Bad faith claim

Category: Claims handling · Reviewed by the Apex broking team · Last reviewed 2026-08-21 · ~5 min read

The term and the confusion it causes

“Bad faith claim” is an American term of art. In most United States jurisdictions an insurer that unreasonably denies or delays a first-party claim can be sued in tort as well as contract, exposing it to extra-contractual damages and, in some states, punitive damages, often far exceeding the policy limit. That doctrine does not exist in England and Wales. There is no free-standing cause of action for insurer bad faith, no tortious duty of good faith in claims handling, and punitive damages are not available on this basis. A policyholder searching for a UK “bad faith” remedy is looking for something the law expresses in different terms.

The position before 2017

The old English analysis was unhelpful to policyholders. An insurer’s obligation under an indemnity policy was treated as an obligation to hold the insured harmless, so a payment made late was itself the payment of damages for breach; and English law does not award damages for the late payment of damages. In Ventouris v Mountain (The Italia Express) (No 2) and later in Sprung v Royal Insurance (UK) Ltd, insureds who suffered serious consequential loss because a valid claim was not paid promptly recovered nothing for that loss beyond the policy proceeds and interest. In Sprung the Court of Appeal expressed dissatisfaction with the result while considering itself bound by the principle.

Section 13A: the implied term about payment of claims

The Enterprise Act 2016 inserted section 13A into the Insurance Act 2015 with effect from 4 May 2017. It implies into every contract of insurance a term that, if the insured makes a claim, the insurer must pay any sums due in respect of the claim within a reasonable time. A reasonable time includes a reasonable time to investigate and assess the claim. Section 13A(3) lists factors relevant to what is reasonable in a given case: the type of insurance, the size and complexity of the claim, compliance with any relevant statutory or regulatory rules or guidance, and factors outside the insurer’s control.

Crucially, section 13A(4) provides that if the insurer shows there were reasonable grounds for disputing the claim — whether as to liability or quantum — it does not breach the term merely by failing to pay while the dispute continues, although its conduct in handling the dispute may be relevant to whether the term was breached. Breach gives rise to a remedy in damages, which is expressly stated to be in addition to and distinct from the right to enforce payment of the sums due and any right to interest.

How the courts have applied it

The first substantive consideration of section 13A came in Quadra Commodities SA v XL Insurance Company SE [2022] EWHC 431 (Comm). The court accepted that a reasonable time to investigate, evaluate and resolve a claim of that kind would have been not more than about a year from notification, absent grounds for dispute, but held that the insurers had reasonable, albeit ultimately mistaken, grounds for disputing the claim. No damages were awarded. The case illustrates the shape of the section: it penalises unreasonable delay, not being wrong.

Limitation and contracting out

A section 13A claim has its own short limitation period. Section 5A of the Limitation Act 1980, also inserted by the Enterprise Act 2016, provides that an action for breach of the implied term may not be brought after one year from the date on which the insurer paid all the sums due in respect of the claim. That is a much shorter window than the ordinary six years for breach of contract, and it runs from payment rather than from the delay.

Section 16A governs contracting out. In a consumer contract, a term putting the consumer in a worse position in relation to section 13A is of no effect. In a non-consumer contract, a term cannot exclude or limit liability for a deliberate or reckless breach — meaning the insurer knew it was in breach or did not care whether it was — and any term worsening the insured’s position in other respects is effective only if the transparency requirements of section 17 are satisfied.

The mirror image: fraudulent claims by the insured

Bad faith in the other direction is dealt with by section 12 of the Insurance Act 2015. Where the insured makes a fraudulent claim, the insurer is not liable to pay it, may recover any sums already paid in respect of it, and may by notice treat the contract as terminated with effect from the fraudulent act, retaining the premium. Cover for genuine losses occurring before the fraudulent act is preserved. Section 13 makes parallel provision for group insurance. The boundary of what counts as fraud was drawn in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45, where the Supreme Court held that a “collateral lie” — a lie told in support of a claim that is in fact valid, and which is irrelevant to the insurer’s liability — does not forfeit the claim under the fraudulent claims rule.

The regulatory route

Alongside the contractual remedy, the FCA’s Insurance Conduct of Business Sourcebook requires insurers to handle claims promptly and fairly, to provide reasonable guidance to policyholders, and not to reject claims unreasonably. Complaints about claims handling can be escalated through the insurer’s complaints procedure, and smaller businesses meeting the FCA’s eligible complainant criteria may take the matter to the Financial Ombudsman Service, whose decisions are made on a fair and reasonable basis rather than strictly at law. Larger commercial insureds do not generally have that route and are left with the contractual remedies.

Why it matters

UK policyholders who feel badly treated at claim stage have real remedies, but they are narrower and more procedural than the American doctrine that shares the name. The practical implications are: keep a contemporaneous record of the claims timeline; watch the one-year limitation period running from final payment; check any policy term that purports to modify section 13A; and remember that the insured’s own conduct is judged by the stricter rules in sections 12 and 13. Good claims outcomes still depend most on the disclosure work done at placing, dealt with in fair presentation, and on the notification discipline described in notification of claim.

Frequently asked questions

Can I sue my insurer for bad faith in the UK?

Not as a free-standing tort. English law provides a contractual remedy instead: damages under section 13A of the Insurance Act 2015 where the insurer fails to pay a valid claim within a reasonable time.

How is UK law different from US insurance bad faith law?

Most US states recognise a tort of first-party bad faith allowing extra-contractual and sometimes punitive damages. England and Wales has no such tort; the remedy is contractual damages for late payment, with no punitive element.

How long do I have to bring a late payment claim?

Section 5A of the Limitation Act 1980 gives one year from the date the insurer paid all sums due in respect of the claim, which is much shorter than the usual six years for breach of contract.

Does an insurer breach section 13A just by disputing my claim?

No. If the insurer shows it had reasonable grounds for disputing liability or quantum, non-payment during the dispute is not a breach, though the way it handled the dispute can still be taken into account.

Related entries

• Insurance Act 2015 fair presentation: deep dive
• Notification of claim
• Cooperation clause
• Fair presentation

This entry is part of the Apex Insurance Wiki. Last reviewed 2026-08-21. Next review: 2027-02-21. It is general reference information about UK insurance law and market practice, not regulated advice on a specific policy.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.