Damages for late payment of insurance claims – counting down to 4 May 2017


The Enterprise Act 2016 received royal assent on 4 May 2016. From 4 May 2017, a term will be implied by statute into new policies of insurance, and variations to those policies, that if the insured makes a claim under the policy, the insurer must pay any sums due within a reasonable time. This means that, for the first time, there will be a generally available right to damages in English law for late payment of insurance claims. This is in addition to the right to an indemnity under the policy and any interest. The limitation period for a claim for damages for late payment will be one year from the date of payment of the indemnity by the insurer.

The need for this reform

It is a surprising feature of English insurance law that there is no general right to damages for late payment of an insurance claim. This was recently confirmed in the Supreme Court, in a case about jurisdiction (The Alexandros T). This summary of the law by Longmore LJ[1] was approved by Lord Clarke in the Supreme Court[2]:

As a matter of English law, an insurer commits no breach of contract or duty sounding in damages for failure promptly to pay an insurance claim. The law deems interest on sums due under a policy to be adequate compensation for late payment; this is so, even if an insurer deliberately withholds sums which he knows to be due under a policy, see Sprung v Royal Insurance [1999] Lloyd’s Rep IR 111 approving the decision in The Italia Express (No 2) [1992] 2 Lloyd’s Rep 281. … English law, moreover, gives no separate contractual remedy to an insured who complains that an insurer has misconducted himself before settling a claim. In either case the remedy of the insured is to sue the insurer and, if no settlement is forthcoming, proceed to judgment.

The principle that there is no right to damages at common law for late payment of damages has long been under attack:

  • It was applied with ‘undisguised reluctance’ by the Court of Appeal in Sprung v Royal Insurance (UK) Ltd[3] in 1996.
  • The Court of Appeal granted permission to appeal in 1997 in a case which raised the issue but the appeal was not heard.[4]
  • Rix LJ described it as ‘controversial’ in 2005, and said that if the issue reached the House of Lords the law might be clarified or changed (he nonetheless declined to grant permission to appeal, saying that was a matter for the House of Lords)[5]; he also questioned it in extra-judicial remarks in 2009[6].

In Sempra Metals Ltd v Inland Revenue Commissioners[7], the House of Lords held that the loss suffered as a result of the late payment of money was recoverable at common law, subject to the ordinary rules of remoteness which apply to claims for damages; but the question of whether Sempra might permit a claim for late payment under a contract of insurance remains undecided.

Other possible routes to an award damages for late payment of insurance claims were also blocked: breach of the duty of utmost good faith by insurers does not sound in damages[8]; and an implied term that insurers handle claims with reasonable speed and efficiency was rejected by Mance J in Insurance Corpn of the Channel Islands Ltd v McHugh[9] as neither obvious nor necessary for business efficacy because any such term, if implied, would not apply only in respect of insurers’ conduct, but would have to be mutual, so that the reasonableness of the conduct of each party in the negotiation of the claim would have been subject to review.[10]

There is a statutory cause of action for late payment under a policy of insurance, but this is only of limited application. It arises under ICOBS 8.1.1[11] and ss 150 (former) and 138D (current) of the Financial Services and Markets Act 2000[12]. It is available where the insured is a ‘private person’. This means an individual – not only a consumer – and any person who is not an individual, unless he suffers the loss in question in the course of carrying on business of any kind[13]. The statutory cause of action is separate from the jurisdiction of the Financial Ombudsman Service (‘FOS’), and unlike the FOS, is not subject to a financial limit (the current FOS limit is £150,000). In practice, the statutory cause of action was little-used in insurance cases. It will not be abolished, but will largely cease to have practical importance in relation to late payment of insurance claims when the new right to damages is available.

Which contracts of insurance will be subject to the new implied term?

The Insurance Act 2015 was passed on 12 February 2015 and entered into force on 12 August 2016. This is not the relevant date for the new right to damages: the Enterprise Act 2016 was passed on 4 May 2016, and provides that the provisions in relation to damages for late payment enter into force one year later, on 4 May 2017.[14] The new right to damages for late payment of insurance claims applies only in relation to contracts of insurance entered into on or after 4 May 2017.[15] For policies entered into before that date, the old law continues to apply.

The new implied term

The implied term is introduced by s 13A(1) of the Insurance Act 2015. This provides:

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.

What is ‘a reasonable time’?

It follows from the way that the implied term is expressed in s 13A(1) that the right to payment within a reasonable time arises only if the insured makes a claim. As one might expect, ‘[a] reasonable time includes a reasonable time to investigate and assess the claim[16], and what is reasonable will depend on ‘all the relevant circumstances’. The statute lists some ‘examples of things which may need to be taken into account’. These are:[17]

  • the type of insurance’ – for example, travel insurance, or business interruption insurance;
  • the size and complexity of the claim’ – for example, a straightforward claim for storm damage to roof of house, or a major fire involving an insured in financial difficulties and suspected of arson. The Law Commission suggest in their July 2014 Report[18] that a claim may be complicated by its location, and that if, for example, an insured peril occurs abroad, its investigation may be more difficult;
  • compliance with any relevant statutory or regulatory rules or guidance’. This might lead to allegations of breach of ICOBS even where the statutory cause of action under s 138D FSMA does not arise – for example, there is an obligation under ICOBS 8.1.1(2) to ‘provide reasonable guidance to help a policyholder make a claim and appropriate information on its progress’;
  • factors outside the insurer’s control’. An obvious example would be delay caused by the insured itself, perhaps in failing to provide information sought by the insurer. The Law Commission suggest[19] that this might extend to a situation where there were unusually high numbers of claims, for example due to widespread flooding, and insufficient numbers of loss adjusters or surveyors available in or around the affected area.

