Enterprise Act 2016 amendments

Part 5 of the Enterprise Act 2016 amended the Insurance Act 2015 by inserting section 13A (and the associated contracting-out provision in section 16A), creating an implied term in every contract of insurance that the insurer must pay claims within a reasonable time.

Definition §

The Enterprise Act 2016 is principally an economic-policy statute covering business regulation, employment and intellectual property. However, its Part 5 contains a discrete and significant set of amendments to the Insurance Act 2015. Section 28 of the Enterprise Act 2016 inserted a new section 13A into the Insurance Act 2015, creating an implied term in every contract of insurance that the insurer must pay any sums due in respect of a claim within a reasonable time. Section 28 also inserted a new section 16A regulating contracting-out from section 13A.^[1]

The amendments came into force on 4 May 2017 and apply to contracts of insurance entered into on or after that date. They completed the reform programme begun by the Insurance Act 2015 by addressing the question of late payment by insurers — a question that had been left out of the 2015 Act due to legislative time constraints and continuing industry debate.^[2]

The reform reflected long-standing recommendations from the Law Commission and the Scottish Law Commission that the law should provide a meaningful remedy for insureds who suffered consequential loss as a result of insurers' delays in paying valid claims. Prior to the amendment, English law treated the insurer's obligation under the contract as itself an obligation to pay damages, so late payment did not give rise to a separate cause of action.^[3]

Legal / Regulatory basis §

Part 5 of the Enterprise Act 2016 (section 28) inserts into the Insurance Act 2015 a new section 13A as follows:

• Section 13A(1): an implied term that the insurer must pay any sums due in respect of a claim within a reasonable time
• Section 13A(2): "reasonable time" includes a reasonable time to investigate and assess the claim
• Section 13A(3): non-exhaustive factors for determining what is reasonable, including the type of insurance, the size and complexity of the claim, compliance with regulatory rules or guidance, and factors outside the insurer's control
• Section 13A(4): defence where the insurer had reasonable grounds for disputing the claim, although the insurer's conduct may be relevant
• Section 13A(5): the late payment remedy is in addition to (not in substitution for) the right to enforce payment of the underlying sums and any right to interest^[4]

Section 28 also inserts section 16A, which regulates contracting-out. In non-consumer insurance, the parties may exclude or limit liability for breach of section 13A only in respect of breaches that are not deliberate or reckless, and only subject to the transparency requirements of section 17. Liability for deliberate or reckless breaches cannot be excluded or limited. In consumer insurance, contracting-out to the consumer's detriment is prohibited.^[5]

The transparency requirements of section 17 of the Insurance Act 2015 apply to derogations from section 13A: any disadvantageous term must be clear and unambiguous and brought to the insured's attention before the contract is entered into. This is consistent with the wider approach in the 2015 Act of allowing commercial freedom while ensuring transparency.

The Law Commission's 2014 report sets out the policy rationale: insureds were left without remedy for serious consequential losses caused by unreasonable delay, despite the fact that the underlying obligation under the policy was clear. The report identified the difficulty as a peculiarity of English insurance law arising from the treatment of insurance proceeds as damages, and recommended a statutory implied term.^[6]

The pre-2017 case law remains relevant for contracts entered into before commencement and as historical context. The Court of Appeal's decision in Ted Baker plc v AXA Insurance UK plc was a particularly clear illustration of the problem under the previous regime: the insured had no remedy for consequential loss flowing from late payment even where the delay was substantial.^[7]

How it works in practice §

In practice, the Enterprise Act 2016 amendments have produced a significant shift in claims handling practice. Insurers now manage claims with explicit reference to the section 13A "reasonable time" standard, supported by internal claims protocols and time-based targets. Claims teams and external loss adjusters are required to document the timeline of each claim — acknowledgement, investigation, expert appointments, interim payments and final decision — so that compliance with section 13A can be demonstrated if disputed.

