Successfully negotiating claims
It has been – in our opinion – a major injustice in insurance law that delays in settling or investigating a claim or in its general handling have left no remedy for the policyholder except to sue for interest. This is a departure from the general law of contract where the damages for breach are those that should have been reasonably foreseeable to the contracting parties, when the contract was made, as a consequence of the breach.
The legal fiction that an insurance policy was a contract for debt and therefore only actionable for interest on the debt was reinforced by the 1999 case of Sprung v Royal. This left stranded such policyholders as:
- Those who were forced out of business with cash flow problems where insurers had failed to make interim BI payments in reasonable time
- Those unable to make PAYE or VAT payments on time when cash was denied for a valid claim
- Those incurring heavy loan charges to meet obligations while a claim made unnecessarily slow progress.
The draft bill for the Insurance Act 2015 included a clause making insurers liable under the principles of general contract law for unreasonable delays, but this was struck out under industry pressure, though subject to a provision that the Law Commissions would review that decision in due course.
Due course has now arrived in the form of the Enterprise Bill 2015 – one of its objectives is to reduce “the risk of business failure following catastrophic events such as fires and floods” – published last month. This aims to reinstate the remedies removed from the draft Insurance Act 2015 with a clear provision giving policyholders largely the same rights as they would have for breach of any other sort of contract.
The Bill is going through its House of Lords readings and committee stage, after which the Commons will put it through its procedures. We at Commercial Claims Solutions will be closely following its journey, as we see this as one of the most important reforms of insurance law in years.