Late payment of insurance claims: Enterprise Bill update


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Summary: Yesterday, the House of Commons issued a briefing paper as an update on the progress of the Enterprise Bill, which will deal with many things, including late payment of insurance claims. In summary, the Bill is making progress through the House of Commons and the only important change since it was originally published is that claims for late payment must be brought within 1 year of an insured receiving payment of the insurance claim.

The key clause (Section 22) within the draft Bill remains unaltered and reads as follows :

“It is an implied term of every contract of insurance that if the Insured makes a claim under the contract, the Insurer must pay any sums due in respect of the claim within a reasonable time.”

Attempts have been made while the Bill was progressing through the House of Lords, to introduce a “large risks” and reinsurance exclusion by way of amendment to Section 22.

Those in favour of the large risk/reinsurance exclusion, argued that Section 22 in its current form, could add extra claims costs and considerable aggravation to the insurers concerned.  It would make London based insurers less attractive to investment capital and be damaging to the London market.  It was argued that reinsurance contracts and “big risks” over £6 million should be excluded for fear that, without these amendments, big premium business in London could become bogged down with legal processes and the market could move abroad as a result.

The response of the Government was that this section of the Act was the product of years of consideration and there was a preference for a single regime for all non-consumer insurance contracts, avoiding complex and arbitrary boundaries and adding to legal expense.  The Government said that if different rules apply to different types or sizes of business, insurers would have to identify which side of the boundary each prospective policyholder fell before entering into the policy.  It was feared that this would slow down the process and add expense at the placement stage.

The Government also felt that an exclusion for insurance contracts involving a large policyholder (meeting various criteria) would exclude many medium sized businesses from the ambit of the Bill which the Government wanted to avoid.  The specific issue of reinsurance being treated separately appears not to have been fully addressed by the Government.

There is still considerable concern in the market that a late payment clause will create the possibility of speculative litigation and open ended liability for late payment of claims.  However, the Government feels that the imposition of a one year time rule for bringing late payment claims will provide some limit to that issue.


There is still time for the market to seek to persuade the Government of the uniqueness of the reinsurance market and the significant disadvantages of Section 22 to that market.  Reinsurance recoveries, by their very nature, can take longer to consider and it would not be in the interests of that section of the market to have the threat of a Section 22 claim looming over every payment.

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