Notice of insured events

A common form of condition precedent requires the insured to give notice of an insured event within a certain period, failing which the insurer will not be liable to pay the claim. 

Under the PEICL, however, late notification will only reduce the amount payable to the extent the insurer has suffered prejudice by undue delay (6.101). If the policy specifies a time limit for notification, that time limit must be reasonable and not less than five days. And the notice is effective from the time of despatch.

Notice can be given by the policyholder, the insured or the beneficiary as appropriate, but "notice by another person shall be effective".

Claims and payment

If the insured fails to cooperate in the investigation of a claim, the amount payable may be reduced in proportion to the prejudice suffered by the insurer (6.102). But breaches committed with intent or recklessly and with knowledge that prejudice would probably result will enable the insurer to avoid paying the claim entirely.

The insurer is required to take all reasonable steps to settle a claim promptly – a requirement similar to the ICOBS obligation to handle claims "promptly and fairly". 

Under the PEICL, however, the claim will be deemed to have been accepted unless the insurer responds in writing either to reject the claim or to defer acceptance - with reasons - within one month after receipt of the relevant documents (6.103).

Where the claim or part of the claim is accepted, the insurer must pay up without undue delay and not later than one week after acceptance and quantification (6.104). Interest on late payment will run from the time payment was due at 7% above the rate applied by the European Central Bank.

In addition, the claimant will be entitled to recover damages for any additional losses caused by the late payment (6.105).

The present position under English law is that in the case of general insurance the insured's only remedy for delay is interest. No damages are payable.

In March 2010, the Law Commissions published an issues paper suggesting that an insurer who acts in bad faith or who breaches its obligation to pay valid claims after it has had an opportunity for reasonable investigation should be liable to the insured for any foreseeable losses caused.

Indemnity insurance

Part 2 of the PEICL deals specifically with provisions commonly found in indemnity insurance.

Article 8.101 is a restatement of the indemnity principle. The insurer is not obliged to pay out more than the amount necessary to indemnify losses actually suffered by the insured. Agreed values are valid even if higher than the actual value, provided no fraud or misrepresentation was involved when the value was agreed.

In the case of underinsurance, the insurer will liable for the full amount insured unless it offered cover on the basis of an averaging clause that reduces its liability in the same proportion the sum insured bears to the actual value (8.102). Where there is overinsurance, either party can request to reduce the sum insured and ask for a corresponding reduction in premium for the remaining period (8.103).

If the insured is separately insured by more than one insurer and an insured event arises, article 8.104 confirms that the insured can claim against any one of them to the extent necessary to indemnify the loss actually suffered. As between themselves, insurers are liable to contribute in proportion to the amount for which they are separately liable to the insured.

In English insurance law, the insured's right to choose which insurer to pursue is often hampered by a "rateable insurance clause" which limits each insurer's liability to its share of the loss. The insured has to claim against each of them if he is to recover in full. As it stands, however, article 8.104 leaves no room for such clauses.

The insurer can, however, reduce the amount payable under the policy according to the degree of negligent fault, as long as this is set out in a "clear clause". Otherwise, all negligent acts or omissions will be covered. But acts or omissions that cause the loss with intent, or recklessly and with knowledge the loss would probably result, will not be entitled to an indemnity (9.101).

The principles also address the question whether an insured who takes reasonable steps to mitigate an insured loss is entitled to recover his costs. Under the PEICL regime he can recover, even if the steps taken were unsuccessful and even if those costs together with the insured loss are greater than the indemnity limit. In effect, therefore, mitigation costs are "in addition" to the indemnity (9.102).

And subrogation rights, although preserved in Article 10.101, are not to be exercised against the insured's household, a person in an "equivalent social relationship", or an employee, unless the insurer can prove the loss was caused by that person intentionally or recklessly and with knowledge that the loss would probably result. The insurer must also not exercise its right to the detriment of the insured.

ТЕКСТ 9