Insurance brokers are probably unaware of a profound change to their liabilities when the Enterprise Act 2016 comes into force next year.
For the first time, insurers are going to be required to pay claims within a ‘reasonable time’ under the terms of any policy contract entered into after 4 May. So far, so good. But so what exactly?
The word ‘reasonable’ is one of the most open to interpretation in the English language, and is calculated to be so in legislation. And that means caution is needed. Historically, insurers had no obligation whatsoever to pay valid insurance claims within any particular time frame. Soon they must.
All that we know is that the Court will in future be taking into account: the type of insurance; the size and complexity of the claim; factors outside the insurer’s control; and compliance with relevant statutory and regulatory rules or guidance.
Every contract of insurance will have an implied term that the insurer must pay a claim within a ‘reasonable time’, including a ‘reasonable time’ to investigate and assess the claim.
This will matter for brokers. When meeting with their clients after suffering a loss, it will be prudent for a broker to discuss with the insured the potential effects of late payment of the claim, and for the broker to write to the insurer highlighting the potential losses the insured could suffer if there was a delay in paying their claim.
The Act will mean that brokers and insurers will need to be seen to be proactive in handling claims, which is not necessary at the moment, or risk legal ramifications.
The conduct of their claims handlers and loss adjusters is also likely to come under further scrutiny; and they may have to be called to give evidence to justify the delays if disputes come to trial.
Brokers should also check the terms agreed by their commercial policy holders carefully to establish whether the insurance company has attempted to contract out of these provisions, and advise clients of the repercussions if they agree.
Under the changes, an insured party that believes payment has not been made in a ‘reasonable time’ can seek damages, although will have to demonstrate that the losses suffered as a result of the delay were reasonably forseeable,.
For some, none of this will apply. But it remains to be seen how widespread contracting out, which will be permitted for non-consumer insurance policies, will be in practice. An insurance broker should consider whether doing so:
- Is a potential breach of the “treating customers fairly” principle.
- Means the insurer would be expressly requesting a right not to pay valid claims within a reasonable time period.
- Has obtained the insured’s consent.
There is plenty for brokers to get to grips with between now and May. But one thing is clear: They must make themselves aware of the implications of the Enterprise Act in order to advise policyholders appropriately. It may save them from legal trouble down the road.
The author of this article is a Partner at Healys LLP and Fellow of the Chartered Insurance Institute, with significant experience in advising clients involved in complex and high value insurance litigation. For advice and information in relation to the issues set out in this article, please contact firstname.lastname@example.org.