Settlement of Damages

Imagine a scenario whereby an insured has notified an insurer of a claim being made against him. Insurers have investigated the claim, admitted liability and a settlement has been agreed with the claimant. However, this is not the end of the matter.

We are increasingly seeing Part 8 proceedings being issued against insurers and insureds in relation to alleged breach of agreement. The breach of agreement referred to is often the claimant’s allegation that insurers have failed to pay agreed sums by the time they were due.

The Part 8 claims procedure is available to claimants under Part 8 of the Civil Procedure Rules which confirms at rule 8.1(2)(a) that a claimant may use the Part 8 procedure where “he seeks the court’s decision on a question which is unlikely to involve a substantial dispute of fact.”

Claimants are arguing that where a settlement has been agreed between the insurer and a claimant, there is no dispute over the sums having become payable and this can often be the case.

When does a settlement sum become payable?

A settlement agreement first and foremost is like any other contractual agreement. Therefore, any sums agreed will become payable pursuant to the time for payment which was agreed by the parties at the time of settlement.

If no time for payment was agreed at the time the settlement was reached, then arguably there is no agreement of a time in which to pay. If this is the case, then insurers may be able to defend a Part 8 claim on the basis that there has not been a breach of any agreement.

However, insurers must be aware that even when a time for payment has not been agreed, other rules may apply when making offers of settlement.

One example of this is the provisions of Part 36 of the Civil Procedure Rules which set out that if a single sum of money is offered by a defendant and accepted by the claimant in accordance with Part 36, that sum of money must be paid within 14 days of the date of acceptance (rule 36.14(6)(a)).

The provisions of Part 36 also provide that if payment is not made by the deadline, the claimant is able to enter judgment against the defendant for the unpaid sum (rule 36.14(7)).

A typical example might be when claims are commenced and settled within the MOJ portal as the portal rules set out numerous applicable deadlines for payments of various sums, including interim payments and staged costs.

We have also seen Part 8 claims made following an allegation that an insurer has issued payment to the wrong payee (e.g. the claimant rather than the claimant’s solicitors) and the time for payment has lapsed before payment to the correct payee has been issued.

What happens if a settlement sum isn’t paid on time?

If a settlement sum becomes overdue, insurers face the risk that a claimant will issue a Part 8 claim against the insured.

If a claimant does commence Part 8 proceedings, this can result in the insurer paying out further sums in respect of the claimant’s court issue fee and costs.

It is also important to note that by virtue of rule 8.9(c), Part 8 claims are treated as allocated to the multi-track irrespective of the value of the claim and as such, costs are likely to be recoverable. This means that even where a Part 8 claim is for a relatively small sum, perhaps even £500, costs are still recoverable.

Key points to remember:

In summary, when agreeing a settlement of a claim it is important to consider the following:

• Seek confirmation from the claimant and / or their representative as to whom payment should be made;
• Consider the agreed time for payment to be made and any applicable rules as to when payment should be made by;
• Ensure that following agreement, payment requests are raised as soon as possible and diary systems are used to ensure that payment has been made on time.

Where Part 8 proceedings are issued, it is important to ensure that panel solicitors are instructed as soon as possible - as that is when litigation deadlines become active.