Delay in paying a disputed claim

The insurer does not breach the implied term ‘merely by failing to pay the claim (or the affected part of it) while the dispute is continuing’, but:

  • the burden is on the insurer[20] to show 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)’;
  • if it can do so, then ‘the conduct of the insurer in handling the claim may be a relevant factor in deciding whether the term was breached and, if so, when.[21]

The Law Commission’s intention was to protect the ability of insurers to take a robust approach to decision-making where they suspect fraud or non-compliance with policy terms or where the precise circumstances of the loss were not clear, and to catch bad claims-handling practices, not prevent legitimate investigations by insurers.[22] They therefore suggest that ‘something more’ must be shown before an insurer which makes a reasonable but ultimately wrong refusal to pay a claim may be found to have breached the implied term, and give the examples of:

  • an insurer which conducts its investigation unreasonably slowly, or is slow to change its position when further information confirming the validity of the claim comes to light;[23] or
  • as examples of a deliberate or reckless breach, where claims handlers delay or reject a claim they know to be valid in order to secure a bonus payment or with a view to any internal budgets or quotas, or an insurer’s approach to a claim is blameworthy to the point of recklessness.[24]

Attempts to introduce into the House of Lords a right to allow insurers to rely on legal advice about a dispute in this context without waiving privilege in that advice were unsuccessful. This plainly has implications for the way in which insurers and their lawyers record legal advice and decisions made in the context of handling claims for policies issued/variations made from 4 May 2017 onwards. It would be prudent for the facts on which claims handling decisions are based, and the rationale for those decisions, to be recorded separately from the substance of legal advice, so that the former can be disclosed and relied on if a claim is made for late payment without having to choose between waiving privilege in legal advice, or being unable properly to defend a claim for late payment.

Delay in rejecting invalid claim does not give rise to right to damages

The implied term applies only in respect of ‘sums due’ in respect of a claim. This means that a delay in rejecting a claim which is later held to be invalid does not give rise to a right to damages for breach of the implied term.

The remedies for breach

As this is a term implied into the contract of insurance by statute, the usual remedies for breach of a contractual term are available, including damages and injunctive relief, and that the usual rules as to remoteness, foreseeability and mitigation of loss will apply to a claim for damages. The basic position in relation to foreseeability, in the words of the Law Commission, is that ‘Insurers are aware that policyholders rely on insurance monies in times of crisis’.[25]

Limitation period

In accordance with its usual approach, the Law Commission was proposing not to make any specific provision in relation to limitation but to allow limitation to follow the general law.[26] This would have been the six-year limited period for actions founded on simple contract.[27] However, a specific limitation period was later added by amendment in the House of Lords. This provides a one-year time limit for an action for breach of the implied term starting on the date on which the insurer has paid all the sums due in respect of the claim.[28] Two different limitation periods will therefore usually be in play if a claim is made both for an indemnity under a policy of insurance and for damages for late payment.

Contracting out of the implied term

The parties may not contract out of the statutory implied term in consumer insurance.[29] In non-consumer insurance[30], the parties may contract out of the implied term except where the breach is deliberate or reckless (‘did not care’).[31] Importantly, these restrictions do not apply to settlement agreements.[32]

This means that where contracting out is permitted (ie in non-consumer insurance unless the breach is deliberate or reckless), a contractual limitation on liability may be imposed, for example capping the amount or type of damages which may be recoverable.

Lawyers acting for insurers will need to consider whether they should advise insurers to enter into contractually binding settlement agreements which include an express term in relation to any entitlement to make a claim for late payment, or at least provide for full and final settlement of the insurer’s liability so as to start time running for any claim for late payment.

Where the beneficiary is not an insured

The obligation to pay claims within a reasonable term applies only to ‘the insured’ making ‘a claim under the contract’, and where a contract has been entered into, ‘the insured’ is defined as ‘the party to a contract of insurance who is the insured under the contract[33]. The right to damages for late payment therefore applies only in respect of claims made by a party to the contract, and unlike in respect of fraudulent claims and contracting out, no special provision is made for late payment of claims under group policies which provide cover for persons who are not parties to the contract.

Impact of the reform

The Law Commission thought that successful late payment claims would be relatively rare, and the impact on insurers correspondingly limited.[34] The reform will have a significant impact for policyholders like Mr Sprung for whom something goes badly wrong and who will no longer be left without a remedy. The Law Commission may be right that successful late payment claims prove to be relatively rare. The wider impact of the reform is however likely to be significant. There is potential for disruption if claims management companies move into this area, and the Association of British Insurers, which supported the reform, did so despite its concern that this might happen.[35] These fears may turn out to be unfounded.

