In November 2024 a Bristol-based food manufacturer suffered a flood that took its primary production line out for nineteen weeks. The property and business interruption claim was notified within 48 hours. The eventual settlement figure of £4.1 million was paid — twenty-three months after the loss. By the time the cheque cleared the business had lost two of its three largest customers, refinanced on materially worse terms to bridge the cash-flow gap, and made fourteen redundancies it would not otherwise have made. The eventual claim payment did not, and could not, restore the business to where it would have been if cover had been honoured promptly.
Until 2017, the policyholder in that scenario had essentially no remedy for the consequential losses caused by the delay. English law treated the insurer’s primary obligation as one to pay damages for the loss, and late payment of damages could not itself sound in damages — a curious legal fiction that left commercial insureds carrying the cost of slow claims-handling.
Section 13A of the Insurance Act 2015 — inserted by the Enterprise Act 2016 with effect from 4 May 2017 — changed that. It implies a term into every contract of insurance that the insurer must pay sums due within a reasonable time. Breach gives rise to damages in the ordinary contractual way. The remedy is in addition to the original claim payment and any interest.
This article explains the law, the case law that has begun to flesh it out, what the courts have allowed and refused, and what brokers and insureds should do at placement and during a claim.
The mischief: pre-2017 English law on late payment
Before s.13A, the position turned on a Court of Appeal decision the Law Commissions described as “anomalous”: Sprung v Royal Insurance (UK) Ltd [1999] Lloyd’s Rep IR 111. Mr Sprung’s animal-feed business was damaged by vandals. His insurer wrongly refused cover. By the time the dispute was resolved he had been forced to sell the business. The Court of Appeal held that even though the insurer was wrong to have refused cover, English law gave no remedy for the consequential losses caused by the delay in paying.
The logic was that an insurer’s primary obligation was to hold the insured harmless against the loss, and a breach of that obligation sounded in damages. Damages for non-payment of damages were not recoverable. The result was that an insurer who paid late faced, at most, contractual interest from the date the sum became due — usually a derisory remedy compared with the commercial damage caused by the delay.
Sprung was widely criticised. It was not the law in Scotland or in most comparable common-law jurisdictions. The Law Commissions consulted on reform from 2010, and the Enterprise Act 2016 enacted their recommendations.
The statutory architecture
The Enterprise Act 2016 inserted s.13A into the Insurance Act 2015. It applies to contracts of insurance entered into, or varied, on or after 4 May 2017.
Section 13A(1) implies into every contract of insurance a term 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.
Section 13A(2) provides that a “reasonable time” includes a reasonable time to investigate and assess the claim. The insurer is not in breach simply because it has not paid as soon as the claim is made; it has the time reasonably needed to verify and quantify.
Section 13A(3) sets out a non-exhaustive list of factors relevant to what is reasonable:
- the type of insurance,
- the size and complexity of the claim,
- compliance with any relevant statutory or regulatory rules or guidance,
- factors outside the insurer’s control.
Section 13A(4) gives the insurer a defence: if there were reasonable grounds for disputing the claim (whether as to validity or amount), the insurer is not in breach merely by failing to pay the claim (or the disputed part) while the dispute is continuing. But the insurer’s conduct in handling the claim may itself be a relevant factor in deciding whether the term has been breached. In short: an insurer can dispute, but cannot dispute unreasonably or use the dispute as cover for delay.
Section 13A(5) confirms that the remedies (debt, damages, interest) for breach are in addition to and distinct from the right to recover the claim itself.
What “reasonable time” means in practice
The Act deliberately does not impose a fixed period. A motor windscreen claim and a multi-territorial cyber-extortion claim cannot be measured by the same yardstick. The court will look at:
- Type of insurance. Personal lines and simple property classes are expected to move quickly. Specialty, liability and complex commercial classes attract greater latitude.
- Size and complexity. Large losses with multiple causes, multiple insurers, foreign-law exposures, or contested quantum take longer.
- Regulatory framework. The FCA’s ICOBS rules, particularly ICOBS 8.1 on handling claims promptly and fairly, and any relevant DISP guidance, are read into the assessment. Lloyd’s Minimum Standards and any market protocols (for instance, the cyber claims protocols) are relevant.
- Factors outside the insurer’s control. Delays attributable to the insured (late information, refusal to cooperate), to loss adjusters, to forensic accountants instructed jointly, or to third parties — these may pull back the period attributable to the insurer.
- Conduct of the insurer. A pattern of unanswered correspondence, unexplained delays in instructing experts, failure to make interim payments where it is plain that some sums are due, and shifting reasons for refusal will count against the insurer.
