The Insurance Act 2015, Section 13A provides:
‘(1) It is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time.
(2) A reasonable time includes a reasonable time to investigate and assess the claim.
(3) What is reasonable will depend on all the relevant circumstances, but the following are examples of things which may need to be taken into account—
(a) the type of insurance,
(b) the size and complexity of the claim,
(c) compliance with any relevant statutory or regulatory rules or guidance,
(d) factors outside the insurer’s control.
(4) If the insurer shows that there were reasonable grounds for disputing the claim (whether as to the amount of any sum payable, or as to whether anything at all is payable)—
(a) the insurer does not breach the term implied by subsection (1) merely by failing to pay the claim (or the affected part of it) while the dispute is continuing, but
(b) the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.
(5) Remedies (for example, damages) available for breach of the term implied by subsection (1) are in addition to and distinct from—
(a) any right to enforce payment of the sums due, and
(b) any right to interest on those sums (whether under the contract, under another enactment, at the court’s discretion or otherwise).’
It is therefore an implied term of an insurance contract that a valid claim will be paid within a reasonable time following notification of loss, including any consequential loss that is not too remote, e.g. loss of use.
Where prima facie, a valid claim has been properly notified, unless the insurance company can prove that Section 13A(4) of the Insurance Act is engaged, then by parity of reasoning, they are liable for breach of contract in refusing indemnity, because they have no technical defence to breach of Section 13A(1) of the Insurance Act 2015, and in these circumstances, it is axiomatic that a refusal of indemnity is a material breach of Contract. That is because a contract of insurance is a contract of indemnity.
In other words, in proceedings where breach of s.13A has been alleged, the onus of proof will shift to the insurance company to prove that there were reasonable grounds for disputing the claim. If the insurance company cannot discharge the burden of proof at trial on that issue, unless grounds exist for vitiating the contract, their defence to the entire claim will fail.
In which case, in addition to damages and interest, an order for costs to be awarded against the Defendant insurers on the indemnity basis, may reasonably be sought where the court finds that insurers did not have:
- a valid ground for disputing the claim; and
- any reason to believe that the claim was invalid, i.e. because they were incompetent in their investigation of the claim and in consequence had proceeded upon a false assumption, or e.g. by refusing to comply with a pre-action protocol, had behaved with cynicism, in material breach of the CPR.
This issue has arisen in a commercial case in which I am appearing for the claimant.