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Enterprise Act 2016

Part 5 of the Enterprise Act 2016, which comes into force on 4 May 2017 seeks to deal with an oddity in English law the effect of which has been that an insured has no claim in damages against his insurer for the consequences of late payment of his claim. Possibly the best reported consequence of this rule comes from Sprung v Royal Insurance [1999] Lloyd’s Rep I.R. 111.

Mr Sprung was proprietor of a family business carrying on the collection, processing and redistribution of animal waste products. In 1986 the market was at a low ebb and the business was under financial pressure. The judge found, based on accountants' expert evidence, that in 1986 the dominant firm in the market would have been interested in purchasing the business. However, in April 1986 the business premises were invaded by thieves or vandals and the machinery wrecked. The defendant had insured the plaintiff by a policy which provided for indemnity against the cost of making good sudden and unforeseen damage to the plant which necessitated immediate repair or replacement before it could resume working. When notified of the loss by the plaintiff, the defendant initially denied liability for the major part of the damage, and did not make a payment under the policy until three and a half years later. In the meantime, the plaintiff was unable to continue the business and lost the opportunity to sell it. The Judge assessed the loss of the business at £75,000 but found that there was no liability on the insurer. Mr Sprung went in person to the Court of Appeal who offered him praise for his submissions, sympathy for his predicament, made noises that the law should be changed but dismissed the appeal.

Key Points in the new legislation are:

  1. An implied term in “insurance contracts” that claims will be paid “within a reasonable time”;
  2. The limitation period will be 1 year from the last payment made by the insurer for the relevant loss;
  3. There are some provisions for contracting out in non-consumer transactions where the insurers breach has been neither “deliberate” nor “reckless” (see section 29).

Napier Miles / 21st Dec 2016


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