Now in force – floodgates opened? Implied term of reasonable expedition in paying out under insurance contracts

Section 28 of the Enterprise Act 2016 amends the Insurance Act 2015 so as to insert a section 13A. This introduces a new implied term into all insurance and reinsurance contracts entered into on or after 4 May 2017, requiring insurers to meet claims within a ‘reasonable time’ unless there are reasonable grounds for disputing them and thus allowing policyholders to bring claims for damages for breach of the same.

The new provision reads as follows:

 “28 Insurance contracts: implied term about payment of claims

 (1)After section 13 of the Insurance Act 2015 (remedies for fraudulent claims: group insurance) insert—

 “PART 4A Late payment of claims

 13A Implied term about payment of claims

 (1) 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.

 (2) A reasonable time includes a reasonable time to investigate and assess the claim.

 (3) What is reasonable will depend on all the relevant circumstances, but the following are examples of things which may need to be taken into account—

(a) the type of insurance,

(b) the size and complexity of the claim,

(c) compliance with any relevant statutory or regulatory rules or guidance,

(d) factors outside the insurer’s control.

(4) If the insurer shows that there were reasonable grounds for disputing the claim (whether as to the amount of any sum payable, or as to whether anything at all is payable)—

(a) the insurer does not breach the term implied by subsection merely by failing to pay the claim (or the affected part of it) while the dispute is continuing, but

(b) the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.

 (5) Remedies (for example, damages) available for breach of the term implied by subsection are in addition to and distinct from—

(a) any right to enforce payment of the sums due, and

(b) any right to interest on those sums (whether under the contract, under another enactment, at the court’s discretion or otherwise).”

 “(2) In section 22 of that Act (application etc of Parts 2 to 5), after subsection (3) insert—

“(3A) Part 4A applies only in relation to contracts of insurance entered into after that Part has come into force, and variations to such contracts.”        ”

Whether this will open the floodgates to a new class of litigation or not will no doubt be seen in due course. Commentators thus far have differing prospective opinions as to whether this provision is likely to give rise to numerous claims from policy holders disgruntled by the tarrying of insurers or be used sparingly in circumstances of unreasonable delay causing significant personal losses.