Understandably after four years of waiting for settlement of what are often clear cut claims I am beginning to receive more and more questions from people about ‘interest payments’ and whether or not these could be recovered from insurers. Below is a compilation of my thoughts on the topic.
It seems to me that in respect of the private insurance industry, a court award of interest would be likely to occur in the event that a successful claimant/homeowner was compensated for the loss involved as a result of being kept from his/her money by the insurer. In a presentation to the New Zealand Insurance Law Association in 2010, Justice William Young stated that “interest will provide appropriate compensation for lateness of payment and in circumstances where particular losses have been suffered for which damages are appropriate”. (See “Remedies for an insurer’s breach of good faith from a New Zealand perspective”. A paper delivered by the Hon Justice William Young KNZM1 To The 2010 New Zealand Insurance Law Association”).
This loss would be as result of the loss to the injured party from having the capital at its disposal or the unavailability of this money as a direct result of the insurer’s breach of contract, negligence or error, e.g. where the insurer thinks the property is a repair but the court says ‘rebuild’. In addition there are the effects of money losing its value over time as well as the lost opportunity (for actually using the money).
The entitlement to interest is likely to be triggered at the time when an insurer’s withholding of payments became unreasonable or when the court determines that the insurer had a reasonable opportunity to examine the claim and when the all of the evidence had been evaluated. In this situation it would need to be decided whether it was reasonable on the basis of the information that the insurer had (or should have had) to decline to pay a benefit on a particular date and to stick to its decision thereafter.
Interest is sometimes held to run from the date of the insurer’s rejection of the claim and where there is a breach of utmost good faith by way of delay in the investigation of the insured’s claim. This can sometimes arise where the insurer unreasonably holds to an untenable position based on defective or incomplete technical evidence in respect of the property. Many of you will be in this position, and for those of us who have been dealing with our insurance company for more than four and a half years, time for the initiation of interest liability has well and truly passed.
The question will arise as to when it becomes unreasonable for the insurer to withhold payment of the claim and also the time it takes for the insurer to make a ‘reasonable investigation’ of the claim. That period of time is likely to be determined on a case-by-case basis but there is plenty of case evidence to show that a period of not more than three months is usual in most cases. An insurer is unlikely to escape paying interest from that date by using the argument that it believed, on bona fide grounds, that it was not liable – particularly if the technical evidence indicates otherwise.
There is a huge amount of case law on the payment of interest to policyholders. It is certainly not a new issue and policyholders have often been awarded interest by the courts. The determination often stands on the point at which it could be said that the insurer’s withholding of benefits becomes unreasonable.
Interest is generally awarded either from when the insurer first denies liability or disputed the amount of the claim or when (in the normal course of events) the claim would have been paid if liability or the final amount had not been erroneously or unreasonably disputed. It is also clear that insurers are not entitled to wait until the judgment of the court before paying interest, although where the insurer disputes liability or amount of the claim it may not be considered unreasonable for it to withhold payment until its liability of the amount of the claim is determined, provided that there were good grounds for dispute. Depending on the circumstances, due consideration would usually be made for the complexity of the case and for the manner of determination of the final amount payable (the quantum).
In an Australian earthquake case it was stated that the insurer had received the benefit of withholding the monies due to the policyholder and that the policyholder had suffered the detriment of not having those monies. It was held that interest should be payable from the ‘day as from which it was unreasonable for the insurer to have withheld payment of the amount‘. This will obviously vary from case to case.
Compensation for delayed payment is better than ‘interest’ which is taxable. It is well worth noting this point!
And do not forget Interest applied to damages. The objective is to place the injured party (the policyholder) in the position it would have been in had there been no breach or infringement. Compensation for the loss of opportunities due to the deprival of funds should also be considered. Compound Interest can also be awarded if the insured suffered loss through the insurer’s unfair and unreasonable decision to continue to withhold that money that should have been paid to the insured.
The courts have tended to look at these interest issues on a case by case basis. My personal view is that there is ample case law to show that a private insurer is liable for interest in the event of unreasonably slow settlement.
Where the policyholder decides to pursue this in either the District Court or the High Court will depend upon the quantum sought, but where a policyholder is uncertain about their position in respect of interest, it is better to seek advice from a knowledgeable legal professional.
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