When a customer fails to pay an invoice on time, it can be difficult to know what to do next. Should you continue chasing payment internally? Should you send a Letter Before Action? Or is it time to issue Court proceedings?

The right approach will depend on the circumstances, but taking the appropriate action at the right time can make a significant difference to the outcome.

When Internal Credit Control Is No Longer Enough

For many businesses, the first stage of recovering an unpaid invoice is internal credit control. This may include sending payment reminders, statements of account, making telephone calls and following up on agreed payment dates. However, when payment promises continue to be broken, communication slows or repeated reminders fail to produce results, it may be time to consider formal legal debt recovery.

The Role of a Letter Before Action

In commercial debt recovery matters, the first formal legal step is a Letter Before Action (LBA). A professionally drafted Letter Before Action sets out the amount owed, the legal basis of the claim, any statutory interest or compensation that may be recoverable, a clear deadline for payment and confirms that legal proceedings may be issued if the debt remains unpaid. It demonstrates that the matter has moved beyond routine credit control and into the legal recovery process. In many cases, this is enough to encourage payment without the need for court proceedings.

At Lovetts, our Letter Before Action service starts from just £1.50 + VAT and 86% of matters are resolved before Court proceedings become necessary.

When Court Proceedings Become the Appropriate Next Step

Where a Letter Before Action does not result in payment, the next step in the legal process will be to issue a County Court claim. Deciding whether to commence legal proceedings is about more than simply issuing a claim. Experienced debt recovery solicitors will consider the strength of the evidence, whether the debt is disputed, the debtor’s financial position, the likely prospects of recovery and whether litigation represents the most commercially appropriate course of action.

A Strategic Approach to Commercial Debt Recovery

At Lovetts, we have been helping businesses recover unpaid invoices and commercial debts for more than 30 years. From our low-cost Letter Before Action service through to County Court proceedings and enforcement, we provide commercially focused legal support tailored to the circumstances of each case.

If your business is dealing with unpaid invoices, late payment or commercial debt recovery, learn more about our services or sign up for our Letter Before Action service today.

One of the most frustrating situations for businesses is when an invoice remains unpaid for weeks or months, only for a dispute to be raised once recovery efforts begin.

The account may have been chased several times. Payment may have been promised on more than one occasion. Communication may have continued throughout. Then, seemingly out of nowhere, the debtor claims there is an issue with the goods, services, or invoice itself.

In these circumstances, the focus should not simply be on the existence of the dispute, but on the wider facts and evidence surrounding it.

Not Every Dispute Is The Same

A common misconception is that raising a dispute automatically prevents recovery action. In reality, disputes can arise for a variety of reasons and should be assessed on their own facts.

Some disputes are genuine. A customer may have raised concerns during the course of the relationship, there may be unresolved contractual issues, or there may be a legitimate disagreement regarding the goods or services supplied.

However, there are also occasions where concerns are only raised after payment has become overdue and recovery efforts have intensified.

This does not necessarily mean the dispute lacks merit. It does mean the wider circumstances should be examined carefully before any assumptions are made.

Why Timing Matters

When reviewing a disputed debt, one of the first questions is often: when was the issue first raised?

If concerns were communicated throughout the life of the contract, they may form an important part of the overall position.

If no concerns were raised until payment became overdue, the position may look very different.

A dispute that emerges for the first time after repeated payment requests will often require further investigation. Understanding when the issue arose and how it has been communicated can provide valuable context when assessing the most appropriate next step.

The Importance Of Documentation

In disputed debt matters, documentation can often become one of the most valuable assets available to a creditor.

Contracts, purchase orders, invoices, delivery records, email correspondence, meeting notes and payment acknowledgements can all help establish what was agreed between the parties.

Strong records can also help demonstrate whether concerns were raised at the time or only after recovery action commenced.

Businesses that maintain clear and accurate documentation are often in a stronger position when disputes arise later in the recovery process.

Recovery May Still Be Possible

The existence of a dispute does not automatically mean recovery options disappear.