The Court of Appeal in Quadra Commodities SA v XL Insurance Company SE [2023] EWCA Civ 432, upholding Foxton J’s first-instance judgment ([2022] EWHC 431 (Comm)), confirmed that s.13A is a contextual, fact-sensitive test. The first instance judgment is essential reading: it analysed the timeline of a marine cargo claim and held that, while the insurer had reasonable grounds to investigate and to dispute parts of the claim, those grounds did not justify the full period of delay. The case is important less for any bright-line rule than for the methodology — the court walks through the claim chronologically, identifying which periods are properly attributable to investigation, which to legitimate dispute, and which to the insurer’s own conduct.
In Delos Shipholding SA & Ors v Allianz Global Corporate & Specialty SE & Ors (The “Win Win”) [2024] EWHC 719 (Comm), the court considered s.13A in the context of a marine detention claim. The decision illustrates the limits of s.13A: where the insurer’s grounds for dispute were genuine and the dispute itself was not unreasonable in its conduct, the s.13A(4) defence held even though the delay was substantial.
The early case law is establishing two themes. First, courts are willing to find s.13A breach where insurers have been dilatory or have raised shifting, ill-founded reasons for delay. Second, the s.13A(4) defence is robust where there is a real and properly handled dispute. Reasonable grounds plus reasonable conduct equals no breach, even on a long timeline.
Damages for breach
Damages for breach of the implied term are ordinary contractual damages assessed on standard principles. The claimant must show loss flowing from the breach and that the loss was within the reasonable contemplation of the parties at the time of contracting (the Hadley v Baxendale test).
This is the head of recovery the Sprung decision had blocked. Typical losses include:
- Business interruption flowing from cash-flow constraints — lost profits, lost contracts, lost customers, reduced productive capacity caused by the inability to fund repairs, replacement stock or working capital.
- Cost of bridging finance — interest on emergency borrowing, fees on refinancing on materially worse terms.
- Redundancy and workforce costs caused by an inability to maintain operations.
- Reputational and goodwill loss where evidenced.
- Professional fees incurred chasing the delayed payment, beyond those recoverable under the policy itself.
- Personal financial loss for SME owner-managers in some circumstances.
The challenge in practice is evidential. The insured must be able to show, with documents and witness evidence, that the loss was actually caused by the delay rather than by the underlying insured event itself. The insurance pay-out, if made promptly, would have funded the business through the recovery period; because it was not made promptly, identifiable losses were sustained.
Foreseeability is the second hurdle. Commercial insurers can be taken to know that an insured of a particular size and type will rely on prompt payment to fund recovery; standard heads such as additional borrowing cost and lost trading are within reasonable contemplation. Unusual losses — for example, the loss of a specific high-value contract whose terms were not known to the insurer — may need to be pleaded with care.
Damages are recoverable in addition to the policy payment and any interest. Interest under s.35A Senior Courts Act 1981 is not the limit of recovery; it is the floor.
Limitation
Section 5A of the Limitation Act 1980 — also inserted by the Enterprise Act 2016 — provides a specific limitation period for actions in respect of breach of s.13A. The period is one year from the date the insurer paid the sum due in full in respect of the claim (or, if no payment, from the date the insurer’s obligation to pay would otherwise have been discharged).
This is a short period and a trap for the unwary. An insured who fights for two years to get the claim paid and then takes six months to recover from the disruption may find their s.13A claim is already time-barred unless proceedings are issued or the limitation period is preserved by standstill. Brokers and solicitors should diarise the s.5A clock from the date of final payment.
Where the claim is the subject of arbitration, the relevant cut-off depends on the arbitration agreement, but the one-year window is the working assumption.
Contracting out
Section 16A governs contracting out in respect of s.13A. The position is:
- For non-consumer contracts, parties may contract out of s.13A, but only subject to s.17 (transparency requirements: the disadvantageous term must be drawn to the insured’s attention and clearly worded).
- For deliberate or reckless breach, contracting out is prohibited. Section 16A(2) makes void any term that purports to exclude or limit the insurer’s liability for damages for breach of s.13A where the breach was deliberate or reckless.
- For consumer contracts, the position is governed by the Consumer Insurance (Disclosure and Representations) Act 2012 framework as supplemented by s.16A; contracting out of s.13A to the detriment of the consumer is not permitted.
In the commercial market, contract-out language has appeared in some specialty wordings. The Apex view is that an insurer who needs to contract out of its obligation to pay claims within a reasonable time is telling the insured something important about how it intends to handle losses. Brokers should resist contracting-out language as a matter of course and require sound underwriting rationale where it is proposed. A refusal to remove a s.13A exclusion is a placement issue that should be documented in the demands and needs statement and discussed with the client before binding.
Practical guidance: evidencing loss flowing from late payment
The most common reason s.13A claims fail (or settle for less than they should) is evidential. An insured who has been through the disruption of a major loss is rarely in good shape to assemble a contemporaneous record of the financial damage caused by the delay. The discipline should start at notification:
- Contemporaneous correspondence. Every letter to the insurer chasing decisions, every request for an interim payment, every refusal or unexplained delay should be on the file. The chronology builds the case.
