Insurers to be liable for damages caused by late payment of claims

As a result of a recent review of insurance contract law,the Law Commission have proposed introducing a statutory duty on insurers topay valid claims after “a reasonable time”. Under current law in England andWales (in contrast to the position in Scotland) the insurer is not liable forloss caused by delay or failure to pay a valid claim. The Law Commissions notethat this is at odds with the position in other areas of law.

The Law Commissions believe there is general support forreform in this area but accept that any change in the law should not preventinsurers from investigating claims fully. It is proposed that the definition ofwhat is “a reasonable time” should include sufficient time for fullinvestigation and assessment of the loss and that the insurer’s time toinvestigate should only begin on receipt of a “clean claim” which is defined asbeing “once the insured has provided all material information”.

The Law Commissions’ thinking has implications for the lawof limitation in relation to insurance contracts in England and Wales inparticular. The Law Commissions’ proposal is that the law should be changed so thatthe limitation period starts to run following the expiry of a reasonable timeafter receipt by the insurer of a “clean claim”.

In business insurance (but not consumer insurance) theparties would be able to agree to limit or exclude the insurer’s liability topay damages for late payment.

If you would like to respond to the Law Commission on theabove, you can email commercialandcommon@lawcommission.gsi.gov.uk or write toChristina Sparks, Law Commission, Steel House, 11 Tothill Street, London SW1H 9LJ.

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