A tale of two solicitors – a new twist on inadvertent disclosure of privileged documents

A recent decision of the Court of Appeal makes a good subject for a short, end-of-term post about the equitable discretion – now codified in CPR 31.20 – to restrain the use of a privileged document which has been disclosed in error.

In Atlantisrealm Ltd v Intelligent Land Investments (Renewable Energy) Ltd,[1] the Court of Appeal added a ‘modest gloss[2] to the principles it had formulated in Al Fayed v The Commissioner of Police for the Metropolis[3] and applied in Rawlinson & Hunter Trustees SA v Director of the Serious Fraud Office (No 2)[4] in relation to CPR 31.20. The gloss extended the principle from the solicitor who first reviewed disclosure, and who did not appreciate that a document had been disclosed in error, to his ‘more percipient’ colleague, who did. The Court of Appeal also rejected the suggestion that where the mistake as to disclosure is made by a very junior lawyer, that lawyer has to give evidence in order for the principle to apply.

CPR 31.20 provides: ‘Where a party inadvertently allows a privileged document to be inspected, the party who has inspected the document may use it or its contents only with the permission of the court’. In Atlantisrealm, a junior lawyer made a mistake in categorising an email, labelling it disclosable rather than either privileged or requiring review by Mr Cook, a more senior lawyer. The email was disclosed and subsequently inspected. Mr Fallon, a solicitor for the opposing party, Intelligent Land, reviewed the disclosure but did not spot the mistake. He then had a meeting with another solicitor for Intelligent Land, a Mr Newton.

The email was then sent to witnesses for comment, before Mr Newton sent an email to Mr Cook about arrangements for a settlement meeting, which concluded: ‘I don’t know if you have started your consideration of disclosure yet? The email below will be of interest to you.’ The email, while not fatal to the disclosing party’s case, provided useful ammunition in relation to the issue of contractual construction, and in particular the parties’ shared subjective understanding.

Mr Cook responded immediately, saying that the email was privileged and had been disclosed inadvertently, and requesting its deletion. Mr Newton refused, and Atlantisrealm applied under CPR 31.20 for an injunction prohibiting Intelligent Land from making use of the email.

Mr Cook explained in a witness statement how the disclosure exercise had been carried out. Jackson LJ said that the account of how disclosure had been carried out was in line with what one would expect in any case where people, rather than machines, were carrying out the disclosure exercise: a small team of trainees and junior lawyers carried out a preliminary sift. They identified documents which were obviously disclosable or obviously privileged and referred up to the Mr Cook any documents about which they were unsure. One of the young lawyers made a mistake, putting the email into the ‘disclosable’ category, when he or she ought to have classified it as privileged or referred it to Mr Cook

In Jackson LJ’s view, and in disagreement with the judge below, the fact that the junior lawyer who made the mistake did not give evidence was irrelevant, because it was ‘perfectly clear’ what had happened: ‘Neither [the responsible solicitor], nor the relevant partner, nor the client ever took a considered decision to waive privilege’ in respect of the email, which appeared in the list of documents ‘purely as the consequence of a mistake made by a junior lawyer’.[5] This was therefore a case of inadvertent disclosure within the meaning of CPR 31.20.

The Court of Appeal accepted that the evidence showed that Mr Fallon, the first solicitor to review the documents, had thought that the email had been disclosed deliberately, because it was one of a number of emails between the opposing party and its solicitors which had been disclosed. Jackson LJ held however that the terms of the email from Mr Newton to Mr Cook showed that Mr Newton had appreciated that the email had been disclosed in error: ‘Mr Newton was drawing the email to Mr Cook’s attention in the belief that Mr Cook was unaware of it. If there had been a deliberate decision to disclose privilege in respect of such an important document, it is hardly likely that Mr Cook would have been unaware of it’.[6]

The ‘modest gloss’ which the Court of Appeal added to the principles established in Rawlinson was to allow Moore-Bick LJ’s reference to ‘the understanding of the person who inspected the document[7] to apply in a ‘two solicitor’ situation, so that ‘If the inspecting solicitor does not spot the mistake, but refers the document to a more percipient colleague who does spot the mistake before use is made of the document, then the court may grant relief. That becomes a case of obvious mistake.[8]

All that remained was for the Court of Appeal to consider how the discretion should be exercised: whether to permit the receiving party to make use of the document, or to prohibit its use. This is an equitable jurisdiction, long pre-dating CPR 31.20, and there are no rigid rules.

Atlantisrealm argued that they had made extensive use of the email and their witnesses were well aware of it, and that they would suffer and perceive an injustice if they were not permitted to use it at trial. Jackson LJ observed that the ‘use’ relied on had all taken place after a meeting between Mr Newton and Mr Fallon at which Mr Fallon had drawn Mr Newton’s attention to the email. He concluded that it was not therefore unjust to grant an injunction prohibiting its use; and the judge at first instance had indicated that this was how he would have exercised his discretion. The injunction was therefore granted.

In closing, Jackson LJ made three general observations. First, in the electronic age, even with the help of sophisticated software, disclosure of documents can be a massive and expensive operation. Mistakes will occur from time to time. Secondly, when privileged documents are inadvertently disclosed (as is bound to happen occasionally), if the mistake is obvious, the lawyers on both sides should co-operate to put matters right as soon as possible. And thirdly, the disclosure or discovery procedure in any common law jurisdiction depends upon the parties and their lawyers acting honestly, even when that is against a party’s interest. The duty of honesty rests upon the party inspecting documents as well as the party disclosing documents.[9]

Jackson LJ’s final comment? That it should not be necessary for either the parties or the courts to devote their resources to resolving disputes of this nature between solicitors.[10]

  1. [2017] EWCA Civ 1029.
  2. Para 48 (Jackson LJ).
  3. [2002] EWCA Civ 780.
  4. [2014] EWCA Civ 1129, [2015] 1 WLR 797.
  5. Para 37.
  6. Para 43.
  7. At para 15.
  8. Jackson LJ at para 48.
  9. Para 55.
  10. Para 56.

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

Summary

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.

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).

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.

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.