By Samantha Holland, partner at the international law firm, Gowling WLG
On 4 May 2017, the Enterprise Act 2016 inserts new provisions into the Insurance Act 2015 which will imply a term relating to the payment of insurance claims into every contract of insurance. Here are the key points you need to know.
Which contracts are affected?
Every contract of insurance entered into or varied on or after 4 May 2017.
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What is the key provision?
New s13A of the Insurance Act 2015 implies a term into every insurance contract that where an insured makes a claim under an insurance contract, the insurer must pay any sums due within a reasonable time.
Why is s13A Insurance Act 2015 important?
This is a new right for insureds – if insurers are found to be in breach of s13A, the insured will in principle be entitled to damages in addition to any interest claim and the right to enforce payment.
This is a change in the law as prior to s13A coming into effect, the insured has been limited to claiming interest where insurers were in delay in making payment under the insurance policy.
Can insurers contract out of s13A?
Contracting out of s13A is only possible in non-consumer insurance contracts and only where:
- the breach by insurers (ie the delay in payment) is not deliberate or reckless; and
- the insurers have satisfied “the transparency requirements” set out in s17 Insurance Act 2015.
In summary, the transparency requirements provide that the “disadvantageous term” much be clear and unambiguous, and that insurers must take “sufficient steps” to bring the term to the insured’s attention before the contract or variation is finalised.
S13A provides that claim payments due must be paid “within a reasonable time” – what is a “reasonable time”?
S13A(3) states that what is “reasonable” will depend on all the relevant circumstances and then gives examples of points that may need to be taken into account when considering what is a reasonable time for payment. The factors listed are in summary:
- the class of insurance;
- size and complexity of the claim;
- relevant statutory or regulatory rules; and
- matters outside the insurers’ control.
It is clear therefore that any claims by insureds under s13A will be dealt with on a case by case basis, depending on the particular facts surrounding the insurance claim and its handling by insurers.
What if insurers are disputing the insurance claim and payment is not made pending resolution of that dispute – what effect will s13A have in those circumstances?
Insurers will not be in breach of s13A where there are reasonable grounds for disputing the insurance claim in terms of liability or quantum. If this situation arises, the conduct of the insurers in handling the claim under the policy may be a relevant factor.
Is there a cut-off date for claims by insureds under s13A?
Yes – the Enterprise Act 2015 inserts a new s5A of the Limitation Act 1980 providing that claims under s13A must be made within one year of payment of the insurance claim by insurers.
What does s13A mean for insurers practically?
Various practical steps can be taken to limit insurers’ potential exposure under s13A:
- Ensure that efficient claims handling processes are in place so that claim payments due are not delayed
- Consider setting up automatic reminders for each claim to be reviewed if this is not already in place
- Review internal processes for recording steps taken during the claims handling process
By doing this, you can both ensure that payments are not unnecessarily delayed and be in a position to prove that payments have been made “within a reasonable time”.