Brokers and risk managers use section 13A as a tool to escalate slow-moving claims, citing the implied term and the prospect of damages for unreasonable delay. The threat of section 13A litigation, particularly in complex business interruption or liability claims, has changed the dynamic of insurer-insured negotiations during prolonged claims processes.

When section 13A is engaged in litigation, the analysis follows the statutory framework: was the claim a qualifying claim under the policy; did the insurer pay within a reasonable time; if not, did the insurer have reasonable grounds for disputing the claim during the period of delay; and what loss has the insured suffered as a result of the delay?

The Law Commission and market participants anticipated that section 13A would generate continuing case law on the meaning of "reasonable time", the section 13A(4) defence and the assessment of consequential damages. As at 2026, the early jurisprudence has begun to give shape to the standard, though many questions remain to be tested.

Common variations §

The Enterprise Act 2016 amendments apply uniformly across all classes of insurance — consumer and non-consumer, direct and reinsurance — entered into on or after 4 May 2017. The practical effect varies by class. In consumer insurance, section 13A is rarely litigated in court but operates through the Financial Ombudsman Service, which applies it as a measure of fair claims handling. In commercial insurance, particularly for large losses, section 13A claims are an increasing feature of disputes.

For commercial property and business interruption claims arising out of the COVID-19 pandemic and other systemic events, section 13A has been particularly relevant. The complex nature of these claims has tested the boundaries of the "reasonable time" standard and the section 13A(4) defence.

For reinsurance, the section 13A obligation applies between cedant and reinsurer as it does between insured and insurer. The reasonable-time analysis takes into account the iterative nature of reinsurance claims handling, including the time required for cedant losses to be confirmed.

The amendments do not apply to insurance contracts entered into before 4 May 2017. For such contracts, the older common-law rule continues to apply, leaving the insured with the right to recover the contractual sums and statutory interest but not damages for consequential loss.

Example §

A specialist insurer issues a marine cargo policy to an importer in June 2026 — three years after the Enterprise Act amendments came into force. A cargo loss occurs in September 2026. The insurer accepts coverage in October 2026 but delays settlement for nearly nine months, citing successive requests for documentation. By June 2027 the insured has incurred substantial additional financing costs and lost a major customer contract due to inability to fulfil orders.

The insured brings proceedings claiming (a) the underlying cargo loss, (b) statutory interest and (c) damages under section 13A for breach of the implied term. The court finds that the insurer was entitled to a reasonable period to investigate, but that by January 2027 the insurer had no reasonable grounds for continued delay. Damages are awarded for the additional financing costs incurred from January 2027 onwards, but the lost customer contract claim is rejected on remoteness grounds.

See also §

• /wiki/section-13a-claims-handling-duty/ — the inserted provision
• /wiki/late-payment-damages/ — the substantive remedy
• /wiki/insurance-act-2015/ — the amended statute
• /wiki/fair-presentation-of-the-risk/ — placement duty
• /wiki/contract-certainty/ — related claims-handling theme
• /wiki/business-interruption-insurance/ — class often engaging section 13A
• /wiki/consumer-insurance-disclosure-and-representations-act-2012/ — consumer regime

References §

1. ↑ Enterprise Act 2016, section 28, https://www.legislation.gov.uk/ukpga/2016/12
2. ↑ Enterprise Act 2016, Part 5 commencement provisions; Insurance Act 2015 section 13A
3. ↑ Law Commission and Scottish Law Commission, "Insurance Contract Law: Business Disclosure; Warranties; Insurers' Remedies for Fraudulent Claims; and Late Payment" (Law Com No 353 / Scot Law Com No 238, July 2014), https://lawcom.gov.uk/
4. ↑ Insurance Act 2015, section 13A (as inserted by Enterprise Act 2016, section 28), https://www.legislation.gov.uk/ukpga/2015/4/section/13A
5. ↑ Insurance Act 2015, sections 16A and 17
6. ↑ Law Commission and Scottish Law Commission, Law Com No 353, July 2014, https://lawcom.gov.uk/
7. ↑ Ted Baker plc v AXA Insurance UK plc [2017] EWCA Civ 4097