Enterprise Bill [HL]

Baroness Hayter of Kentish Town Excerpts

Monday 2nd November 2015 Grand Committee

[Baroness Noakes (Con)]

My Lords, I have not spoken before on this Bill and, indeed, I would not have spoken had I not seen the amendments tabled by the noble Earl, Lord Kinnoull. I was very happy to see Clause 20 in the Bill and I would not have spoken had it not been threatened in some way. I should explain that I was a member of the Special Public Bill Committee which considered the Insurance Bill which became the Insurance Act 2015. As noble Lords may be aware, that was a Law Commission Bill, which is handled under the special procedure in your Lordships’ House, which means that the Law Commission produces technical amendments to the law and they go through on the basis that they are uncontentious.

Clause 20 that we have before us appeared in the draft legislation which the Law Commission put forward, but when the Government tabled their Bill for consideration by the Special Public Bill Committee it did not include that clause. We examined that very carefully as part of the Insurance Bill Committee. I believe the Government deemed the clause was contentious because of lobbying by the Lloyd’s Market Association and the International Underwriting Association. At the final stage of the Special Public Bill Committee, I introduced an amendment in precisely the terms in Clause 20, which is not my cleverness in drafting but the drafting of the Law Commission in the original Bill. I should say that the Law Commission contacted me last week, and it remains of the view that this is an important change to the law which it fully stands behind.

Needless to say, in the Special Public Bill Committee—which is a version of Grand Committee, in effect—that was not pressed. I was then leaned on—noble Lords may be shocked at this—by the powers that be in my party organisation not to move the amendment again on Report. The Government then managed to schedule the business on a day when I was not able to be in the House, so that was an end to it, so the Insurance Bill went through without properly considering the issue. While the Lloyd’s Market Association and the IUA remain against the clause, others in the insurance industry are quite content for it to go through, and we were quite clear in the Special Public Bill Committee that the weight of opinion in the insurance industry, setting aside the two organisations that the noble Earl mentioned, was in favour of this amendment, even though the Association of British Insurers thought that there might be a possibility that it would lead to claims management company activity, which is one of the scourges of the financial services industry at the moment. While that might have an undesirable consequence, it was not a good reason not to legislate for something that was right.

I find it difficult to understand why there could be an objection to a clause which just states,

“the insurer must pay any sums due … within a reasonable time”,

with reasonable time being well defined to cover what one would think would be a reasonable prospect of excuse for non-payment and therefore not imposing any particular amendment. The noble Earl’s amendment seeks to knock out reinsurance contracts—I rather take the view that they are between consenting adults and need not form part of this—and large risks. Large risks might sound as if they are huge things that are of no concern to small companies, but they are well within the ambit of many medium-sized companies in this country. One piece of the evidence that the Mactavish Group produced in the context of the Special Public Bill Committee and for the Treasury when it was considering what to do with this showed that in the previous four years 40% businesses with a turnover of more than £50 million had suffered strategically significant losses, that 45% of their claims were disputed and that the average time for resolution was three years. If you are a medium-sized company with a strategically significant claim which is being held up and takes a long time, it could be the difference between survival and business failure. It seems only right and proper that we should have within insurance law, fully in line with the Law Commission’s recommendations, an implied term of reasonableness of payment. I hope very much that the Minister will resist these amendments.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, like the noble Baroness, Lady Noakes, we were rather sorry to see these amendments tabled by the noble Earl, Lord Kinnoull, as we support Clauses 20 and 21, which help consumers and businesses facing delayed payment of insurance claims to get damages for resulting losses. We certainly do not want to see these provisions watered down. Indeed, as the noble Baroness, Lady Noakes, recalled, it was the Law Commission and the Scottish Law Commission which recommended that insurers should be under a legal obligation to pay valid claims within a reasonable time. I thought it was the Law Commission which drafted these clauses and I am delighted to be in the Room with the true author.

The Bill puts the current FOS practice, which is to award compensation for unfairly refusing or delaying insurance claims, on to a statutory footing. Importantly, it will provide small businesses with recourse to the courts to claim such damages. As we have heard, Amendments 52A and 52C would remove the insurance of large risks from the provisions of Clause 20. That would effectively exclude many SMEs and their risks from the very protections that the Government—in our view, quite rightly—are seeking to introduce.

As we have heard, it is not just the Opposition who resist these and indeed the later amendments, which bring insurance contracts into line with any other normal contract. Some 80% of those responding to the Law Commission’s consultation agreed that insurers should be under a legal obligation to pay valid claims within a reasonable time. Our understanding is that not a single member of the ABI was against the clause. Indeed, some were strongly supportive, pointing out that for their SME customers, a claim being paid in a few months can be the difference between survival and failure.

It is almost a legal fiction which means that the normal contract law—that is, if one party breaks a contract, the other can claim damages—does not apply to insurance law in England. It is time to change this. The Law Commission is clear that this is appropriate for the London market and it opposes the attempt in these amendments to exclude it. Any carve-out for “large risks”, as defined in Solvency II, would exclude many consumer and SME risks. I leave the Minister to take the Committee through the finer details of the Law Commission’s argument, should she feel it necessary. I would just add that, in regard to excluding some forms of large risk, the Law Commission found that stakeholders were keen to see a single regime for all non-consumer contracts and did not support defining somewhat arbitrary boundaries, which add to transaction costs.

[Baroness Neville-Rolfe]

My Lords, I thank the noble Earl, Lord Kinnoull, for his amendments and for taking the trouble to meet me and representatives from the London insurance market, and welcome my noble friend Lord Flight, who is an expert in this area. I am also very glad that my noble friend Lady Noakes is with us and thank her for her support for the late payment of insurance provisions; that nicely complements the discussions we have had on other days on late payment for small firms by big firms and retentions. The provisions are, as she says, intended to address a legal anomaly in the current law; that is, that insurers currently have no legal obligation to pay sums due within a reasonable time.

Where late payment does occur, however frequent or infrequent that may be in different parts of the market, it is appropriate that the policyholder should be able to recover any losses suffered as a result. That is why the Bill builds into every contract of insurance an obligation on insurers to pay sums due within a reasonable time. Breach of that obligation may give rise to damages for breach of contract on normal contractual principles.

With his Amendments 52A and 52C, the noble Earl seeks to restrict the types of contracts to which this obligation would apply, excluding reinsurance and certain “large risks”. The clauses in the Bill are the product of a long Law Commission project involving years of engagement with the insurance industry. Stakeholders argued strongly in favour of a single regime for all non-consumer insurance contracts, avoiding boundaries which, by their nature, are complex and arbitrary, and add to legal expense. If different rules applied to different types or sizes of business, insurers would have to identify which side of the boundary each prospective policyholder fell before entering into the policy. This would severely slow down and add expense to the placement process.