When an insurer breaches the implied term in section 13A of the Insurance Act 2015 by failing to pay a valid claim within a reasonable time, the policyholder acquires a contractual damages remedy under s.13A(2). This sits alongside the sum due under the policy and interest. The practical question is a narrower one: what losses are actually recoverable, and how are they proved? This entry sets out the measure of damages, the heads of loss that typically feature, and the evidential hurdles a professional practice needs to clear.
Section 13A operates as an implied contractual term. Breach attracts ordinary contractual damages: the innocent party is entitled to be put, so far as money can do it, in the position it would have occupied had the contract been performed. The measure is compensatory, not punitive.
The test of remoteness comes from Hadley v Baxendale (1854) 9 Exch 341. Recoverable losses are those either arising naturally from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract. For s.13A purposes the contract is the policy, and the relevant moment is inception or renewal — not the date of the claim. Losses that flow from unusual features of the insured's business need to have been within the insurer's reasonable contemplation at that earlier point.
The pre-reform position, that no damages were recoverable for late payment (see Sprung v Royal Insurance [1999] Lloyd's Rep IR 111), was reversed by s.13A. Sprung is now of historical interest only; Quadra Commodities [2022] EWCA Civ 1554 and Sky UK v Riverstone [2024] EWCA Civ 1567 have started to develop the modern jurisprudence.
Interim funding and interest costs. Where the insured has had to draw an overdraft, take a bridging facility, or delay repayment of existing borrowing because the indemnity was not paid on time, the additional interest is a straightforward recoverable head. Bank statements, facility letters and interest calculations are the evidence.
Defence-cost outlays. Under a professional indemnity policy, defence costs are usually payable as incurred. If the insurer delays, the firm may have to fund solicitors' invoices out of working capital. The finance cost of that outlay is recoverable, as are consequential losses if the firm's cash position was materially impaired.
Business interruption. Where the delay caused a measurable loss of trading — a lost tender, a deferred project, reduced fee income — the lost margin is recoverable if foreseeable. Contemporaneous forecasts and management accounts are usually needed.
Lost bargains. A specific opportunity the firm could not pursue because of the funding gap — an acquisition, a lateral hire, a partnership admission — may be recoverable if the causal link is clear and the opportunity was concrete rather than speculative.
Professional fees. Additional accountancy, legal or consultancy fees incurred as a direct consequence of the delay are recoverable heads.
Reputational damage. Harder to quantify, but not impossible where documented. Evidence might include lost referrals from a particular introducer, file notes recording a departure, or a demonstrable dip in new instructions correlated with the delay. Bald assertions without an evidential trail will fail.
Two things need to be shown. First, causation: the loss must be a direct consequence of the insurer's delay, not of the underlying event or of independent commercial decisions. Second, foreseeability: the loss must have been within the parties' reasonable contemplation at inception. A firm that told the insurer nothing about its funding profile at proposal cannot easily argue that highly leveraged consequences were foreseeable.
Contemporaneous documentation is decisive. Diary notes of every chase-up, correspondence recording the impact of the delay, and clear accounting records — all of this matters far more than a reconstructed narrative months later. See also the factors relevant to reasonable time and the reasonable-grounds defence.
This is a worked example for illustration only. It does not describe any actual Apex client.
A PI-insured accountancy practice notified its insurer of a substantial claim from a former audit client. The insurer took nine months to reach a cover decision. The firm drew £180,000 on its bank overdraft at 8% interest, incurring £10,800 of interest. It also deferred the admission of a salaried partner to equity — an admission under discussion at inception — resulting in £45,000 of delayed billing at the higher partner rate. Both losses were foreseeable to the insurer at policy inception, because the firm's growth plans and reliance on partner-progression billing were disclosed in the presentation. A court awarded £55,800 in s.13A damages, in addition to the indemnity and statutory interest.
Document the delay in real time. Record every promise made by the insurer, every failure to meet it, and every commercial consequence as it happens. Keep decision papers showing what the firm would have done had the indemnity been paid on time. Preserve the presentation of risk and any covering correspondence — that is the reference point for what was in the insurer's reasonable contemplation. For solicitors and other regulated firms, the interaction between the s.13A claim, the underlying professional matter and any regulator notification is not straightforward, and early advice is worth having.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.