Category: Claims handling · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-11
Damages for late payment of insurance claims are the consequential losses caused by an insurer’s breach of the section 13A duty — recoverable by the policyholder under section 13A(5) of the Insurance Act 2015.
Before May 2017, the policyholder of a wrongly delayed claim could recover only interest. Section 13A changed this by making damages available. The recoverable losses follow ordinary contract-damages principles: they must be caused by the breach, must be foreseeable, must be mitigated, and must not be too remote.
For commercial policyholders, recoverable damages can be substantial — financing costs, lost business opportunities, contractual penalties, distress payments. For consumer policyholders, damages typically focus on distress, inconvenience and quantifiable out-of-pocket costs.
Section 13A(5) provides that breach of the implied term gives rise to damages on the ordinary principles of contract damages. The leading principles are:
For consumer policyholders, the FCA’s Consumer Duty (PRIN 2A) and ICOBS 8 framework reinforce the policyholder’s position. The FOS can award distress and inconvenience compensation alongside any substantive claim recovery.
The section 13A(4) defence (reasonable grounds for dispute and reasonable handling) is critical. Where it applies, no damages flow even if the insurer was wrong on the underlying coverage point.
A section 13A damages claim is typically pleaded as a separate cause of action alongside the underlying claim for the policy proceeds (where the insurer has still not paid) or as the principal claim (where the underlying claim has been paid but late).
The damages heads typically include:
Each head must be pleaded and supported by evidence. Causation is the key issue — the policyholder must show the loss was caused by the delay, not by some independent factor.
The reasonable-grounds defence under section 13A(4) is the principal defence. An insurer that demonstrates it had reasonable grounds for disputing the claim and acted reasonably in handling it avoids damages liability even if delay occurred.
In practice, most section 13A damages claims are resolved by negotiation rather than litigation. Insurers concerned about the reputational damage of a published 13A judgment will often settle marginal cases.
The case law is still developing. Early decisions have been cautious about extending damages to consequential losses far removed from the immediate effect of delay. Future decisions are likely to refine the boundaries.
“Direct” damages — losses directly caused by the late payment (financing costs, replacement costs).
“Consequential” damages — losses one step removed (lost business opportunities, contractual penalties).
“Distress and inconvenience” — non-financial losses for individual policyholders.
“Combined” damages — pursued alongside FOS-jurisdiction damages where the FOS deals with conduct elements and the court deals with substantive damages.
“Mitigation” reductions — the insurer can argue the policyholder failed to mitigate, reducing recoverable damages.
A commercial property policyholder suffers a £1.2m property loss with £300k of BI exposure. The insurer accepts cover within 21 days but delays final settlement of the BI quantum for ten months due to disputes over the forensic accountant’s methodology.
The policyholder pleads section 13A damages:
The insurer’s defence: section 13A(4) reasonable-grounds defence on the methodology dispute. The court holds that the methodology dispute had reasonable basis for the first four months but became unreasonable thereafter, when the insurer’s own actuarial review confirmed the policyholder’s approach.
Damages awarded: overdraft interest for the six months of unreasonable delay (£25,000); factoring cost (£18,000); 50% of the lost rental income claim (£90,000), reduced for inadequate evidence on alternative finance availability. Total damages: £133,000.
The insurer’s net cost of the claim: £1.5m of underlying claim + £133,000 of section 13A damages + costs.
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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