The Enterprise Act came into force on 4th May 2016. On the day of its assent, Business Secretary Sajid Javid said:
“The Enterprise Act will help deliver the growth and security that benefits every single person in the country. It is proof that this government is delivering on its commitment to back the business owners who are the real heroes of our economic recovery.”
Certain sections of the Enterprise Act 2016 are extremely relevant to the insurance sector. Provisions contained in sections 28 -30, which come into force from 4th May 2017, amend various sections of the Insurance Act 2015. All insurance contracts entered into from May 2017 onwards will be subject to the new provisions.
Claiming for late payment of insurance claims
Under a new section 13A of the Insurance Act 2015, insurers will be required to pay sums due under a valid insurance claim in a reasonable time. If they do not, the insured party will be able to claim damages for losses suffered.
This fundamental change to the law was originally meant to appear in the Insurance Act 2015; however, it was removed because it was considered so controversial.
An unfair oddity of English law
It seems extraordinary that insurance companies are permitted to withhold payment, sometimes for years, and insured parties with valid claims are entitled to no form of redress. Many businesses have gone to the wall following a delayed insurance payment which meant they could not rebuild premises or restock supplies required to service clients.
In normal contract law, if one party breaches a contract, the other can generally claim damages for any actual loss caused by the breach, provided the loss was foreseeable at the time the contract was made.
But insurance has always been a special case. This is because (as illustrated by Sprung v Royal Insurance (UK) Ltd  1 Lloyd's Rep IR 111) an insurers liability is based on a legal fiction that the insurer has promised to keep the insured safe from harm. If harm does occur, the insurer has breached that promise and is liable to pay the amount of the claim as damages. And herein lies the crunch – because English law does not recognise an obligation to pay damages for a failure to pay damages, an insured party has always been unable to seek redress through the courts if payment on an insurance claim is late, regardless of the harm this causes.
Support for the change
The correction of this unfair legal precedent by Parliament has been welcomed by the insurance industry. Graeme Trudgill; BIBA Executive Director stated;
“As well as being potentially good news for insurance brokers, this new law benefits their business customers too, particularly because of the change to the Insurance Act 2015 to include damages for the late payment of claims which BIBA lobbied for. This is a piece of legislation that we support and which we see as a major economic stimulant.”
Insurers and brokers now have a year to scrutinise their claims procedures and establish more streamlined systems if required, to ensure claim payments are handled promptly. This will benefit all parties to an insurance claim; the insured can guarantee a reasonably quick payout so they can move on and rebuild their business, and insurers will protect themselves from potential legal action.
Fisher Scoggins Waters are a London based law firm who are experts in construction, manufacturing and engineering law. If you would like more information about claiming damage for a late insurance payout, please phone us on 0207 993 6960.