But the right to damages is likely to have a significant impact on the way in which insurers investigate and make decisions about claims. The need to record the rationale for decisions will prompt consideration at an earlier stage as to whether liability should be admitted, or part of a claim paid, while investigations of quantum or other elements are ongoing. There may also be an increased level of formality in claims handling, with insurers writing to insureds setting out in more detail the facts on which they are basing a decision, and inviting the insured to correct those facts if they think they are wrong. Insurers may also make increased use of Part 36 offers, or at least put their position formally in writing, so as to avoid any dispute as to what they offered to pay the insured at what stage, and on what terms. Where insurers confirm liability at an earlier stage, while continuing to investigate quantum, insureds will be in a stronger bargaining position when it comes to agreeing the quantum of the claim.

  1. The Alexandros T [2012] EWCA Civ 1714, [2013] 1 Lloyd’s Rep 217, para 1.
  2. The Alexandros T [2013] UKSC 70, [2014] 1 Lloyd’s Rep 223, para 6.
  3. [1999] Lloyd’s Rep IR 111, CA (decided in 1996 but not reported until three years later); see Evans LJ at 118.
  4. Pride Valley Foods Ltd v Independent Insurance Co Ltd [1999] Lloyd’s Rep IR 120.
  5. In Mandrake v Countrywide Assured Group plc [2005] EWCA Civ 840, at para 25.
  6. In ‘Should Sprung lose its spring?’, the Twelfth Annual Peter Taylor Memorial Address given to the Professional Negligence Bar Association on 21 April 2009. Richard Liddell of 4 New Square assisted Rix LJ in the preparation of this lecture.
  7. [2007] UKHL 34, [2008] 1 AC 561.
  8. See Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1991] 2 AC 249, HL; Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd, The ‘Star Sea’ [2001] UKHL 1, [2003] AC 469. The Law Commission considered introducing a right to damages for breach of the duty of good faith as an alternative to the new implied term, but was persuaded by insurers that this might lead to the development of US-style bad faith claims, and that this would be undesirable: see the Report, paras 26.60-26.63.
  9. [1997] LRLR 94, 136-137.
  10. It would also have been contrary to an express term in the relevant policies.
  11. ICOBS 8.1.1 imposes obligations on insurers in relation to claims handling, including an obligation to handle claims promptly and fairly.
  12. Section 138D (prior to 1 April 2013, s 150) of the Financial Service and Markets Act 2000 provides that contravention by an authorised person of a rule made by the Financial Conduct Authority (‘FCA’) is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty. This ‘can perhaps be described as an express cause of action for breach of statutory duty’: Green v Royal Bank of Scotland plc [2013] EWCA Civ 1197, para 28 (Tomlinson LJ). The rules made by the FCA include ICOBS.
  13. See s 138D(6) of FSMA and Regulation 3(1)(a) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001, reg 3(1). This exception has been construed widely: see Titan Steel Wheels Ltd v Royal Bank of Scotland plc [2010] EWHC 211 (Comm), [2010] 2 Lloyd’s Rep 92, paras 48 and 70 (David Steel J); applied in a series of subsequent cases including Thornbridge Ltd v Barclays Bank plc [2015] EWHC 3430 (QB) (appeal to Court of Appeal pending).
  14. See s 44(3) of the Enterprise Act 2016.
  15. See s 28(2) of the Enterprise Act 2016, which inserts a new s 22(3A) into the Insurance Act 2015.
  16. Section 13A(2) of the Insurance Act 2015.
  17. See s 13A(3) of the Insurance Act 2015.
  18. At para 28.32. The wording of s 13A is identical to the wording of clause 14 in the Law Commission’s draft Bill and therefore the subject of its July 2014 Report.
  19. See the July 2014 Report at para 28.38.
  20. If the insurer shows that there were reasonable grounds…’: s 13A(4).
  21. Section 13A(4), Insurance Act 2015.
  22. Report, para 27.6.
  23. See the July 2014 Report, paras 28.50-28.52.
  24. See the July 2014 Report, para 28.98.
  25. Report, para 26.39.
  26. Report, para 28.71-28.76.
  27. Section 5, Limitation Act 1980.
  28. Section 5A(1), Insurance Act 2015.
  29. Section 16A(1), Insurance Act 2015. For the purposes of the Insurance Act 2015, ‘consumer insurance contract’ means ‘a contract of insurance between (a) an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession, and (b) a person who carries on the business of insurance and who becomes a party to the contract by way of that business…’: see s 1 of the Consumer Insurance (Disclosure and Representations) Act 2012 and s 1 of the Insurance Act 2015.
  30. A contract of non-consumer insurance means ‘a contract of insurance that is not a consumer insurance contract’: see s 1 of the Insurance Act 2015.
  31. Section 16A(2) and (3), Insurance Act 2015.
  32. Section 16A(6), Insurance Act 2015.
  33. Section 1, Insurance Act 2015.
  34. Report, para 26.33.
  35. See the transcript of the evidence of Ms Philippa Handyside of the Association of British Insurers to the House of Lords Special Public Bill Committee on 3 December 2014, at page 20.

