Delayed Insurance Payouts: new damages claim available

Both businesses and individuals may now claim damages for an unreasonable delay on the part of the insurer in paying out insurance claims. We look at the new right that came into effect in May.

Where a valid insurance claim is made, the claimant – whether an individual or a business – may be heavily reliant on the funds due under their policy to, for instance, carry out the necessary repairs or redecoration, to replace a vehicle, or rent an alternative office space. If the insurer delays in paying out following a claim, the claimant can be put in a potentially precarious position financially. Businesses can go under while they are waiting for insurance pay outs.

In May 2017, the Enterprise Act 2016 came into force. Under this Act, a term that insurers will pay claims within a reasonable amount of time will be implied into every insurance contract, including reinsurance contracts entered into from 4 May. This means that the insured under every policy will have the right to damages in addition to the insurance claim itself, if there is an unreasonable delay in paying the claim.

Whilst the new law should help insurance companies streamline their claims handling procedures to avoid delays, the question is: what time delay could be treated as ‘reasonable’ so that damages cannot be claimed?

The 2016 Act states that this depends on all the relevant circumstances, and cites the following as 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

If the insurer believes there are reasonable grounds to dispute a claim, it will not be in breach of the implied term whilst that dispute is ongoing. However, the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached.

To establish a claim, the insured must prove actual loss which was foreseeable at the time of entering into the contract; that the loss resulted from the failure to pay; and the insured took reasonable steps to mitigate its loss.

Can the implied term be excluded?
An insurer can exclude the term if it is a commercial contract so long as it is ‘transparent’. However, it cannot be excluded if a breach of the implied term is deliberate or reckless. In other words, a business cannot exclude the term for the mere purpose of deliberately ignoring the new rights of policy holders.



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