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 Remember, too, that the Third Parties (Rights Against Insurers) Act 1930 is repealed by the 2010 Act[3], but that notwithstanding its repeal it continues to apply to some claims[4].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

***To read the full post on Damages for late payment of insurance claims, please click here.***

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 claim 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).

Alison Padfield

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.

Alison Padfield

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.