Up until 4 May 2017, where insurance contracts were made under the laws of England & Wales, Scotland or Northern Ireland, insurers were under no obligation to pay claims within a reasonable time unless an insured had specifically negotiated that term into an insurance contract.
Many insurers will have suffered losses from long delays in claim settlement and for property owners and operators this has led to the inability to repair, reinstate and continue developing their real estate assets. Timing can be particularly critical in development projects, where ability to get back on site or back on schedule may be critical.
Pursuant to the Enterprise Act 2016, which came into force last month, section 13A of the Act requires insurers to pay the insured within a reasonable time of their claim and if they do not, they may be liable to pay contractual damages to the insured.
The concept of reasonable time will be construed to include enough time to investigate and assess the claim. What is reasonable will depend on:
the circumstances of the claim;
the type of insurance;
the size and complexity of the claim;
any statutory or regulatory guidelines; and
any factors which are outside the insurer's control.
Insurers will, however, be able to contract out of the implied term to pay claims within a reasonable time. The real estate market should be aware that section 16A of the Act allows parties to non-consumer insurance contracts to contract out of the term provided that the insurer is transparent about the contracting out position and that the breach of the implied term is not deliberate or reckless.
Any claims related to late settlement will need to be brought within one year of the date the insurer made full payment or settled the claim.
The onus is now on claims handlers to settle claims efficiently and insured lenders and real estate operators will be able to exert pressure to insist that claims are being dealt with in accordance with the Enterprise Act 2016.
Insurers will need to keep good records of any losses which they may suffer in the event of late payment and should promptly respond to insurer's requests for information on the claim to ensure any losses are mitigated.
Most importantly, the real estate market and lenders in the market need to take care to ensure that this opportunity is not swiftly lost as a result of apathy. The insured parties should resist allowing the insurers to dictate a trend in market practice of contracting out of S13A. Lenders and their insurance advisors should be taking care over the coming months to preserve this positive hand being dealt to them by the change in the law.
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