Damages for late payment

The latest step in the English and Scottish Law Commissions’ review of insurance law has been taken, with the eagerly awaited publication in March 2010 of Issues Paper 6, entitled Damages for Late Payment and the Insurer’s Duty of Good Faith. The question under discussion by the Law Commissions was whether a policyholder should be entitled to damages where the insurer has failed to pay a valid claim either at all or within a reasonable time. The Issues Paper sets out the Law Commissions’ provisional views, but poses a series of questions on which views are sought by 24 June 2010.

Late payment in English law

The accepted position is that insurers who pay late are liable only for the policy monies plus interest: the law does not recognise any action for damages for additional loss suffered by late payment. The root decision is that of the Court of Appeal in Sprung v Royal Insurance (UK) Ltd [1999] Lloyd’s Rep IR 111 in which the assured factory owner suffered damage as a result of a break-in, but the insurers denied liability and the assured, unable to afford the repairs to his factory, went out of business. The insurers ultimately paid the insured sum, but the Court of Appeal ruled that they were not liable for the consequential loss.