This week saw lively exchanges in the House of Lords over proposed amendments to the damages for late payment of claims provisions at clauses 20 and 21 of the Enterprise Bill. On Wednesday 25 November 2015, a proposal that insurers should be allowed to adduce evidence of legal advice in support of disputing a claim without waiving privilege over that advice was advanced but, following debate, withdrawn. A proposal that policyholders should have one year from the date insurers pay a claim to bring proceedings against insurers for damages for late payment was ‘not moved’ and is to be considered further.
Lord Flight, supporting the amendments, explained that they addressed two concerns on the part of insurers:
1) Waiver of privilege: Clause 20(4) of the Bill requires insurers to show they have reasonable grounds for disputing a claim. To do so they might have to disclose legal advice they may have obtained on whether a claim is covered. Policyholders could potentially use this as a tactic to obtain copies of insurers’ legal advice on coverage, unfairly depriving insurers of the right to privileged advice from their lawyers.
2) Limitation: under existing limitation rules insurers could face actions against them for late payment of claims for six years from the date the claim in question ought to have been paid. This potentially creates a ‘long tail’ for insurers. As Lord Flight argued: “With a more certain limitation period, insurers would be able to reserve and close books more readily’.
Lord Lea, opposing the amendments, described the ‘supposition that following what is the normal legal process around the world of dealing with late payment will destroy the competitiveness of the London market’ as ‘preposterous’ and congratulated Lord Flight on a ‘further rear-guard action in his retreat towards Dunkirk [regarding the proposed amendments]… He has now reached the sand dunes and is within sight of Dover, so I hope he can find a small boat on which to embark’. He went on to suggest that damages for late payment of claims should never have been removed from the Insurance Act.
Baroness Neville-Rolfe concluded the session by confirming that ‘Whether an insurer has reasonable grounds to dispute an insurance claim [pursuant to Clause 20(4) of the Bill] is an objective question, based on the substance of the grounds themselves rather than whether the insurer has received legal advice in relation to them. The insurer can establish these grounds without waiving privilege by setting out the grounds for dispute in its pleadings or by relying on the content of its correspondence with the policyholder’.
The waiver of privilege amendment was then withdrawn although we would comment that a case could be made for including the clarification that this is an objective within clause 20(4) itself. Regarding the limitation amendment, the Baroness said the Government had ‘some sympathy’ with it and would ‘explore the details of this possibility further’ and ‘discuss it with all interested parties’.
The House of Lords will review the Enterprise Act again on 30 November 2015.