{"id":1789,"date":"2022-05-31T14:14:58","date_gmt":"2022-05-31T14:14:58","guid":{"rendered":"https:\/\/elbornes.com\/?post_type=insight&p=1789"},"modified":"2022-06-07T09:31:09","modified_gmt":"2022-06-07T09:31:09","slug":"first-english-law-judgment-late-payment-damages","status":"publish","type":"insight","link":"https:\/\/elbornes.com\/insight\/first-english-law-judgment-late-payment-damages\/","title":{"rendered":"First English Law Judgment on Late Payment Damages"},"content":{"rendered":"

Since May 2017 it has been possible in English law for an insured to <\/em>get damages from insurers for losses caused by their unreasonable delay in paying a claim. Yet it has taken nearly five years for the first case involving so-called \u2018late payment damages\u2019 to come before the Courts.<\/em><\/p>\n

Andy Stevenson looks at the decision in Quadra Commodities SA v XL Insurance Company SE & Others (March 2022) and what it tells us about the scope of the legislation (Section 13A Insurance Act 2015) and applying it in practice.<\/em><\/p>\n

Back in 2016\/2017 there was a lot of discussion in the UK insurance market about whether the new Enterprise Act 2016 (which introduced Section 13A into the Insurance Act 2015) was going to lead to a sea-change in claims handling.<\/p>\n

Created in response to a perceived unfairness \u2013 that unscrupulous insurers could deliberately delay paying claims in order to leverage a better deal with their insureds (or even wait for the insured to go bust) \u2013 Section 13A gave insureds a statutory right to recover losses caused by an insurer \u2018unreasonably\u2019 delaying payment. It applied to any contract of (re)insurance entered into after 4 May 2017 and, despite a number of safeguards designed to allow insurers to continue investigating claims and taking advice, there was nevertheless unease as to how the new legislation would affect future insured\/insurer relations.<\/p>\n

It is impossible to know how much insurers have paid out by way of late payment damages since 2017 or whether the Act has had a material effect on claims-handling. However, it is clear that no cases have come to Court for determination before March 2022. The decision in Quadra<\/em> is therefore the first to show how Section 13A is to be applied and to outline what does \/ does not constitute \u2018unreasonable\u2019 delay.<\/p>\n

Background facts<\/strong><\/p>\n

Quadra was a Swiss company in the business of purchasing quantities of grain under various contracts. It paid for the grain when the sellers presented receipts issued by Ukrainian warehouses stating that the grain was present.\u00a0In reality the warehouses were involved in a fraud where multiple receipts for the same goods were issued to different buyers.\u00a0When it came to delivering the grain the buyers had paid for against the warehouse receipts there was not enough to go around and Quadra ended up suffering a substantial loss.<\/p>\n

Quadra had bought a cargo insurance policy from the Defendant insurers and duly made a claim on it in February 2019, following the loss. The Defendants denied liability on various grounds (eg\u00a0<\/em>that there was no loss of physical property, alternatively that there was no insurable interest) which lead to Court proceedings being brought in May 2020. Quadra included within those proceedings a claim for Section 13A late payment damages on the ground that it had sustained further losses by reason of the insurers\u2019 alleged unreasonable delay in paying the main claim. The insurers denied liability for that and generally.<\/p>\n

The Judgment<\/strong><\/p>\n

The first part of the judgment deals with insurers\u2019 liability defences. It is not necessary to go into those into detail here, save to say that it was held that insurers did<\/u> have an obligation to indemnify Quadra for its lost goods.<\/p>\n

Turning to the Section 13A claim, Quadra claimed it had suffered losses \u201cby reference to the return on shareholders\u2019 equity<\/em>\u201d for the 2019 and 2020 years of account because \u201cthe Defendants’ conduct of the claim was ‘wholly unreasonable, and its investigations either unnecessary or unreasonably slow’<\/em>\u201d. Insurers denied liability, first, on the ground that \u201ca reasonable time<\/em>\u201d in Section 13A meant \u201ca considerable time<\/em>\u201d in the context of the present case. And, second, because – per the defence in Section 13A(4) – they had reasonable grounds for disputing the claim and that, where this is the case, a defendant is not liable under the Act for merely failing to pay the claim whilst the dispute continues.<\/p>\n

The Judge analysed the claim in the following way:<\/p>\n