Be prepared? – the perils of witness training

In two recent cases, one in the Commercial Court and one in the Technology and Construction Court, judges have deprecated the use of witness preparation even where the training falls short of witness coaching.

Witness coaching is prohibited by the Bar Code of Conduct[1], which states that ‘Your duty to act with honesty and integrity under CD3 includes the following requirements… you must not rehearse, practise with or coach a witness in respect of their evidence[2]. CD3, one of the Core Duties imposed on barristers by the Code of Conduct, is that: ‘You must act with honesty and integrity’.

Coaching’ is not defined in the Code of Conduct, but the Bar Council practice note on Witness Preparation[3] says:

In any discussions with witnesses regarding the process of giving evidence, great care must be taken not to do or say anything which could be interpreted as suggesting what the witness should say, or how he or she should express himself or herself in the witness box: that would be coaching.[4]

This Bar Council practice note draws heavily on the 2005 decision of the Court of Appeal in R v Momodou[5] and states[6] that there is currently no authority on these matters in relation to civil proceedings, and that until such authority emerges, it would be prudent to proceed on the basis that the general principles set out in R v Momodou also apply to civil proceedings.

In R v Momodou, the Court of Appeal made clear that discussion with a witness of his or her proposed or intended evidence in a criminal case was not permitted:

Training or coaching for witnesses in criminal proceedings (whether for prosecution or defence) is not permitted. This is the logical consequence of [the] well-known principle that discussions between witnesses should not take place, and that the statements and proofs of one witness should not be disclosed to any other witness. … The witness should give his or her own evidence, so far as practicable uninfluenced by what anyone else has said, whether in formal discussions or informal conversations. The rule reduces, indeed hopefully avoids any possibility, that one witness may tailor his evidence in the light of what anyone else said, and equally, avoids any unfounded perception that he may have done so. These risks are inherent in witness training.[7]

The Court of Appeal said that there was a ‘dramatic distinction’ between witness training or coaching, and witness familiarisation.[8] Witness familiarisation is:

pre-trial arrangements to familiarise witness with the layout of the court, the likely sequence of events when the witness is giving evidence, and a balanced appraisal of the different responsibilities of the various participants’,[9]

and the Court of Appeal added that such arrangements would usually be in the form of a pre-trial visit to the court, and were generally to be welcomed, but that out of court familiarisation techniques were also permissible. It emphasised, however that ‘None of this … involves discussions about proposed or intended evidence’.[10]

The Court of Appeal also addressed specifically the position of expert witnesses, saying that training of such witnesses in ‘the technique of giving comprehensive evidence of a specialist kind to a jury, both during evidence-in-chief and in cross-examination, and, another example, developing the ability to resist the inevitable pressure of going further in evidence than matters covered by the witnesses’ specific expertise’. As with witnesses of fact, ‘The critical feature of training of this kind is that it should not be arranged in the context of nor related to any forthcoming trial, and it can therefore have no impact whatever on it.’[11]

Guidance in the Bar Code of Conduct in a related but different context (the duty not to mislead the court) refers to the preparation of witness statements, and states that:

you are entitled and it may often be appropriate to draw to the witness’s attention other evidence which appears to conflict with what the witness is saying and you are entitled to indicate that a court may find a particular piece of evidence difficult to accept. But if the witness maintains that the evidence is true, it should be recorded in the witness statement and you will not be misleading the court if you call the witness to confirm their witness statement.’[12]

The reference to witness statements makes clear that this guidance relates to civil rather than criminal proceedings. It is not addressed in the Bar Council practice note, which as we have seen indicates that, in the absence of authority, it would be prudent to proceed on the basis that the general principles set out in R v Momodou also apply to civil proceedings. There is therefore an inconsistency between the Code of Conduct guidance and the clear statement in R v Momidou that ‘the statements and proofs of one witness should not be disclosed to any other witness’. This inconsistency is not explicable by the difference in procedure, as witness statements in civil proceedings simply take the place of oral evidence in chief: the process of taking the statement is merely the mechanism by which the evidence is put before the court, and there is no difference of principle. The extent to which the practice referred to in the Code of Conduct guidance will be regarded by the civil courts as permissible has yet to be determined, but there is no doubt that, given the clear statement in the guidance, it is acceptable from a regulatory perspective as far as barristers are concerned.

