On 4 May 2016, the Enterprise Act 2016 received Royal Assent. Part 5 of the Act sets out an implied term in every contract of insurance (and reinsurance contracts) that an insurer must pay sums within a ‘reasonable time’ when they are due.
Failure to do so will entitle policyholders to claim damages suffered if the insurer’s unreasonable delay caused additional loss.
Exactly what ‘reasonable time’ is has not been defined. However, when determining whether the insurer has made payment within reasonable time, it will be assessed upon: the size and complexity of the claim; the type of insurance; compliance with any relevant statutory or regulatory rules or guidance; and the extent to which relevant factors are outside the insurer's control.
For a policyholder to be successful in this type of claim, the usual tests of causation will have to be satisfied. The burden will be on the policyholder to prove that, on the balance of probabilities, any additional loss suffered was due to the insurer's breach of the implied term.
The late payment provisions will take effect from 4 May 2017 and will only apply to insurance contracts entered into on or after that date.