As discussed in our earlier article Insurance claims – time to pay up? Insurers are required 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”. However, the Act did not define what would constitute a “reasonable time”, as this will depend on the specific facts of each claim, including factors such as the size and complexity of the claim, and the type of insurance involved.
The High Court has now heard the first reported case on the interpretation of these late payment provisions under The Enterprise Act 2016, and so we now have a little more practical guidance on how the Courts will approach this question.
Quadra Commodities SA v XL Insurance Company SE & others
In the case of Quadra Commodities SA v XL Insurance Company SE & others  EWHC 431 (Comm), it came to light in 2019 that the insured had been the victim of a complex fraud, and so an insurance claim was notified to its insurers in February 2019. The insurer rejected the claim for a number of reasons, largely relating to the assertion that the losses suffered fell outside of the scope of the particular insurance policy.
As well as disputing the rejection of the insurance claim, the insured also brought a claim against the insurer for damages under the Act, for breach of the implied term to pay the insurance claim within a “reasonable time”.
The High Court’s approach
The High Court clarified that the burden of proof fell on different parties in relation to different assertions; specifically, the burden was on the insurer to prove that it had reasonable grounds for rejecting the insurance claim, but the burden was on the insured to prove that the payment was made after a “reasonable time” for payment had elapsed.
The Court referred to the non-exhaustive list of factors contained in the Act itself which might be relevant when considering whether the insurer has acted within a “reasonable time”, as well as the further guidance given in the Explanatory Notes to the Act. Taking all of that into account, the Court ruled that in light of the complicating circumstances of the insurance claim (including the fact that the fraudulent parties would have concealed details and destroyed documents), a period of around one year from the original notice would be a “reasonable time” for the insurer to have investigated, evaluated and paid the claim.
Of course, that timescale was based on the “hypothetical” premise that there were not reasonable grounds for the insurer to have disputed the insurance claim (which was an issue considered separately by the Court). On that second point, the Court confirmed that even if the Court ultimately found that the insurer’s grounds for disputing an insurance claim were wrong, that did not mean that those grounds had been “unreasonable”.
In this specific case, the Court concluded that although the insurer’s grounds for disputing the insurance claim had been wrong (and so the insurance claim should have been accepted), the grounds had not been “unreasonable”. Therefore, although it could be said that the insurer had conducted its investigation too slowly, because any such delays occurred during the period in which the insurer had “reasonable” grounds for disputing the insurance claim, there was no breach of the implied term to pay the insurance claim within a “reasonable time”.
Are things any clearer now?
As with so many insurance disputes, the decision reached by the High Court in this case was very fact-specific, and so care needs to be taken when attempting to apply the judgment more widely.
That said, the fact that the insured in this case was unsuccessful in its claim for breach of the implied term to pay the insurance claim within a “reasonable time” (even though it was successful in its underlying insurance claim) highlights how difficult it may be to successfully pursue a claim for failure to pay within a “reasonable time” if the insurer can show that it had “reasonable” (even if wrong) grounds for disputing the insurance claim.
On the other hand, policyholders are likely to welcome the Court’s confirmation that, where there are not “reasonable” grounds for the insurer to dispute the insurance claim, a period of around one year from the original notice is likely to be a “reasonable time” for the insurer to have investigated, evaluated and paid the claim.
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.