Insurance Contracts CP - Law Reform Commission

There are a number of aspects to this question. The core issues are addressed in relation to the duty of
good faith and whether any breach of duty on the part of an insurer should attract an award of damages
in respect of consequential loss. Two provisions in the Principles of European Contract Law (PEICL)
provide a convenient benchmark:
Article 6:103
Acceptance of Claims
(1) The insurer shall take all reasonable steps to settle a claim promptly.
(2) Unless the insurer rejects a claim or defers acceptance of a claim by written notice giving
reasons for its decision within one month after receipt of the relevant documents and
other information, the claim shall be deemed to have been accepted.
Article 6:104 (3) provides that payment of insurance money, whether relating to the whole or part of an as
yet unquantified claim, shall be made no later than one week after acceptance or qualification. The
PEICL continue:
(a)
Article 6:105
Late Performance
(1) If insurance money is not paid in accordance with Article 6:104, the claimant shall be
entitled to interest on that sum from the time when payment was due to the time of
payment and at the rate applied by the European Central Bank to is most recent main
refinancing operation carried out before the first calendar day of the half-year in question,
plus seven percentage points.
(2) The claimant shall be entitled to recover damages for any additional loss caused by late
payment of the insurance money.
The position in English law
10.36 English law clearly supports the proposition that there can be no cause of action in respect of
the late payment or non payment of monies due on a policy of insurance. As the time for assessing the
loss occasioned by the event that triggers the claim is the time of that event, and no later date, the fact
that the costs of reinstatement, for example, have risen or fallen is irrelevant. The decision of the House
of Lords in President of India v Lips Maritime Corporation is authority for the proposition that ―there is no
such thing as a cause of action in damages for late payment of damages.‖
10.37 This bizarre situation is due to the view that, at common law a contract of indemnity gives rise
to an action for unliquidated damages arising from the failure by the indemnifiers to prevent the
indemnified person from suffering damage, the common law also supporting the view that the cause of
action does not arise until the indemnified person can show actual loss. It is the specified loss that is
recoverable: The Fanti: 32 The Law Commissions, in Issues Paper 6, Damages for Late Payment 33 chart
the rather unhappy line of authority, whilst noting that the Scottish courts have rejected the view that the
obligation on an insurer is to hold harmless the insured, not pay damages, preferring instead to hold that
the insurer has an obligation to pay a valid claim once it has had the opportunity to investigate the validity
of the claim: Strachan v The Scottish Boatowner‟s Mutual Insurance Corporation. 34 This is also the
position taken in Australia, Canada and the United States. 35 Unfortunately the scant authority available in
Ireland inclines towards the English position. 36
32
33
34
35
36
[1991] 2 AC 1.
March 2010.
[2001] Scots CS 138.
See Appendix A of Issues Paper 6.
Kerry Tree (Technology) Ltd v Sun Alliance and London Insurance [2001] IEHC 144.
204