Part 5: Late Payment of Insurance Claims
The Law Commission and the Scottish Law Commission are undertaking a major review of insurance contract law. Their July 2014 Report, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (Law Com No 353 / Scot Law Com No 238), made recommendations for reform of the law in relation to late payment of insurance claims.
	Under the current law in England and Wales, there is no obligation to pay valid insurance claims within a reasonable time. This is the result of a legal fiction which holds that the insurer’s primary obligation under a contract of indemnity insurance is not to pay money to the policyholder if an insured event occurs but is in fact to prevent the insured event from occurring in the first place.
	In Scotland, however, the court has accepted that there is an implied term that the insurer should assess a claim reasonably quickly and with diligence.
	Both Law Commissions recognised that the position in England and Wales was unexpected and difficult to justify on a policy or legal basis. They recommended that insurers in the UK should be under a legal obligation to pay sums due within a reasonable time, and that a policyholder should have a remedy where an insurer failed to do so.
	The measure in this Act implements the key recommendations made by the Law Commissions on this issue.