In some cases, reviewing the available evidence can help resolve the matter quickly. In others, a more detailed assessment may be required to understand the strength of the dispute and the options available.

Each case should be considered individually.

The key is understanding whether the dispute represents a genuine disagreement that requires resolution or whether it has emerged as part of the debtor’s response to ongoing recovery efforts.

Taking The Right Approach

When a dispute is raised after an invoice becomes overdue, it can be tempting to assume that recovery action must stop.

That is not always the case.

The most effective approach is often to take a step back, review the available evidence, assess the circumstances surrounding the dispute, and consider the wider commercial and legal position before deciding how to proceed.

You should always try to resolve any queries or disputes raised before considering issuing proceedings, where possible.

At Lovetts, we regularly assist businesses dealing with disputed debts and overdue accounts. Our team can assess the circumstances of each matter and help identify the most appropriate recovery strategy based on the available evidence and the nature of the dispute.

Late payment has been a long-standing challenge for UK businesses – particularly SMEs managing tight cash flow and limited internal resources.

In March 2026, the UK government announced what it described as the biggest crackdown on late payments in over 25 years, introducing significant reforms designed to protect smaller businesses from persistent late payers. 

For businesses regularly dealing with overdue invoices, these changes are significant.

But while the reforms are positive, they do not remove the need for businesses to actively manage overdue accounts and take action when payments continue to stall.

What changes are being introduced?

The government has announced several major reforms, including:

A new 60-day payment cap

Large businesses will no longer be able to impose excessively long payment terms on smaller suppliers. A maximum payment term of 60 days will apply in most circumstances. For many SMEs currently operating on 90-day or even 120-day terms, this is a significant shift.

Mandatory interest on late payments

One of the biggest changes is that statutory interest on late payments will become mandatory. This means businesses that pay late may automatically face interest charges of 8% above the Bank of England base rate.

Historically, many suppliers have chosen not to enforce this right in order to preserve relationships. These reforms may change that dynamic.

Greater powers for the Small Business Commissioner

The Small Business Commissioner will receive stronger enforcement powers, including the ability to:

This introduces greater accountability for businesses that repeatedly delay payments.

What this means for businesses owed money

While these reforms are welcome, they do not automatically solve late payment issues.

Businesses may still face:

And many businesses will still need to actively seek to recover overdue balances.

Legal rights are only valuable when they are acted on.

How Lovetts supports businesses dealing with late payers

At Lovetts we act on behalf of businesses recovering overdue debts – helping clients move matters forward when internal processes are no longer delivering results.

From Letters Before Action through to formal legal recovery where necessary, we help businesses assess the most effective route based on their specific circumstances.

While the new legislation is a positive step, businesses still need clear recovery strategies when payments continue to stall. And that’s where experienced legal support can make the difference. 

 UNIPOLSAI ASSICUTRAZIONI SPA V COVÉA INSURANCE PLC  

[2024] EWCA Civ 1110

The Facts

Covéa provided property insurance to policyholders who ran children’s nurseries and childcare facilities, based on its standard NurseryCare Policy wording.  This included cover for business interruption (“BI”) caused by a peril other than physical damage: for example, prevention of access to the insured’s premises due to action of the authorities in containing the spread of a notifiable disease.

On 18 March 2020, in the face of exponential growth in the number of cases of Covid-19, the Government instructed all schools, colleges and early years facilities in England to close with effect from 20 March 2020.  The instruction was endorsed in law by regulations made on 26 March 2020. 

The phased re-opening of schools, colleges and nurseries began some two and a half months later, on 1 June 2020. Covéa paid claims submitted by policyholders who had sustained BI losses arising from the prevention of use of their premises during the period of lockdown.

Covéa in turn sought to recover an indemnity for the losses it had paid out, under its Property Catastrophe Excess of Loss Reinsurance, underwritten by Unipol. A central issue here was whether Covéa was entitled to aggregate the losses it had paid out to policyholders, in order to exceed the £10m retention applying to the reinsurance and recover the balance of its aggregated loss from Unipol.  