This is the legal and regulatory background against which judges in two recent commercial cases have deprecated the use of witness preparation even where such training falls short of witness coaching. Flaux J said in the Commercial Court in Republic of Djibouti v Boreh:[13]

The second reason for approaching the evidence of the Djibouti witnesses with considerable caution is that it was quite obvious that they had had witness training and been carefully prepared for giving evidence. Mr Douale admitted as much.[14]


Whilst I am not suggesting that witness training in itself is improper, (provided that it does not amount to coaching of a witness as to what to say, which would be improper) it is to be discouraged, since, as this case demonstrates, it tends to reflect badly on the witness who, perhaps through no fault of his or her own, may appear evasive because he or she has been “trained” to give evidence in a particular way.’[15]

Last month, in Harlequin Property (SVG) Ltd v Wilkins Kennedy[16] in the Technology and Construction Court, Coulson J referred to Flaux J’s remarks with approval:

I was unsurprised to learn that Mr MacDonald had had witness training. For the same reasons outlined by Flaux J (as he then was) in Republic of Djibouti v Boreh … I consider it to be a practice “to be discouraged since…it tends to reflect badly on the witnesses who…may appear evasive.” In my view, the training he received exacerbated Mr MacDonald’s natural tendency to avoid answering any difficult question.’[17]

We can expect commercial judges to continue to criticise attempts to refine the evidence which is to be given by witnesses in court. Judges want, so far as possible, to hear a witness’s evidence in his or her own words. The 2007 Report of the Commercial Court Long Trials Working Party, in which two Commercial Court judges[18] were heavily involved, said:

Inevitably, in nearly all cases the witness statements are drafted by the lawyers, although based on interviews with the witness. But this process often leads to the statements being in lawyers’ language rather than the words of the witness. Also, all too frequently the statements spend far too long summarising documents that a party wishes to have in evidence and arguing the case. Not enough time is spent recording the witness’s actual memories of relevant events.[19]

The Admiralty and Commercial Courts guide[20] similarly emphasises that the function of a witness statement is to set out in writing the evidence in chief of the witness and that as far as possible, therefore, the statement should be in the witness’s own words; that it should not contain lengthy quotations from documents; and that it should not engage in argument.[21]

  1. The Code of Conduct is in Part 2 of the BSB Handbook (2nd Edition, April 2015, updated December 2016).
  2. Rule rC9.4. There is no specific prohibition in the solicitors’ Code of Conduct (Version 18, published 1 November 2016): see Chapter 5, ‘Your client and the court’, including IB(5.9) to IB(5.11); and see this interesting article by Professor Richard Moorhead in the Guardian in relation to David Cameron’s preparation for his appearance before the Leveson inquiry in 2012.
  3. Issued October 2005; last reviewed May 2016. Practice notes issued by the Bar Council do not constitute ‘guidance’ for the purposes of the Code of Conduct: see further paragraph I6.4 of the Handbook (pages 11-12 of the pdf version).
  4. At para 17.2.
  5. [2005] EWCA Crim 177.
  6. At para 16.
  7. At para 61.
  8. At para 61.
  9. At para 62.
  10. At para 62.
  11. At para 62.
  12. Code of Conduct, para gC7.
  13. [2016] EWHC 405 (Comm).
  14. At para 65.
  15. At para 67.
  16. [2016] EWHC 3188 (TCC).
  17. At para 18.
  18. Aikens and Gloster JJ; Aikens J chaired the working party which prepared the report; I was its secretary.
  19. At para 69.
  20. Last updated 18 March 2016.
  21. See paras H1.1(i), (iii) and (v)),

Won’t you stay? – prejudice arising from concurrent civil and criminal proceedings

Civil courts are sometimes asked to stay their proceedings in order to avoid prejudice to a party who is facing concurrent criminal proceedings, for example where there is a factual overlap concerning allegations of dishonesty or fraud. The courts are slow to grant a stay, and will always try to resolve the issue by case management measures short of a stay; but they will stay proceedings, in the exercise of their discretion, in an appropriate case.

The starting point is s 49(3) of the Senior Courts Act 1981, which provides:

Nothing in this Act shall affect the power of the Court of Appeal or the High Court to stay any proceedings before it, where it thinks fit to do so, either of its own motion or on the application of any person, whether or not a party to the proceedings.

CPR 3.1(2)(f) provides that the court may, unless the rules provide otherwise, ‘stay the whole or part of any proceedings or judgment either generally or until a specified date or event’.

The party seeking to stay civil proceedings where there are concurrent criminal proceedings is typically the defendant in both sets of proceedings, although as two recent decisions illustrate, this is not always the case.

In Bittar v The Financial Conduct Authority[1], the Financial Conduct Authority, supported by the Serious Fraud Office (‘SFO’), which was the prosecutor in concurrent criminal proceedings, sought a stay of its reference to the Upper Tax Tribunal (Tax and Chancery Chambers – Financial Services) pending resolution of the SFO’s criminal proceedings in respect of a charge of conspiracy to defraud. The SFO’s objections included that the defendant might seek to introduce evidence given or findings made by the Tribunal into the criminal proceedings, and said that it, too, was entitled to a fair trial.

