Damages for claims paid late

Law Commission has launched a consultation called Damages for Late Payment, suggesting English law should allow policyholders to claim for damages caused when insurers delay paying claims.

This would bring English law into line with Scotland and other common law jurisdictions, the Law Commission said.

The paper also looks at an insurer’s duty to act in good faith. It asks whether the law should spell out that insurers should, for example, investigate claims fairly, and give reasons for rejecting claims.

Breach of good faith

It also asks whether a policyholder should be entitled to damages if an insurer breaches its duty of good faith.

David Hertzell, the Law Commissioner leading the project for England and Wales, said: “In this area, English law is out of step with today’s commercial realities. We are seeking a solution that balances the insurer’s need to investigate claims against the policyholder’s expectation that valid claims will be paid on time.”

Professor Hector MacQueen, Scottish Law Commissioner, said: “We think the Scottish approach to damages for late payment is fair, and it seems to work well. However, we are seeking views on how helpful it would be to clarify the insurer’s duty of good faith in Scots law.”

The Commissions seek responses by 24 June 2010. It will publish a second paper later this year, looking at the policyholder’s duty to act in good faith.