Category: Claims handling · Reviewed by Matt Bartlett, Director · Founder · Last reviewed 2026-06-11
Section 13A of the Insurance Act 2015 implies into every insurance contract a term that the insurer will pay sums due in respect of any claim within a reasonable time, with damages available for breach.
Section 13A was introduced by the Enterprise Act 2016 amendment to the Insurance Act 2015 and is in force for policies entered into or varied from 4 May 2017. It changed UK insurance law fundamentally by making damages for late payment available for the first time. Before May 2017, an insurer that delayed payment of a clear claim was liable only for the principal and interest; the policyholder had no remedy for the wider consequential losses caused by delay. Section 13A reverses that position.
The implied term operates as a contractual obligation: payment of sums due within a reasonable time. Breach gives rise to damages on ordinary contract-damages principles, subject to remoteness and mitigation.
Section 13A reads (in summary):
Section 13A(1) sets out the implied term. Section 13A(2) defines “reasonable time” as including allowance for the investigation. Section 13A(4) provides the reasonable-grounds defence.
The Enterprise Act 2016 amendments brought section 13A into force and made consequential changes to the Consumer Insurance (Disclosure and Representations) Act 2012.
Key authorities:
The PRA’s expectations on insurers’ claims-handling operational resilience (SS18/16) and the FCA’s ICOBS 8 framework reinforce the section 13A obligation through supervisory engagement.
Section 13A operates on a four-step analysis:
First, is there a claim that should be paid? If the claim is invalid (no cover; fraudulent; non-disclosure), section 13A is not engaged.
Second, has the insurer paid within a reasonable time? The reasonable time runs from the date the insurer has sufficient information to evaluate the claim. The clock can be paused (extended) by the insurer’s reasonable investigation but does not stop simply because the insurer wants more time. Once the insurer has the information, the clock runs.
Third, if not, did the insurer have reasonable grounds for disputing? The reasonable-grounds defence under section 13A(4) is fact-specific. An insurer that genuinely thinks the claim is fraudulent and is investigating reasonably can rely on the defence; an insurer that is delaying for tactical reasons cannot.
Fourth, what are the damages? The losses must be foreseeable (under Hadley v Baxendale) and not too remote. Typical heads include:
The damages must be mitigated by the policyholder.
In practice, the section 13A regime has shifted insurer behaviour. Insurers now:
Litigation under section 13A has been gradual rather than explosive. The early case law has tested the boundaries; insurers have generally responded by improving handling rather than fighting damages claims.
“Single-stage” claims — straightforward payment claims where the reasonable-time analysis is simple.
“Multi-stage” claims — claims with multiple distinct elements (coverage, quantum, recovery) where the reasonable-time test applies to each.
“Investigatory” claims — claims requiring lengthy investigation; the reasonable-time clock allows for investigation but does not stop indefinitely.
“Disputed” claims — claims where the insurer is reasonably disputing cover; section 13A(4) provides the reasonable-grounds defence.
“Late-payment-only” claims — situations where the principal claim has been resolved but the damages claim for late payment proceeds separately.
A logistics company’s £8m business interruption claim arises from a major fire at its warehouse. The fire is at the warehouse on 4 March; FNOL the same day. The insurer’s adjuster attends on 5 March; preliminary BI estimate £6.5m within ten days. The insurer makes a £2m interim payment on 25 March against the property damage element.
The BI element develops more slowly. The forensic accountant’s report is produced on 12 May; insurer’s response queries the methodology on 28 May; further evidence requested 4 June; received 20 June. The insurer makes a further £3m interim payment on 28 June.
The final BI settlement is reached on 12 October, eight months after FNOL, for £5.6m (additional £600k beyond the interim payments).
Section 13A analysis: the reasonable-time test applies to each payment. The interim payments were broadly within reasonable time given the complexity. But the final settlement was protracted; the policyholder argues that £4m of the £5.6m was clearly due by mid-July (after evidence was provided in late June) and was only paid three months later.
The policyholder claims £180,000 in financing costs incurred during the late payment period (overdraft interest, factoring fees) and £90,000 in lost business opportunities (a deal that fell through because cash was not available).
The insurer’s section 13A(4) defence: the insurer had reasonable grounds for further investigation around the forensic accountant’s methodology. The court accepts this defence partially, awarding the policyholder £45,000 of financing costs for the period after the methodology was finally accepted by the insurer.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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