The Tribunal said that there was a strong presumption against a stay and that it was a power which had to be exercised with great care and ‘only where there is a test of real risk of serious prejudice which may lead to injustice[2]. It declined to order a stay, partly on the grounds that any prejudice could be mitigated by case management measures including, if necessary, deferring the hearing of the reference itself until after the criminal proceedings had concluded.[3] In the meantime, the Tribunal gave directions for the parties to prepare for the hearing, and said that the matter should be kept under review.[4]

In Polonskiy v Alexander Dobrovinsky & Partners LLP,[5] the claimant asked the High Court to stay civil proceedings which he himself had brought, and to stay a counterclaim brought by a defendant, pending the resolution of criminal proceedings against him in Russia. He relied on an alleged risk of injustice to him not in the criminal proceedings, but in the civil proceedings. This was an unpromising start and, although the court considered the matter in detail (in a judgment which was 153 paragraphs long), it ultimately declined to grant a stay. The defendant in the civil proceedings tried unsuccessfully to persuade the court that the test to be applied was that a stay should be granted only in ‘rare and compelling circumstances’,[6] which is the test usually applied where the court is being asked to stay civil proceedings in favour of other civil (court or arbitral) proceedings.[7] The court rejected this submission and instead applied the principle, derived from earlier decisions of the Court of Appeal, that the court has a discretion to stay civil proceedings until related criminal proceedings have been determined, but that this is ‘a power which has to be exercised with great care and only where there is a real risk of serious prejudice which may lead to injustice’.[8]

  1. [2016] UKUT 265 (TCC).
  2. At para 16.
  3. See para 17.
  4. See para 17.
  5. [2016] EWHC 1114 (Ch) (Mr G Moss QC, sitting as a deputy judge of the High Court).
  6. See paras 135-139.
  7. See eg Reichhold Norway ASA v Goldman Sachs International (a firm) [2000] 1 WLR 173, CA, 186 (Bingham LJ).
  8. See paras 133 and 139; the quotation is from R v Panel on Takeovers and Mergers, ex p Fayed [1992] BCC 524, CA, 531 (Neill LJ); approved: Attorney-General of Zambia v Meer Care & Desai (a firm) [2006] EWCA Civ 390, para 36 (Sir Anthony Clarke MR).

Insurance law – taking stock of the changes

Last week I moved chambers – to 4 New Square – and the fourth edition of my book, Insurance Claims, was published by Bloomsbury Professional. This blog post has been delayed while I have been busy elsewhere, but is perhaps none the worse for that, as now seems to be a good time to take stock of recent and forthcoming changes in insurance law. The Third Parties (Rights Against Insurers) Act 2010 finally comes into force on 1 August 2016, the main provisions of the Insurance Act 2015 come into force on 12 August 2016, and there have been a number of important insurance cases in the Court of Appeal and Supreme Court in recent months. So, let’s take stock.

First, the statutory reforms on the immediate horizon:

  • The Third Parties (Rights Against Insurers) Act 2010 comes into force on 1 August 2016. I have written previously about the slow journey of this reform[1]. The 2010 Act has been amended in important respects since it received royal assent, so make sure you refer to the latest version[2]. Remember, too, that the Third Parties (Rights Against Insurers) Act 1930 is repealed by the 2010 Act[3], but that notwithstanding its repeal it continues to apply to some claims[4].
  • The main provisions of the Insurance Act 2015 come into force on 12 August 2016. With the exception of the provisions about remedies for late payment which were inserted by the Enterprise Act 2016 (see below), the Insurance Act 2015 applies to contracts of insurance made from 12 August 2016 – so, the new duty of fair presentation, the new rules which apply to warranties and terms not relevant to the actual loss, and the new provisions in relation to fraudulent claims all apply to contracts of insurance made from this date[5]. There is some important detail in relation to contractual variations: the duty of fair presentation applies to variations agreed from 12 August 2016 to contracts of insurance entered into at any time[6], while the new rules in relation to warranties and terms not relevant to the actual loss and the new provisions in relation to fraudulent claims apply only to variations agreed from 12 August 2016 to contracts of insurance entered into from this date[7].

Next, the recent cases:

  • AIG Europe Ltd v OC320301 LLP[8], a decision of the Court of Appeal in April 2016 on the construction of the aggregation wording in the minimum terms and conditions of professional indemnity insurance for solicitors. The Court of Appeal remitted the case to the Commercial Court for re-trial in accordance with the guidance given in its judgment, so there is more to come.
  • Versloot Dredging BV v HDI Gerling Industrie Versicherung AG[9], a decision of the Supreme Court in July 2016 on ‘fraudulent devices’. The Supreme Court rejected the reasoning of the Court of Appeal in Agapitos v Agnew[10] which had been applied since 2002, and decided that the fraudulent claims rule did not apply to justified claims supported by collateral lies (usually known as ‘fraudulent devices’, although the Supreme Court did not like this term). This is the end of the road for this litigation, but the ramifications of the decision of the Supreme Court will be worked out in future cases. Expect a period of uncertainty while this happens.
  • Hayward v Zurich Insurance Company plc[11], which is not an insurance case but a decision of the Supreme Court in July 2016 which affects insurers, as it considers the test for setting aside a settlement for fraud. Insurers suspected fraud at the date of settlement but could not prove it until later, and the Supreme Court decided that the settlement could be set aside.

