Historically, English law gave an insured no damages for an insurer's late payment of a valid claim, because the claim itself was treated as the damages. Section 13A, inserted into the Insurance Act 2015 by the Enterprise Act 2016 and in force from 4 May 2017, changed that by implying a term into every insurance contract that the insurer must pay sums due within a reasonable time.
Section 13A(2) makes clear that a reasonable time includes a reasonable period to investigate and assess the claim. What is reasonable depends on the type of insurance, the size and complexity of the claim, compliance with any relevant regulatory rules or guidance, and factors outside the insurer's control. A complex professional indemnity claim involving disputed liability and quantum will properly take longer to assess than a simple property loss.
Section 13A(4) provides that if there were reasonable grounds for disputing the claim, whether about liability or amount, the insurer does not breach the implied term merely by withholding payment while the dispute continues. However, the conduct of the insurer in handling the dispute may be relevant to whether the term was breached. An insurer cannot use a spurious dispute to justify delay.
Where the insurer breaches the implied term, the insured may claim damages for the late payment, in addition to the policy proceeds and any interest. This is a separate cause of action. There is a one-year limitation period running from when the insurer pays the sums due, under changes the Act made to the Limitation Act 1980.
For a firm facing a professional negligence claim, timely response from its insurer can matter a great deal: defence costs, the client relationship and the firm's reputation may all be affected by delay. Solicitors and property managers, whose claims can be document-heavy, are among those for whom prompt handling counts. The solicitors' PI guide and the property managers' PI guide set out the claims context.
An insurer may contract out of section 13A for non-consumer insurance, but not in respect of a deliberate or reckless breach, and only if the transparency requirements in sections 16 and 17 are met. Apex helps clients read those terms when they appear.
Section 13A sits alongside the FCA's conduct rules on claims handling in ICOBS, which already require insurers to handle claims promptly and fairly. The statutory implied term adds a contractual remedy in damages that the conduct rules alone do not give, so the two operate together: ICOBS governs conduct and supervision, while section 13A gives the insured a direct claim if late payment causes loss. For a professional firm whose own cash flow or client relationships suffer because a valid indemnity was paid late, that damages remedy can be significant, though it must be weighed against the reasonable investigation period the section allows.
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.