- Cash-flow modelling. Maintain a rolling cash-flow forecast that compares the “claim paid promptly” scenario with the actual scenario. This is the spine of any future damages claim.
- Bridge-finance documentation. Loan agreements, security packages, board papers approving emergency funding, fee notes from advisers — keep everything.
- Lost-contract evidence. Where customers walk away, document the reason. A short file note of a phone call (the customer said they could no longer rely on us because we were not back in production by X) is invaluable later.
- Redundancy decisions. Board minutes that record the reasons for headcount reductions — and identify the inability to fund operations through the recovery period as the driver — establish causation.
- Expert input early. If the loss is large enough that a s.13A claim is realistic, instruct a forensic accountant in parallel with the main claim to begin building the damages model.
The insurer’s pre-action behaviour will also be relevant. The Civil Procedure Rules Practice Direction on Pre-Action Conduct and the Insurance Conduct of Business Sourcebook (ICOBS) supply the regulatory framework. Letter of claim, exchange of position papers, attempts at ADR — these will be expected before proceedings.
What brokers should do
At placement:
- Resist s.13A exclusions and contracting-out provisions. If the market insists, brief the client in writing and document the demands-and-needs analysis.
- Negotiate clear claims-handling protocols and timetables in larger or specialty placements.
- Ensure interim payment provisions are present in property and BI policies, and that the trigger and quantum mechanism are workable.
At notification:
- Set up a claim-tracking system from day one. Date-stamp every milestone: notification, acknowledgement, loss-adjuster appointment, document requests, interim payment requests, decisions.
- Push for early interim payments where the insurer has accepted some part of the claim. Failure to make interim payments where some sums are clearly due is one of the strongest indicators of s.13A breach.
- Escalate quickly where the insurer goes silent. A polite ICOBS-framed letter referring to claims-handling obligations, copied to underwriters and Lloyd’s where relevant, is often the most effective response to drift.
- Document the impact of delay on the client in real time, even if a s.13A claim is not yet being considered.
At settlement:
- Diarise the s.5A one-year limitation period from the date of final payment.
- Consider whether a s.13A claim, or a reservation of rights, should be raised before signing any settlement that may compromise it.
Frequently Asked Questions
Does s.13A apply to all insurance contracts? It applies to contracts of insurance (consumer and non-consumer) entered into or varied on or after 4 May 2017. It does not apply to contracts predating that date.
What is a “reasonable time” to pay a claim? The Act does not set a fixed period. It depends on the type of insurance, the size and complexity of the claim, compliance with regulatory guidance, and factors outside the insurer’s control. Quadra v XL Insurance [2023] EWCA Civ 432 confirms the test is contextual and fact-sensitive.
Can an insurer dispute a claim without breaching s.13A? Yes. Section 13A(4) provides a defence where the insurer has reasonable grounds to dispute the claim, provided its conduct in handling the dispute is itself reasonable. The “Win Win” [2024] EWHC 719 (Comm) is a recent illustration where the defence held.
Are damages for late payment in addition to the claim payment? Yes. Section 13A(5) makes clear that damages for breach are in addition to the right to recover the claim itself and any interest.
What is the limitation period for a s.13A claim? One year from the date the insurer paid the sum due in full, under s.5A of the Limitation Act 1980. This is much shorter than ordinary contractual limitation and is easily missed.
Can an insurer contract out of s.13A? For non-consumer contracts, yes, subject to the s.17 transparency requirements — but not for deliberate or reckless breach (s.16A(2)). Brokers should resist contracting-out language at placement.
What kinds of losses are recoverable as damages? Business interruption losses caused by cash-flow constraints, bridging-finance costs, lost contracts, redundancy costs, and other foreseeable consequential losses. The claim must satisfy the usual contractual tests of causation, foreseeability and mitigation.
Does s.13A apply to reinsurance? Yes. Reinsurance contracts are contracts of insurance for the purposes of the Act. Section 13A applies in the same way, though the “reasonable time” analysis takes account of the layered nature of reinsurance claim handling.
Related articles in this series
- The Insurance Act 2015: an overview from the PI broker’s perspective
- The duty of fair presentation under the Insurance Act 2015
- The material circumstance test
- Warranties under the Insurance Act 2015 reform
- Terms not relevant to the actual loss (s.11)
- Remedies for breach under the Insurance Act 2015
- Contracting out of the Insurance Act 2015
- Condition precedent vs warranty after the Insurance Act 2015
- The Insurance Act 2015 and PI claims
Reviewed by the Apex Insurance Brokers technical team, May 2026. Apex Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority (firm reference 724952) and is registered in England and Wales (Companies House 07014570). This article is general guidance and is not legal advice; insureds should take advice on specific facts.