The latest consultation on this Bill consults upon two clauses that would see some conditions precedent and similar policy terms watered down and damages become an available remedy for late payment of an insurance claim.
HM Treasury consults upon clauses 11 and 14 of the Bill.
Clause 11 concerns terms which are designed to reduce the risk of a particular type of loss, or the risk of loss at a particular time and in a particular way. In the event of breach, the insurer’s liability will only be excluded for that type of loss, or at that particular time or place. An example given is breach of a condition that a building must have a night watchman. The insurer would not be liable for losses at night, while a watchman should be present. A direct causal link is not required between the breach and the ultimate loss.
Clause 14 implies an obligation into all contracts of insurance upon the insurer to pay valid insurance claims within a reasonable time. What is a “reasonable time” is clarified to include time to investigate and assess the claim and a non-exhaustive list of factors to be considered are given. A defence for insurers is proposed where they had reasonable grounds to dispute the validity or quantum of the claim.
The Law Commission recognises that they are still discussing these draft clauses with stakeholders, outside the consultation. This indicates the far-reaching consequences these proposals could have, if implemented, for the insurance industry. Clause 11 goes beyond warranties and will water down certain conditions precedent and exclusion clauses that insurers have traditionally relied upon. This is a matter the industry clearly needs to consider carefully. The objective of damages being an available remedy for late payment is a worthy one, but the industry also needs to be satisfied its right to properly investigate claims is adequately protected. HM Treasury is seeking responses to the consultation by Wednesday, 2 July 2014.