For most of the twentieth century, English law took an odd position on late payment by insurers. If an insurer delayed paying a valid claim — even for months or years — the insured could recover the sum due under the policy, but not damages for the consequential losses caused by the delay. The leading case, Sprung v Royal Insurance (UK) Ltd [1999] Lloyd's Rep IR 111, held that a claim against an insurer was itself a claim in damages, and English law does not award damages for the late payment of damages. A policyholder whose business collapsed because the insurer sat on the claim had no separate cause of action.
Section 28 of the Enterprise Act 2016 inserted section 13A into the Insurance Act 2015 and reversed that position. Section 13A(1) implies into every insurance and reinsurance contract a term that, if the insured makes a claim, the insurer must pay any sums due within a reasonable time. Breach gives the insured a free-standing right to damages for foreseeable loss caused by the delay, in addition to the sum due under the policy and any interest. The provision applies to contracts entered into, and to variations agreed, on or after 4 May 2017.
Section 13A(2) makes clear that a reasonable time always includes a reasonable period to investigate and assess the claim. What is reasonable turns on the facts. Section 13A(3) lists the factors the court will weigh:
A straightforward household claim should be paid quickly. A complex PI notification involving disputed causation and a large reserve will legitimately take longer. The Court of Appeal considered the balance in Quadra Commodities SA v XL Insurance Co SE [2022] EWCA Civ 1554, and again in Sky UK Ltd v Riverstone Managing Agency Ltd [2024] EWCA Civ 1567, which addressed how the reasonable-time analysis interacts with the underlying construction of the policy.
Section 13A(4) provides that, if the insurer shows there were reasonable grounds for disputing the claim (whether about the amount or whether anything was payable at all), the insurer does not breach the implied term merely by failing to pay while the dispute is continuing. The insurer's conduct in handling the dispute may itself be a factor in deciding whether the implied term has been breached. In other words, an insurer can dispute a claim in good faith without automatically incurring damages, but stringing out an investigation or acting unreasonably during that dispute can still amount to a breach.
Where the implied term is breached, ordinary contractual damages principles apply. The insured must show foreseeable loss caused by the delay. Legal costs incurred to chase payment, financing costs, lost profits, and — in a PI context — the additional defence costs caused by delay in appointing panel solicitors are all potentially recoverable, subject to remoteness and mitigation. Interest on the underlying sum remains available in the usual way.
Professions carry PI cover for two linked reasons: to indemnify the firm against the cost of a claim, and to fund the defence of that claim on a timely basis. Delay in the second function causes real damage to the first. A firm forced to fund its own defence for months while the insurer decides whether to accept cover may have to divert fee-earner time, engage its own solicitors at higher rates than the panel firm would charge, and lose billable work to the distraction. Section 13A brings that loss inside the policyholder's remedies rather than leaving it to be absorbed silently.
The following is a worked illustration. It is not a description of an actual claim.
A solicitor firm notifies its PI insurer of a circumstance in July 2022 concerning an alleged missed limitation date. The insurer accepts cover in principle within a fortnight but then takes six months to appoint a panel defence firm, during which time the claimant issues proceedings and the firm's chosen solicitor has to be replaced twice at short notice. The firm can show that the panel-appointment delay caused an additional £30,000 in solicitor changeover costs and £15,000 in lost billable time. At trial of the section 13A issue the court finds that six months, on these facts, was not a reasonable time to appoint a defence panel. The insurer cannot rely on the section 13A(4) defence because cover was not in dispute. The firm recovers £45,000 in damages for breach of the implied term, in addition to the underlying settlement met by the policy.
Firms with PI cover should keep a clear timeline of every claim: date of notification, date of insurer acknowledgement, date of coverage decision, date of panel appointment, and every substantive communication in between. That contemporaneous record is what makes a section 13A argument viable if delay becomes an issue.
Related material: Insurance Act 2015 overview, fair presentation of the risk, Sprung v Royal Insurance (1999), and Apex pillar guides for solicitors' PI, accountants' PI, IFAs' PI, and architects' PI.
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.