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Better deal for insurance claimants

The 2015 Insurance Act, which introduced major changes to insurance laws – notably strengthening insurers’ remedies for fraudulent claims – was followed by the Enterprise Act 2016. Its provisions, which become law in 2017, are set to assist honest policyholders – but conditions do apply.

The Act will retrospectively insert a clause in the 2015 Insurance Act to allow insurance policyholders to claim damages from their insurers for foreseeable losses incurred by the failure to pay valid claims within a reasonable time, or at all. This will create a formerly-absent implied term in every insurance contract to the effect that every insurer must pay sums due on a claim within a reasonable time.

The legislation is intended to end the type of injustice suffered by case study subject Mr Sprung, whose insurer withheld payment to settle his factory vandalism claim for more than three years without justification. This caused Mr Sprung’s business to fail, but he was declared (by a very reluctant court) to be legally unable to make any claim against the insurer for its loss, as no requirement for the insurer to pay a claim within a reasonable time was in force.

The new regime will open a route to bring relief to consumers and, more particularly, Britain’s 5.4 million businesses, whose sole current remedy for late claim settlement receipt is to seek payment of interest from an insurer on a delayed claim settlement.

A ‘reasonable time period’ will be classified within each individual claim’s context and is likely to take into account its size and complexity, the nature of the affected business, additional rules governing treatment of customers and clients and any factors beyond the insurer’s control which arise while the claim is being processed.

If an insurer has justifiable grounds to dispute an insurance claim and withhold payment until investigation and assessment are concluded, this forms a potential defence to any action for loss caused by delay. However, this effectively creates an enhanced implicit duty on the insurer to communicate complications and concerns quickly and clearly to an insured party to conclude the claim. The insured must act reciprocally.

It is crucial to note that insurers are able to contract out of the implied late payment loss claim terms when agreeing business insurance contracts (but cannot exclude it from consumer insurance contracts). The Insurance Act 2015 requires any intention to do so – and provision for contracting out – to be clear and transparent.

However, contracting out of the implied term’s operation is not permissible where an insurer deliberately fails to pay an insured party within a reasonable time, or is indifferent about its breach of the obligation to do so.

Amendments to the Limitation Act 1980 will require late payment loss actions against insurers to be brought with one year of the date of the insurer’s settlement of a claim that is considered to be delayed.

If an insurer refuses to pay out a valid claim, the usual six year limitation period will apply.

The new legislation will undoubtedly aid businesses across the UK from August 2017, but potential pitfalls still exist – and there is an increased onus on the policyholder to provide more detailed information when an insurance proposal is being formulated.

All businesses – especially those with continuity and business critical operations insurance – need to be particularly vigilant for insertion of an insurer’s contracting-out clause.

In the future, as in the present, seeking professional advice before signing any agreement is advisable.

Burton & Dyson can advise you on all aspects of business insurance including policy cover requirements based on fully evaluated risk disclosure.

We can help you to assess foreseeable loss that would constitute a potential claim in the event of late payment.

We are able to review insurance contracts to ensure these provide maximum protection for you and your business and do not contain prejudicial terms, particularly contracting out provision.

We will deal quickly and efficiently with your claims against insurers and act to recover any losses you might sustain as the result of late payment that may affect you, your business and your family.

For more information, please contact: Lisa Whitelam at or call 01427 610761.