And finally, looking to the future:

  • Impact Funding Solutions Ltd v Barrington Support Services Ltd was argued in the Supreme Court on 30 June 2016. Term ended last Friday, and judgment is likely to be given next term, which starts on 3 October 2016. In the meantime, the argument in the Supreme Court can be viewed here, and the judgment of the Court of Appeal[12] can be read here. The case involves the construction of the debts and trading liabilities exclusion in the minimum terms and conditions of professional indemnity insurance for solicitors. It will be particularly significant for solicitors and their insurers, but the judgment may also be relevant to the construction of similar exclusions in other professional indemnity policies.
  • The provisions of the Insurance Act 2015 in relation to remedies for late payment of insurance claims which were inserted by the Enterprise Act 2016[13] will come into force in relation to contracts of insurance entered into from 4 May 2017[14]. In the meantime, the under-used right to damages for late payment of insurance claims which already exists for ‘private persons’ under ICOBS (the Insurance Conduct of Business Sourcebook) and the Financial Services and Markets Act 2000 continues to apply.

© Alison Padfield

[1] I said in my earlier blog post that I was hoping that the Act would come into force before the fourth edition of my book was published; that did not happen (it was a close-run thing: the book beat the Act by a few days), but happily the 2010 Act as finally amended was available in time to be written up in the book.

[2] As amended by both the Insurance Act 2015 and the Third Parties (Rights Against Insurers) Regulations 2016.

[3] See s 20(3) and Sch 4.

[4] See s 20(2) and Sch 3.

[5] See s 22(1)-(3) and 23(2).

[6] See s 22(1)(b) and (3) and 23(2).

[7] See s 22(2) and (3) and 23(2).

[8] [2016] EWCA Civ 367.

[9] [2016] UKSC 45.

[10] [2002] EWCA Civ 247.

[11] [2016] UKSC 48.

[12] [2015] EWCA Civ 31.

[13] Part 4A, Late Payment of Claims.

[14] Section 22(3A), Insurance Act 2015 and s 44(3), Enterprise Act 2016.

Damages for late payment of insurance claims – Enterprise Act receives royal assent

The Enterprise Act 2016 received royal assent on 4 May 2016.  From 4 May 2017, a term will be implied by statute into new policies of insurance, and variations to those policies, that if the insured makes a claim under the policy, the insurer must pay any sums due within a reasonable time.  This means that, for the first time, there will be a general right to damages for late payment of insurance claims.

I will write more in future blog posts about this new right, about why legislation was required to introduce it, and about the under-used right to damages for late payment of insurance claims which already exists for ‘private persons’ under the Financial Services and Markets Act 2000 and ICOBS (the Insurance Conduct of Business Sourcebook).

“Unbundled” legal services – bridging the funding gap?

Recent reforms have made it harder to obtain legal advice and representation on a conditional fee basis. Coupled with cuts to legal aid, this means that instructing a solicitor on a traditional retainer is out of reach for many people. As a result, it is becoming increasingly common for solicitors to provide their services on an “unbundled” basis as and when a litigant can afford to pay for them, and for barristers to provide their services direct to members of the public without an instructing solicitor (officially called “public access”, but more often referred to as “direct access”).

I recently wrote an article with Sophie Belgrove on Minkin v Lesley Landsberg,[1] a case in which the Court of Appeal considered the extent of a solicitor’s duties when instructed by a wife to draft a consent order following divorce. The Court of Appeal concluded that the solicitor did not owe the wife a duty to advise her as to the substance of the divorce settlement which she had agreed with her husband. King LJ referred expressly to legal aid no longer being available in financial remedy cases, “no matter the level of hardship caused to the protagonists or the complexity of the proceedings”, to the need for complex orders to be drawn up for the court’s approval, and to the importance to the courts and to litigants in these circumstances of solicitors being able to provide unbundled legal services without being held to have taken on much wider advisory duties. (First published in the New Law Journal, the article is reproduced in full here by kind permission of the NLJ and its editors, Jan Miller and Danielle Monroe: Solicitors’ negligence – Unbundling unshackled – Belgrove & Padfield.)

Unbundled legal services can help bridge the funding gap, but they are not a complete solution. There will always be some litigants or would-be litigants who will be unable to conduct litigation without the assistance of a solicitor. And even for those who do so, there is a risk that important steps which would be taken if a solicitor had conduct of a matter from start to finish on a traditional retainer will be missed and, consequently, that the litigant’s interests may be prejudiced. This is illustrated by Okon v London Borough of Lewisham,[2] a case which has recently caught the eye of legal commentators and journalists. In a complex bankruptcy appeal involving liability for council tax, the applicant was not advised that she should appeal against a particular order, and she did not do so. The deputy High Court judge noted that the applicant “was represented at hearings on an ad hoc basis by relatively junior albeit able Counsel on a direct access basis,” but as he observed, “that is not a complete substitute for being represented by experienced solicitors in a matter such as this”.[3]

  1. [2015] EWCA Civ 1152.
  2. [2016] EWHC 864 (Ch).
  3. At para 26(ii).

