The Enterprise Act 2016 applies to insurance contracts entered into on or after the commencement date (4 May 2017) but it does not apply to variations of existing insurance contracts.
Interestingly, this contrasts with the duty of fair presentation provisions of the Insurance Act 2015 which apply to both contracts and variations of existing contracts agreed on or after the commencement date (12 August 2016).
The difference in approach may be explained by the fact that the duty to make a fair presentation at the time of a variation only applies to changes in the risk relevant to the variation whereas, by definition, an implied obligation to pay claims within a reasonable time pertains to the whole risk.
Whatever the reason for the difference in approach, we can see that there may be occasions where it becomes critically important to establish whether a variation is just that or whether it goes further and creates a new contract. The outcome will depend on the intention of the parties deduced from the new terms agreed. If a new contract has been created then the obligation to pay claims within a reasonable time will be implied into the “new” agreement but it would not if the alteration is no more than a variation.
This could become an issue where parties have extended existing insurance arrangements and there is subsequently a claim for damages for late payment. Whilst it seems straightforward that a renewal will constitute a new contract which includes the implied term, the position may not be so clear-cut in the case of an extension of cover by way of endorsement. On the face of it, an extension of the policy period would appear more likely to be a variation, in which case the Enterprise Act would not apply. However, as always, each case is likely to turn on its own facts and the policy wording in question.