Enterprise Act gives policyholders new rights for late payment of claims

The Enterprise Act has received Royal Assent, bringing in a series of reforms including the right of policyholders to claim damages for the late payment of insurance claims.

The change, which was championed by Airmic with strong support from the insurance governance specialists Mactavish, was initially resisted by some sections of the London market. The provisions come into effect on 4 May 2017, and will apply to every insurance policy that comes into force after that date. Damages for late payment are not currently recoverable under English law.

The Act introduces an implied term into every insurance contract that "the insurer must pay any sums due in respect of the claim within a reasonable time". Whilst not defining "reasonable", it says certain factors will have to be taken into account, including the type of insurance, size and complexity of the claim, compliance with relevant statutory or regulatory rules or guidance and factors outside the insurer's control.

According to law firm Herbert Smith Freehills LLP, the Act is likely to change the dynamics of claims negotiations between insurers and their policyholders, even though they do not see a flood of cases seeking damages for late payment.

Airmic plans to offer guidance to members on how to respond to the Act nearer the date of its implementation.