amendments to disapply clause 20 in respect of large insurance risks”. He was concerned about the prospect of speculative claims for damages and about insurance business migrating from the UK to other jurisdictions (Bermuda, in particular). The points are essentially the same as those which were made to both the Law Commission and the Special Bill Committee that scrutinised what, just under a year ago, was then the Insurance Bill.
In contrast, Crossbencher Earl Kinnoull was “highly supportive” of the proposals and reported that this was also the view of brokers, as expressed through their trade body BIBA. He also said that “those insurers which seek to pay valid claims rapidly look with frustration at the small minority of competitors which make a business of not doing so.”
Closing the second reading debate – there is no vote at this stage – the Minister simply said that late payment of claims was something “which I am sure we will return to in Committee”.
So it is clear that there will be some further discussion around the new remedy of damages for late payment of insurance claims. It seems that there may be further lobbying from the insurance bodies mentioned above. Standing back, it nevertheless looks likely that this new remedy will be enacted, given the Government’s backing. Assuming it does, it will be important to note that entitlement to damages for late payment will take effect at a later date than the main provisions of the Insurance Act 2015. Those take effect from August 2016, but the new remedy will not be in force until one year after the current Enterprise Bill is passed in Parliament.
Finally, although the Bill allows insurers the option of contracting out for liability for damages for late payment of claims (other than in the case of deliberate or reckless late payment), doing so could, as Lord Flight noted “be a commercial non-starter, especially in soft market conditions.”
About the Author
Alistair 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).