The government is planning to let companies sue for damages for late payment of insurance claims. At present insurers have no legal obligation to pay claims in a reasonable time. Now measures proposed in the Enterprise Bill, will ‘introduce into every contract of insurance a requirement on the insurer to pay sums due within a reasonable time’.
The Bill states that insurers will still be able to delay payment to fully investigate and assess a claim. No fixed timeframes are proposed by the Bill, which could cause disputes between insurers and policy holders about what is a ‘reasonable’ time for payment. To claim damages a policyholder will have to prove that:
- it has a valid claim
- the insurer is responsible for unreasonable delay
- the policyholder has suffered actual loss
- the loss was caused by the unreasonable delay
- the loss was foreseeable
- the policyholder took all reasonable steps to mitigate its loss
The Bill will allow insurers to contract out of the rules for non-consumer insurance contracts, provided that they satisfy the transparency requirements set out in the Insurance Act 2015.
“Late payment is a major problem for businesses,” said the Department for Business, Innovation & Skills. “Where a business has suffered a loss such a fire or flood, it is likely to rely heavily on insurance. Any unnecessary delay in payment can have significant impacts on a business’ ability to continue or re-start trading after an insured loss. The law should incentivise insurers to pay as promptly as is reasonable, and give policyholders a legal right to enforce this.”
Most professional indemnity insurers pay claims promptly according to James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “At Brunel, our claims team works hard to make sure that our clients’ claims are paid promptly and in full. Delays usually only occur if an insurer wants to investigate the circumstances more fully. These proposals will give policyholders more power to demand payment if these delays become unreasonable.”
The proposals are expected to come into force for new contracts of insurance one year after the Enterprise Bill becomes law. News of the proposal has been reported by Insurance Times and solicitors DWF. The Government has published a factsheet on the measure.