Third Parties (Rights Against Insurers) Act 2010 update – draft Regulations

On 25 February 2016, The Third Parties (Rights Against Insurers) Regulations 2016 were laid before Parliament in draft.

My earlier post The Long Road to Reform of the Third Parties (Rights Against Insurers) Act 1930 sets out the background to the draft Regulations.

The draft Regulations are subject to the affirmative resolution procedure, which means that they must be approved by resolution of both Houses of Parliament before they come into force. A written statement indicates that, subject to approval being given, the Government intends to make the Regulations without delay, and will announce the commencement date for the Third Parties Rights Against Insurers Act 2010 in due course, but that date will not be earlier than three months after the Regulations are made.

It seems that this long-awaited legislative reform is finally nearing completion.

Commercial Agents – the worst of both worlds?

I wrote a short article recently with Sophie Belgrove about the impact of certain types of contractual term on termination payments under the Commercial Agents (Council Directive) Regulations 1993.

First published in the New Law Journal in January 2016, the article is reproduced here by kind permission of the NLJ and its brilliant editor and deputy, Jan Miller and Danielle Munroe:


The Long Road to Reform of the Third Parties (Rights Against Insurers) Act 1930

The Law Commissions’ Command Paper on Third Parties Rights Against Insurers was presented to Parliament in July 2001, just before I started writing the first edition of my book on Insurance Claims. Thinking that this meant that new legislation was imminent, I left the section about the Third Parties (Rights Against Insurers) Act 1930 until last. In fact, the 1930 Act outlasted not only the first edition of my book, but also the second. By 2012, when the third edition of the book came out, the Third Parties (Rights Against Insurers) Act 2010 had finally received Royal Assent.[1] But it is still not in force. Why not?

A drafting error in the 2010 Act meant that a gap needed to be filled, and this required primary legislation: the new Act applied to companies in respect of which an “administration order” was in force, but not those which entered into administration without a court order. (In July 2001 when the Law Commission prepared its draft bill, an administration order was a pre-requisite for administration.)

The Ministry of Justice said in its March 2012 Report on the implementation of Law Commission proposals that implementation of the Act had been “delayed by work on other priorities”, that it had provisionally concluded that some rules of court would be necessary, and that the Act required a small amendment to cover all forms of administration. It concluded that it was unlikely that the 2010 Act would be commenced until 2013.[2]

2013 came and went. So did 2014.

In January 2015, Explanatory Notes published in relation to the Insurance Bill stated that the 2010 Act had not been commenced because it failed to cover “the full range of insolvent or defunct wrongdoers”,[3] and that the draft amendments “clear the way for the 2010 Act to come into force”.[4]

Then, in February, the Insurance Act 2015 was enacted. This filled the gap in the 2010 Act in respect of companies entering administration without a court order. At the same time, a power to change the meaning of “relevant person” was added, enabling the Secretary of State to make regulations adding to the persons to whom the 2010 Act applies (within the broad category of individuals and corporate bodies who have liability insurance and lack control of their assets due to insolvency or dissolution).  The scope of application of the 2010 Act was also enlarged by additions to the transitional provisions.

In its March 2015 Report on the implementation of Law Commission proposals, the Ministry of Justice said:[5]

“The 2013 Implementation Report indicated that the Government was working towards implementation of the 2010 Act but had provisionally concluded that it would have to be amended before it could be commenced.

Some of the necessary amendments were included in… the Insurance Act 2015. The amendments included the creation of a regulation-making power to alter the circumstances in which the 2010 Act applies. To ensure that the application of the 2010 Act is as wide as it ought to be, taking into account the scope of the 1930 legislation and developments in insolvency law, the Government is continuing to work closely with the Commission to draft the regulations with a view to commencing the 2010 Act as amended by the Insurance Act 2015 and the proposed regulations as soon as is reasonably possible.”

The Law Commission’s note on the Insurance Bill provided more detail: it envisaged that regulations would add additional methods of dissolution of a body corporate or of an unincorporated association, and add sector-specific administration procedures, including for financial services, postal and utility companies. Sixteen such sector-specific procedures were identified in the Law Commission’s note.

In July 2015, in its Annual Report 2014-15,[6] the Law Commission said:[7]

“The Insurance Act 2015 adds a new regulation-making power to the 2010 Act to keep it up to date with changes in insolvency law. The intention is to use this power to make regulations early in the 2015-16 parliamentary session so as to bring the 2010 Act into force by the end of 2015.”

Where does that leave us? In short, the gap in relation to administration has been filled, but further amendments have yet to be made by regulations, the timetable for which has slipped again; and there is no further information on the proposed rules of court.

The 2010 Act must surely be brought into force in 2016. But will it be in force by the end of March 2016, which is the deadline for the revised text of my fourth edition? According to my latest information from the Ministry of Justice, there may yet be grounds for optimism.

© Alison Padfield

  1. On 25 March 2010.
  2. Paragraph 9.
  3. Paragraph 12.
  4. Paragraph 11.
  5. Paragraphs 34 and 35.
  6. Published on 20 July 2015.
  7. Page 46.