Enterprise Bill [HL] — House of Lords, 2015-11-25
Topic: Domestic Commerce
Howard Emerson Flight (Conservative, Centre-right): My Lords, I have no interest to declare. I do not work for the insurance industry, never have done and have never been remunerated by it. Noble Lords may wonder why I am speaking on these issues. Over 45 years of my career, I have tried to keep an eye on things in the City that have been good for business and bad for business. Interestingly, it was the Wilson Government who took the key measures in relation to the payment of interest to foreigners that led to the Eurodollar and Eurobond markets and the dramatic recovery of London over the past 50 years to again being the financial capital of the world. I tried to persuade the Conservative Government of the 1980s to change the rules for funds so that they were competitive, particularly for European investors. That did not happen and Luxembourg has all this business, now running to many billions, which the UK could have had. Interestingly, the Government subsequently changed the rules, but it was too late I am concerned that the issues that I raised in Committee and now raise again put at risk a £60 billion international insurance business because there are some subtleties that would make London cease to be an attractive place to handle such business. These two amendments, however, are much narrower than the ones raised last time and neither undermines the aim of the Bill. I apologise for the absence of my noble friend Lord Kinnoull, who has been called overseas urgently. As I jointly tabled the amendment with him, it falls on me to move the amendment I will address Amendment 62 first, which has become known as the limitation period amendment. It is of great practical importance for the London insurance market. It draws in the limitation period for late payment claims under Clause 20 and creates more certainty for reserving purposes. Without the limitation amendment, insurers may not be able to assess accurately when they are able to close off the books in terms of reserving for the underlying insurance claim. The baseline for the limitation period under Clause 20 is the reasonable time for payment. Who knows when this is, unless a court is to rule on it? In the case of a disputed claim, insurers may not be able to close the books for years after the settlement of the underlying claim Amendment 62 would make the limitation period for bringing a claim under Clause 20 much more certain because it is referenced to the payment of that underlying claim. With a more certain limitation period, insurers would be able to reserve and close books more readily. This ultimately goes to capital and premium levels where more certainty means less capital. It is reasonable that the basic limitation period is one year from the date of payment of the underlying claim. The insured will have received payment of the underlying claim which it already thinks is late. It has a basic six years to bring the underlying claim, so a further one year is ample for it to decide to bring a late payment case under Clause 20 The amendment is supported by buyers, intermediaries and insurers across the insurance market and it is not just a Lloyd’s proposition. It is also supported by the independent senior counsel Colin Edelman, who drafted the amendment. I understand that HM Treasury and the Law Commission both advised that there is a legitimate concern and the suggested amendment deals with this. Indeed the Law Commission sent a helpful email supporting the limitation amendment yesterday. I trust that the Government might either accept Amendment 62 or kindly offer to introduce a similar amendment in the other place I also ask the Minister to support Amendment 61. I do not know whether she will have had the time to consider the very serious and detailed independent legal opinion by Colin Edelman QC and Richard Harrison on the issue of privilege, which was sent to her this morning. Colin Edelman’s independent advice details the seriousness of the precise issue. The instruction to Colin Edelman was for an independent review of all the objections that have been raised by, in this case, the Government rather than the London market. This further opinion from him is too long for it to be practical for me to read out, but I will endeavour to highlight some of the key points The Bill, as it stands, places on the insurer the burden of proving that there were reasonable grounds for defending the claim. In the context of placing such a burden on the insurer the use of "were" is in our view capable of being construed as requiring not only that the grounds for disputing the claim were objectively reasonable, but that the insured subjectively believed that there were reasonable grounds for disputing the claim. The provision also stipulates that even if there were reasonable grounds for disputing the claim, the conduct of the insurer in handling the claim could still give rise to a breach of the implied terms. This introduces a clear element of subjectivity—the way in which the insurer behaved and the reasons for its behaviour Insurers rely heavily on legal advice in contentious commercial claims, so it seems to us—that is, to Colin Edelman—that if an insurer’s conduct is to be judged, the balance of fairness requires it to be able to explain to a court the real reason for its conduct, including its reliance on legal advice On our analysis of the operation of new subsection (4), the new cause of action could be open to abuse if the insurer were unable to assert the fact that it sought, obtained and relied on legal advice, without risking waiver of privilege. It could create a serious imbalance if the mere raising of a breach of the implied term were to place tactical pressure on the insurer to waive privilege in circumstances where there could be no such pressure on the insured. The allegation of breach could be used to try to flush out the insurer’s confidential advice, which could then be deployed to the insurer’s disadvantage in settlement negotiations In summary—this again is from the opinion—it is obvious that determining a claim for late payment should take place at the same time as the termination of the claim for the indemnity itself. The current provision risks routine—and possibly tactical—deferral claims for late payment which would quickly bring the law into disrepute.