The reinsurance permitted the aggregation of underlying individual losses “arising out of and directly occasioned by one catastrophe”. The policy wording did not define “catastrophe”, the term had not previously been considered judicially and it was common ground that there was no special understanding given to the term in the insurance or reinsurance market.  Covéa contended that the events of March 2020, described above, were a catastrophe as that word was to be understood  in the reinsurance agreement. 

The reinsurance also contained an “Hours Clause”, the purpose of which was to define the basis on which Covéa might aggregate losses arising from various types of catastrophe, named examples of which included windstorm, volcanic eruption, civil commotion and flood.  The clause confirmed cover, in excess of the retention, for each and every loss arising out of a catastrophe, subject to a limit if the catastrophe was of longer duration that a specified number of consecutive hours.  In the event that Covéa was able to establish that the facts described above could properly be characterised as a catastrophe, the catch-all limit under the Hours Clause of 168 hours would apply.  Covéa, as the reinsured, was entitled to choose the date and time when the period of consecutive hours commenced.

The Issues – Aggregation

Unipol resisted the aggregation of losses contended for by Covéa on the basis that, pursuant to caselaw developed by the courts in recent decades, loss aggregation provisions in excess of loss reinsurance contracts are to be understood as follows:

It was Unipol’s case that, by using the word “catastrophe”, the parties to the reinsurance had agreed that losses could be aggregated in the case of an event-type unifying happening.  Therefore, in order for  Covéa to be entitled to aggregate losses for the purpose of a claim on the Unipol reinsurance, the underlying circumstances must have been sudden and violent and must themselves have caused, or been capable of causing, physical damage.  Unipol argued that the circumstances of March 2020 did not amount to such an event, but instead merely to a state of affairs, being part of a global pandemic which began in 2019 and which was still going on in 2024: the outbreak in England could not be isolated from that overall state of affairs.

The decision – However, first an arbitration tribunal, then the Commercial Court in the exercise of its supervisory powers over arbitrations, and then the Court of Appeal (“CA”), all found in favour of Covéa.  The reasoning at all three levels was broadly to the same effect, as follows.  

Regard could be had, amongst other matters, to the well-documented intention of those who had drafted the original version of the reinsurance wording, who had recorded that they used the word “catastrophe” because it was felt to be more specific and implied a violent happening which itself caused damage,  whereas the word “event” could apply to something which might have been the cause of a catastrophe, rather than the catastrophe or disaster itself.  

However, regard should also be had to the expert evidence in this case to the effect that, in recent years, it had become usual for risks written in an insurer’s property department to include business interruption loss caused by non-physical perils, such as the risk of prevention of access due to the actions of a governmental authority.

Therefore, although the wording of the direct insurances could not be read across into the reinsurance, Unipol could be taken as knowing the nature of the underlying book of business.  On that basis, circumstances not involving physical damage to property but taking the form of a number of nurseries being prevented from operating by the action of the authorities in seeking to control the spread of a notifiable disease, could in principle properly be characterised as a catastrophe for the purposes of the reinsurance and entitle the reinsured to aggregate losses arising therefrom under the reinsurance.

As to the particular features that circumstances must have, in order to be capable of characterisation as a “catastrophe” for the purposes of this reinsurance, the Commercial Court found that (i) as required by the reinsurance wording, the catastrophe must be something capable of directly causing individual losses, (ii) the word “catastrophe” meant something which could fairly be regarded as “a coherent, particular and readily identifiable happening, with an existence, identity and ‘catastrophic character’ which arises from more than the mere fact that it causes substantial losses”; (iii) it ought to be possible to identify broadly when a catastrophe comes into existence and when it ceases and (iv) a catastrophe will involve an adverse change on a significant scale from what preceded it.  

The CA did not regard this finding to be erroneous and added that the reinsurance wording itself made clear that use of the word “catastrophe” stretched the unities greatly, as a catastrophe could have a wide field of impact and last for a number of weeks if not months.  

Effect of the Hours Clause

Unipol argued that, even if the Covid-related circumstances of March 2020 were properly to be characterised as  a “catastrophe”, the effect of the Hours Clause was that only losses from business interruption that actually occurred during the 168 hour period itself could be aggregated.

