Enterprise Bill 2015: Latest update
The Enterprise Bill, which, if enacted, would give policyholders a right to damages for late payment of claims, started its legislative journey when it was introduced into the House of Lords on 16 September 2015. See our previous briefing note for full details.
A set of specific amendments to the late payment provisions of the Enterprise Bill were tabled during the Bill’s Committee Stage on 2 November 2015, but ultimately withdrawn or not moved following debate. Most notably, these amendments had sought specifically to exclude contracts in relation to “large risks” (adopting the EU’s definition of that term) and contracts of reinsurance from the late payment provisions.
Two further proposed amendments have recently been introduced for debate during the Report Stage of the Bill in the House of Lords, which took place on 25 November.
Amendment 61- legal professional privilege
Under the provisions of the Enterprise Bill, insurers may have a defence to a claim for failure to pay a claim in time if it is shown they acted reasonably, and we questioned in our first Briefing Note whether taking legal advice might assist insurers in demonstrating that they had acted reasonably. There has been concern in the market, particularly the LMA, as to whether this would lead insurers into having to disclose documents which might be subject to legal professional privilege. It was felt that the new cause of action could be open to abuse if the insurer was unable to assert the fact that it sought, obtained and relied on legal advice, without risking waiver of privilege. This could be used, as discussed in the House of Lords, to flush out the insurer’s confidential advice, which could then be deployed to the insurer’s disadvantage in settlement negotiations.
Amendment 61 was introduced to deal with this problem; it read as follows:
It shall be open to the insurer to adduce evidence of the fact that it sought and obtained legal advice to the effect that it had reasonable grounds for disputing the claim without thereby generally waiving privilege in the substance or content of the legal advice it received.
The amendment was withdrawn, but only after an interesting discussion in the House of Lords and consideration of an opinion that had been obtained from Colin Edelman QC and Richard Harrison as to the Bill. It was pointed out that legal privilege is a complex topic which has been developed over the years by the courts and should not be singled out and changed in a specific context without very good reason. The Government’s view is that the question whether an insurer has reasonable grounds for disputing a claim should be an objective one, based on the substance of the grounds themselves, rather than a subjective one (as had been suggested by counsel’s opinion). If insurers refuse to make the content of their legal advice public, they must set out other grounds for any delay without relying on their legal opinion. That should be sufficient for the courts to assess, objectively, whether the grounds for delay were reasonable in the circumstances.
Lord Lea of Crondall, opposing the amendment, was vehement in his criticism of the fact that the late payment provisions had not passed through as “non-controversial” with the rest of the Insurance Act 2015, and said that he found it “extraordinary” that Lloyd’s had effectively had a veto over what Parliament could do. He also said that it was a “preposterous supposition” that dealing with late payment of claims would destroy the competitiveness of the London market.
Amendment 62 – limitation period for bringing late payment claims
Under the proposals, claims have to be paid within a “reasonable” time. This obviously raises issues, which were recognised by the Law Commission, as to the limitation period for bringing a claim for late payment and Amendment 62 was moved to introduce a greater degree of certainly (the same issues arise under Section 150 of FSMA 2000). Amendment 62 was also designed to introduce greater certainty for insurers for reserving purposes.
“An Action founded on a breach of the term implied by section 13A(1) of the Insurance Act 2015[i] shall not be brought –
(a) After the expiration of one year from the date on which the insurer made the payment or, if the insurer has made more than one payment, the final payment of the indemnity in respect of which the breach is alleged; or
(b) If earlier, after the expiration of six years from the date on which the cause of action for breach of the term implied accrued”.
The Amendment was ultimately not moved, although a number of the Lords taking part in the discussion made it clear that they had more sympathy for this amendment than for Amendment 61. The Law Commission had considered recommending a special limitation period in respect of late payment of claims but had decided that this was not the right way forward and that it was more consistent to recommend the application of general limitation laws. Notwithstanding this, the Lords taking part in the debate appear to have concluded that Amendment 62 “at least deserves further consideration”.
The report stage of the Enterprise Bill is to continue on 30 November, when other provisions of the Bill are to be considered. Following its Third Reading (on a date yet to be fixed) the Bill will move to the House of Commons for consideration.
DWF will continue to report on the Bill’s progress.
[i] It will be recalled the Enterprise Bill seeks to insert late payment provisions into the Insurance Act as section 13A
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.