Levelling the Playing Field?: the Impact of Section 13A, almost a decade on

Despite having been introduced almost nine years ago, the impact of section 13A remains to be seen. In this article, we consider whether it has achieved its purpose of levelling the playing field for policyholders, or whether it has fallen short of the reform that was originally promised.

A (brief) history

Section 13A of the Insurance Act 2015 (the “Act”) was enacted by section 28(1) of the Enterprise Act 2016 and came into force on 4 May 2017. It introduced an implied term into every contract of insurance that the insurer must pay claims within a reasonable time (including time to investigate and assess the claim) and marked a significant development in UK insurance law.

To date however, there have been only two section 13A claims heard by the courts, both of which have failed: in Quadra Commodities S.A v XL Insurance Co SE and Others [2022] because the insurer succeeded in presenting a “reasonable grounds” defence, and in Delos Shipholding SA & Ors v Allianz Global Corporate and Specialty SE & Ors [2024] because the insured had failed to establish its loss.

You can read our analysis of Quadra here – Better late than never: the first reported case on damages for late payment – Fenchurch Law.

While limited inferences can be drawn from the outcomes of only two claims, there are some obvious challenges to policyholders wanting to pursue these claims.

We consider those challenges below.

What is a “reasonable time” in which a claim should be paid?

The first issue is that the burden of proof is on the insured to demonstrate that the insurer failed to pay within a reasonable time.

The Law Commission Report, and the Explanatory Notes to the Enterprise Act, make it explicit that a reasonable time will always include a reasonable time for investigating and assessing a claim, that claims under business interruption policies will usually take longer to value than claims for property damage, and that larger more complicated claims will take longer to assess than straightforward claims.

In Quadra the Commercial Court commented that assessing what was a reasonable time was “not an easy one to decide”. The facts involved transport and storage operations across different jurisdictions and there were a number of factors outside of the insurers’ control including the destruction of evidence and the fact that legal proceedings had been issued in another jurisdiction three years prior.

The good news for policyholders was that, even in what the Court termed “complicated circumstances”, it was found that a reasonable time was not more than about a year from notification: the inference being that more straightforward losses should be paid in a number of months.

However, the challenge remains that, in circumstances where the insurer has reasonable grounds for defending the claim (in respect of liability and/or quantum), a section 13A claim may not succeed even in circumstances where an insurer has failed to pay the claim within that period.

When is an insurer both wrong and unreasonably wrong?

It was on that basis that, in Quadra, insurers successfully defended the insured’s section 13A claim, despite the insured’s coverage claim succeeding at trial.

The Commercial Court found that insurers had reasonable grounds for disputing the claim and that their arguments on policy coverage were not unreasonable merely by virtue of being mistaken.

Whilst the court can take into account insurer’s conduct in handling the claim, Quadra makes clear that slow claims handling, unnecessary investigations and improper construction / application of the policy terms will not be enough to deprive an insurer of the “reasonable grounds” defence.

So what kind of conduct would operate to deprive an insurer of a defence?

In Quadra, the Court found that insurers had instructed a loss adjuster, and sought legal advice, within the “reasonable time” for paying the claim, which suggests that not to have done so would be unreasonable. In addition, the Explanatory Notes to the Enterprise Act tell us that it will be unreasonable if an insurer is slow to change its position when further information confirming the validity of the claim comes to light.

Importantly, it is also necessary for the insured to highlight the insurer’s unreasonableness: in Quadra, the Court commented that the insured had not attempted to rebut the insurer’s argument that it had reasonable grounds to defend the claim.

Establishing loss – do pecunious policyholders have poorer prospects of succeeding under s13A?

In Delos, the claimant, who was the registered owner of a detained bulk-carrier, argued that it had suffered a loss of opportunity as a result of the insurer’s failure to pay the claim within a reasonable time, because the insurance funds would have been used to purchase a replacement vessel, which could have been traded at a profit.

The Court noted that no evidence had been adduced to show that the Claimant had been serious about pursuing that opportunity (by way of correspondence or a business plan, for example) and therefore it had not established its loss.

Controversially, Mrs Justice Dias commented that there was force in the argument that, because the Claimant was a profitable group and could have purchased a vessel without the benefit of the insurance proceeds, it had not incurred a loss as a result of the insurer’s alleged failure to pay the claim within a reasonable time.

That begs a further question: do policyholders with deeper pockets (for example, blue-chip companies) have poorer prospects of succeeding under section 13A, because of their ability to mitigate their own loss?

Arguably, yes, although there are no reported decisions on this issue. In Quadra, the Commercial Court emphasised that s13A damages are not automatic and must satisfy strict causation and mitigation standards, meaning that a claimant cannot recover loss which it could reasonably have avoided.

In other words, section 13A may operate most effectively where late payment renders a claimant impecunious, because causation and mitigation is easier to establish in such cases.

Suitability of Section 13A claims for preliminary hearings

Recently in The Members of The Probitas Syndicate 1942 at Lloyd’s -v- Pro 2 Care Limited [2025], the Commercial Court refused to consider a Claimant’s section 13A claim at a preliminary hearing, advising that evidence is crucial to assessing the period of the delay, and any loss.

In presenting its claim under section 13A, the Claimant, a care home business, argued that it had taken about 19 months for the insurer to pay its property damage claim, which was unreasonable by about 11 months (8 months having been sufficient to investigate and assess the claim), causing losses in excess of £2 million. It argued that, had the claim been paid sooner, repair works would have commenced and completed, and revenue would have been earned. In contrast, the insurer argued that the Claimant had not set out the basis for unreasonable delay, and relied on the fact that it had made staged interim payments as and when elements of the claim had been evidenced and accepted by its loss adjuster.

At a summary judgment hearing, the judge commented that, although the Claimant’s claim under section 13A was “clearly arguable”, claims under section 13A are a paradigm example of factual disputes which require evidence, and cannot be resolved summarily.

We query whether arguably this might present a further hurdle for policyholders if it can be inferred from the fact that the case has gone to trial that the insurer must have a reasonable basis to defend the claim, even if that defence ultimately fails, as otherwise the claim would likely have settled.

Conclusion

Almost nine years on, it is hard to see that section 13A has – yet – succeeded in levelling the playing field for policyholders.

Nevertheless, the optimistic view is that, in different circumstances, the path has been laid for section 13A claims to succeed. If the precedent set by Quadra is that even complicated claims should be paid within a period of 12 months, the real challenge lies in contesting an insurer’s “reasonable grounds” defence.

Despite the apparent hurdles, section 13A claims remain a powerful negotiating tool for policyholders in disputes with insurers. No insurer wishes to be the first to be subject to a successful damages claim for late payment, or to risk establishing a precedent which is unfavourable to the market.

For that reason, even almost a decade on, the jury is out; and only time will tell.

Author

Abigail Smith, Associate