Insurance customers win ‘no payout’ law change


Policyholders with a valid insurance claim are set to gain compensation from their insurer if the firm refuses (or takes a long time) to pay up.

Due to a quirk of English law, anyone wanting to sue an insurance company for failing to pay out cannot seek compensation for any loss suffered due to the delay in receiving the money.

The law cannot deal with a claim for damages relating to damages , which is how the law defines an insurance pay out.

Courts only allow interest on late insurance payments.

The result is insurance customers are put in the position of paying out for bills the insurance was intended to protect; like replacing a car after an accident or protecting income or care bills due to a critical illness 

The rules are different in many countries, including Scotland and with English contract law.

The Law Commission has looked at the problem and has just published the results of consultation about whether the law should change 

Only one out of 32 responses from insurers, legal firms and other interested parties objected 

The result is the Law Commission is going to review the replies and issue a new consultation document aimed at recommending changes to the law next year.

David Hertzell, the Law Commissioner leading the project for England and Wales,

Has already said:  “In this area, English law is out of step with today’s commercial realities. We are seeking a solution which balances the insurer’s need to investigate claims against the policyholder’s expectation that valid claims will be paid on time.” 

Changing insurance disclosure rules would benefit consumers

The same insurance project is also looking at scrapping the requirement for insurance customers to volunteer information about everything that a “prudent insurer” would consider relevant. 

Instead, the requirement should be reversed. Insurers should have the burden of asking customers what they need to know to assess any underwriting risk.

This would be a significant step forward for consumers who would no longer have to worry that a policy claim would be rejected because they had failed to provide information the insurer considered relevant during the life of a policy.

Insurers would still be protected against false and fraudulent claims.

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