Insurers will have to pay insurance claims within a ‘reasonable time’ or face claims for damages under new legislation. The Enterprise Act, which received Royal Assent on 4 May 2016, has inserted new terms into the Insurance Act 2015. These add an implied term into all insurance contracts which means that insurers must pay claims promptly. The new provisions will come into force on 4 May 2017.
The Act gives some guidance about what amounts to a ‘reasonable time’, but is likely to be open to debate between parties when there is a dispute. The time allowed depends on: the type of insurance, the size and complexity of the claim, compliance with regulatory rules and the impact of factors which are outside the insurer’s control.
Insurers will also be able to justify a delay if there are reasonable grounds for disputing some or all of the claim. They may also have a defence if they can show that they acted reasonably when a claim is disputed, even if they were wrong in refusing to pay the claim.
The Act says that claims for damages for late payment must be made within one year of the full settlement of the insurance claim. In other cases the usual six year limitation period applies.
Insurers may be able to contract out of the implied late payment term in limited circumstances.
“We have always worked hard on behalf of our clients to ensure prompt payment of valid insurance claims,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “Most insurers are very good at settling legitimate claims. However, we expect these new rules will mean that insurers will act more proactively when there are complex or disputed claims, to make sure that they are not accused of unreasonable delays.”