The Law Commission has reported on responses to its paper on “Damages for Late Payment and the Insurer’s Duty of Good Faith”. The paper asks whether a policyholder should be entitled to damages where the insurer has refused to pay a valid insurance claim, or has paid only after considerable delay.
The consultation indicated strong support for change. Consultees emphasised that if an insurer has declined a valid claim and acted unreasonably, then insurance law ought to be brought into line with general commercial contractual principles and the policyholder should be offered an appropriate remedy.
Under ordinary contract law principles, where one party breaches a contract, the innocent party may claim damages for the loss suffered. However, according to the Commission, the English treatment of insurance contracts is out of step with these principles.
Further proposals will be published in a consultation paper in Spring 2011.