Section 13A of the Insurance Act 2015, inserted by the Enterprise Act 2016, implies a term into every insurance contract that the insurer must pay sums due on a valid claim within a reasonable time. Section 13A(4) then supplies the counterweight: if the insurer had reasonable grounds for disputing the claim — whether as to the amount payable or as to whether anything at all is payable — the insurer does not breach the implied term while the dispute is being resolved. The subsection is the statutory shield that stops every contested claim from generating a damages award, and it is the provision an insurer is most likely to run when a policyholder brings a s.13A action.
Section 13A(4) provides that the insurer does not breach the implied term merely by failing to pay while a dispute is ongoing. Section 13A(5) makes clear that the insurer's conduct in handling the claim may still be relevant to whether the grounds were reasonable and whether the dispute was properly conducted. Section 13A(6) preserves the ordinary remedies for breach of the underlying contract — s.13A damages sit on top of, not instead of, the sum due under the policy.
The Explanatory Notes to the Enterprise Act 2016 record that Parliament intended a balanced regime: policyholders would gain a real remedy for unreasonable delay, but insurers would remain entitled to investigate, take advice, and defend claims they genuinely believed lacked merit — provided that belief was objectively justified.
The phrase 'reasonable grounds' is objective. It is not enough for the insurer to say, however sincerely, that it thought the claim was bad. The Court of Appeal made the point in Quadra Commodities SA v XL Insurance Co SE [2022] EWCA Civ 1554: the insurer's genuine belief in a coverage defence is not sufficient without objective justification for that belief. The court will look at the material available at the relevant time, the advice taken, the investigations conducted, and the reasoning applied. A defence run in good faith on plainly thin material will not satisfy s.13A(4).
The Court of Appeal's decision in Sky UK Ltd v Riverstone Managing Agency Ltd [2024] EWCA Civ 1567 reinforced the same theme. Whether the insurer's grounds were reasonable is assessed on the evidence, and the burden of demonstrating those grounds sits squarely on the insurer.
Once the policyholder has established the primary elements of a s.13A claim — a valid claim, sums due, and unreasonable delay — the insurer bears the burden of establishing the s.13A(4) defence. That is a practical, evidential burden: the insurer must produce the coverage analysis, the loss-adjuster reports, counsel's advice, the correspondence with the broker, and whatever else demonstrates that the dispute rested on objectively reasonable grounds. Contemporaneous documentation is central. An insurer that cannot show its working will struggle to persuade the court that the working was ever done.
A frequent question is what happens when the insurer disputes only part of the claim. Reasonable grounds on the disputed portion do not extinguish the duty on the undisputed portion. If quantum on a professional indemnity claim is genuinely in issue between £400,000 and £600,000 but the insurer accepts liability up to £400,000, the insurer is expected to pay the £400,000 within a reasonable time and to run the s.13A(4) defence only on the disputed balance. Holding back the whole sum while the disputed slice is argued about is the pattern most likely to produce a successful s.13A action.
Insurers are well-advised to document their reasoning contemporaneously — not to reconstruct it in litigation. That means a coverage note at the point of decline or reservation, updated as further material arrives, recording the material relied on, the policy wording engaged, and the advice taken. Brokers can help by ensuring the client's presentation is complete and accurate at inception and renewal, and by pressing the insurer for a written explanation whenever a claim is disputed or partially declined.
Worked example (illustrative only — not a real matter). A professional indemnity insurer disputed a £600,000 claim on grounds of alleged non-disclosure at inception, arguing that a material fact about a prior circumstance had been withheld. On disclosure it emerged that the fact had been properly disclosed in a supplementary form completed at renewal, and that the underwriter had signed the form as received. The court found the alleged non-disclosure baseless — the insurer had no reasonable grounds within s.13A(4). Six months passed between claim notification and settlement. The court awarded s.13A damages of £48,000, reflecting the insured firm's business interruption and additional interim funding costs during the delay. The insurer's genuine belief in the defence did not save it; there was no objective justification on the material available at the time.
For the underlying implied term, see Insurance Act 2015 section 13A — payment within a reasonable time and the factors the court weighs in reasonable time under s.13A — the factors. For sector-specific application, see the pillar guides on solicitors' professional indemnity insurance and IFAs' professional indemnity insurance.
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.