Category: Insurance Act 2015 — claims provisions · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-11
Section 13A Insurance Act 2015 is a statutory implied term in every contract of insurance governed by English, Welsh or Northern Irish law requiring the insurer to pay sums due in respect of a valid claim within a reasonable time, breach of which sounds in damages.
Category: Insurance Act 2015 — claims provisions Also known as: s 13A Insurance Act 2015, implied term as to payment within a reasonable time, late payment provision Related concepts: Reasonable time to pay claim, Late payment damages insurance, Section 14 Insurance Act 2015 good faith, Claims handling
Section 13A of the Insurance Act 2015 introduces an implied term into every contract of insurance to the effect that, if a claim is made under the contract, the insurer must pay any sums due in respect of that claim within a reasonable time. The provision was inserted into the 2015 Act by section 28 of the Enterprise Act 2016 and came into force on 4 May 2017, applying to contracts of insurance entered into on or after that date and to variations of earlier contracts. The provision marks a fundamental shift in English insurance law. Prior to its enactment, the insurer’s obligation under an indemnity policy was characterised as a duty to “hold the assured harmless” from the moment loss occurred, meaning damages for late payment were not recoverable because, as a matter of law, the loss itself was the damages and the insurer could not be in breach of any further obligation by paying late. That position, confirmed in Sprung v Royal Insurance (UK) Ltd [1999] Lloyd’s Rep IR 111 and earlier authorities, was widely criticised as unjust to policyholders, particularly small businesses for whom delayed indemnification could be catastrophic. Section 13A reverses Sprung prospectively by treating timely payment as a contractual obligation, breach of which gives rise to a separate claim in damages assessed on ordinary contractual principles, including remoteness, mitigation and causation. The provision applies to both consumer and non-consumer contracts, although the parties to a non-consumer contract may contract out subject to the transparency requirements in Part 5 of the 2015 Act, while contracting out is barred for consumer contracts.
Section 13A is set out in Part 4A of the Insurance Act 2015 and reads, in substance, that (1) it is an implied term of every contract of insurance that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time; (2) a reasonable time includes a reasonable time to investigate and assess the claim; (3) what is reasonable depends on all the relevant circumstances, including the type of insurance, the size and complexity of the claim, compliance with any relevant statutory or regulatory rules or guidance, and factors outside the insurer’s control; and (4) the insurer does not breach the term merely by failing to pay while a dispute about the claim is ongoing, provided the insurer’s conduct in handling the claim was reasonable.
The remedies regime in section 13A is supplemented by sections 16A and 17 of the Insurance Act 2015. Section 16A provides that the implied term cannot be excluded or limited in consumer contracts, and that contracting out in non-consumer contracts is permitted only if the insurer satisfies the transparency requirements in section 17 and the term does not purport to exclude liability for deliberate or reckless breaches. Section 17 requires that any disadvantageous term be brought to the policyholder’s attention before the contract is concluded and that it be clear and unambiguous as to its effect. The standard limitation period for breach of contract under the Limitation Act 1980 applies, but section 13A claims have a shortened limitation period of one year from the date payment of the claim is made by the insurer. The provision modifies, but does not displace, the regulatory regime under the FCA’s Insurance Conduct of Business Sourcebook (ICOBS) and the Consumer Duty, both of which impose parallel obligations on claims handling.
Where a policyholder makes a valid claim, the insurer’s obligation under section 13A runs in parallel with its primary obligation to indemnify. The insurer is entitled to a reasonable period to investigate liability and quantum — section 13A expressly preserves this — but unreasonable delay in any of investigation, decision-making or payment can give rise to a damages claim. In practice, courts and disputes will focus on whether the insurer’s claims handling was reasonable in all the circumstances. Relevant factors typically include the complexity of coverage issues, the availability and cooperation of the insured in providing information, the need for third-party expert input (loss adjusters, forensic accountants, surveyors), regulatory or reinsurance approvals, and any genuine coverage dispute.
The first reported decision applying section 13A is Quadra Commodities SA v XL Insurance Company SE [2022] EWHC 431 (Comm), in which the Commercial Court rejected a late payment damages claim on the basis that the insurer had reasonable grounds to dispute the claim and had handled the matter without unreasonable delay. The decision emphasises that section 13A does not create strict liability for delay; rather, it imposes a reasonableness standard judged on the totality of the insurer’s conduct. Where breach is established, damages are assessed on the Hadley v Baxendale (1854) 9 Exch 341 framework: losses that arise naturally from the breach, and losses that were within the parties’ reasonable contemplation at the time of contracting. Consequential losses can include interest at a commercial rate, business interruption losses beyond the policy indemnity, the cost of bridging finance, loss of profitable contracts, and in extreme cases the insolvency of the insured business. The policyholder must prove causation in the usual way and mitigate its losses. Practical tips for claims teams include maintaining a contemporaneous reasoned record of the claims timeline, communicating delays and their reasons to the insured promptly, making interim payments where partial liability is admitted, and escalating coverage disputes for early legal advice.
Contracting out is permitted in non-consumer contracts, but only as to liability for non-deliberate, non-reckless breaches and only where the transparency requirements of sections 16A and 17 are met. In the London market and on large commercial risks, it is common to see contracting-out clauses that exclude liability for late payment damages save where the delay is caused by deliberate or reckless conduct, and that impose contractual notification timelines on the insured before damages can be claimed. The validity of such clauses is fact-sensitive; clauses that are buried in the small print or that purport to disclaim deliberate breaches will be unenforceable.
The 2017 commencement creates a transitional issue: contracts entered into before 4 May 2017 are not subject to section 13A, even if the loss occurred or the claim was made after that date. Variations of pre-existing contracts may, however, bring them within the new regime. Multi-year policies and consortium arrangements can present complex transitional questions. Reinsurance contracts are within scope, although the practical incidence is rare given the sophistication of the parties and the prevalence of contracting-out clauses. Policies governed by foreign law are outside the scope of section 13A, which raises potential forum-shopping considerations for international programmes. Some insurers have responded to section 13A by issuing claims-handling charters or service-level commitments that impose internal deadlines stricter than the statutory standard, with a view to demonstrating reasonableness.
A manufacturing company suffers a major fire at its UK factory and notifies its property damage and business interruption insurers. The policy was incepted on 1 January 2024 and is governed by English law. The insurers appoint loss adjusters and forensic accountants. Liability is not contested but the insurers withhold payment for nine months while disputing the basis of business interruption quantum, despite the loss adjuster’s recommendation of substantial interim payments. The policyholder is unable to fund reinstatement, loses a major customer contract worth ÂŁ2 million, and incurs additional borrowing costs of ÂŁ150,000. The policyholder issues proceedings under section 13A. The court finds that, although the insurers were entitled to investigate quantum, the failure to make interim payments in line with the loss adjuster’s recommendations was unreasonable from month four onwards. The court awards the policy proceeds plus damages for late payment comprising the borrowing costs (recoverable as a natural consequence of delayed indemnity) and a proportion of the lost contract (recoverable as within the parties’ reasonable contemplation given the disclosed nature of the business). The result illustrates how section 13A operates not as a strict liability rule but as a yardstick of reasonable claims handling.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Next review: 2026-12-11.
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