Insurance claims – time to pay up? Insurers are required to pay within a “reasonable” time

19-08-2021


One of the most common complaints made about insurers (rightly or wrongly) is that they take too long to pay out under an insurance policy after a claim has been made.  Historically, there was no express legal obligation to pay insurance claims within a specific timeframe, and so legislation was introduced to address this perceived problem.

Contractual obligation to pay within a “reasonable time”

The Enterprise Act 2016 made it an implied term of every insurance contract (taken out since 4 May 2017) that the insurer must pay any sums due in respect of an insurance claim within a “reasonable time”.  Of course, what constitutes a “reasonable time” will depend on the specific facts of each claim, and will include factors such as the size and complexity of the claim, and the type of insurance involved.

The insurer will also always be permitted reasonable time to investigate and assess the claim before any payment is required, and if the insurer can show that there were reasonable grounds for disputing some or all of the insurance claim, then that will also be taken into account when assessing what constitutes a “reasonable time” for payment in that specific case.

Additional insurance claims against insurers for late payment

Importantly, if an insurer breaches the implied term to pay an insurance claim within a “reasonable time”, the policyholder will be entitled to claim not only the sum due under the insurance policy (together with accrued interest on that sum), but also damages for any foreseeable losses suffered as a result of the insurer’s late payment.  This means that, for the first time, a policyholder can potentially pursue a breach of contract claim against an insurer for loss of profits and other consequential damages that it suffered as a result of the insurer’s failure to pay the insurance claim within a “reasonable time”.

Any such additional claims for damage for late payment must be brought within one year of the date of the insurer’s (late) payment of the insurance claim.

Are there exceptions with insurance claims?

Although the default position is that a term requiring payment within a “reasonable time” is now implied into every insurance contract, it is possible to contract out of these provisions by mutual consent in non-consumer insurance contracts, provided that the relevant transparency requirements are met.  These include requirements that the insurer must have drawn the disadvantageous term to the insured’s attention before the insurance contract is entered into, and that the effect of the disadvantageous term must be clear and unambiguous.  When assessing whether these requirements have been met, the characteristics of the insured party and the circumstances of the specific insurance transaction will be taken into account.

It is not, however, possible to contract out of these provisions if the policyholder is a consumer, nor is it possible in a non-consumer insurance contract to exclude the insurer’s liability in relation to any “deliberate or reckless” breaches of the implied term regarding late payment.

Recent insurance law reforms

The last few years have seen arguably the biggest overhaul of insurance legislation in a generation, as not only has the Enterprise Act 2016 enabled policyholders to bring claims against insurers for late payment of insurance claims, but also:

While nearly all insurance disputes will still be decided on their own specific facts and policy terms, the overall effect of these recent statutory reforms seems to have been to shift the balance of power in insurance contracts away from the insurers and more towards the policyholders.

For more information on this or any other issue relating to insurance disputes, please contact Michael Axe by emailing Michael or by calling him on +44 (0)1628 502448.

This article is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this article.


Michael Axe

Senior Associate
Commercial Disputes

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