The decision – However, the CA held that what could be aggregated was individual losses which first occurred during the relevant 168 hour period, even if the financial loss in question continued to develop over time after the 168 hours had expired.  An individual loss first occurred when the covered peril affected the insured premises.  In a case where the covered peril which struck the premises was the loss of the ability to use the premises (whether through damage to other premises or through a closure order, as in the present case), the individual loss occurred at the same point.

Lovetts’ comment

Where “catastrophe” is used as the unifying factor for aggregation in excess of loss reinsurance, it is necessary to identify a specific happening, catastrophic in nature, with a recognisable beginning and end.  What will constitute a catastrophe is coloured by the type of underlying risks being protected by the reinsurance.  Given the breadth of the covers written nowadays in property departments, “catastrophe” as a unifying factor for the aggregation of losses may be wider than a unifying factor such as “event”, particularly as it is not necessary to prove that the circumstances relied upon satisfy the “unities” requirement referred to in AXA v Field. Meanwhile, the Hours Clause limits how losses arising from the catastrophe may be aggregated for the purpose of claiming under the XL reinsurance.  

For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.

For many businesses, unpaid invoices are something that can often be put off until later, especially for smaller businesses with limited resources for credit control. However, timing is key to being able to successfully recover debts and delaying too long may stop you being able to legally recover the debt at all.

In England and Wales there is a time limit for being able to bring legal action to recover a debt through the Court. These time limits are governed by the Limitation Act 1980. Understanding how these rules apply is essential for any business managing overdue accounts.

The General Rule: Six Years

For most business debts where they arise out of a contract the limitation period is six years.

This means that Court proceedings must be issued within six years of the cause of action arising, usually this will be when an invoice becomes due for payment. If that deadline passes the debt will become statute-barred, meaning it is no longer enforceable through legal action albeit that there are some exceptions to this rule that may extend the limitation period.

For businesses that carry aged debt, this is a critical point. Once the limitation period expires, legal recovery options are significantly restricted.

When Does the Six-Year Period Start?

The six-year period runs from the date of the cause of action, this could be date the invoice was issued or the date that payment became due.

Can The Time Limit Be Extended?

If during that six year period the debtor acknowledged/admitted the debt in writing in open correspondence or made a part payment towards the debt, this may in some circumstances extend the limitation period.

This can be significant in practice particularly where there has been intermittent engagement over time.

It is important to note that a verbal acknowledgement is not sufficient; it must be in writing.

What Happens When a Debt Becomes Statute-Barred?

Once the limitation period has expired, the debt still technically exists, but you will no longer have the legal right to pursue it by way of Court proceedings.

This means that businesses may have to simply write off those debts because action was not taken in time.

What If the Debt Is Due Under a Deed?

The Limitation Act 1980 has different limitation periods for bringing a claim depending on the nature of the claim and the legal basis of the same.

The six year limitation period applies to contractual claims. For debts that have accrued under a deed the limitation period is typically 12 years.

What About Enforcement Of Judgments?

If you have issued proceedings and obtained a County Court Judgment, this will remain on the register of County Court Judgments and continue to impact the debtor’s credit for up to six years, after which it will be removed.

You can still enforce a judgment after it is six years old, provided that you can obtain permission from the Court to do so. Although you will need to provide the Court with a good reason as to why enforcement action has not been taken or delayed.

A More Structured Approach

For businesses managing overdue accounts, having a clear understanding of limitation periods is essential, but having a good credit control process is better.

Knowing when a debt becomes due, monitoring any payments or acknowledgements and introducing a structured recovery process at the appropriate stage can make a significant difference.

Often the longer a debt is left the harder it is to recover and in some cases you may miss the opportunity to try to recover the debt through the legal process if you wait too long.

At Lovetts we can help businesses stay on top of their credit control processes and provide support for this in our pre-legal team. We will also note any limitation deadlines when you instruct us.

Taking the appropriate action at the right time can be the difference between successful recovery and a write off.

Many business owners assume that once a legal claim has been issued and a County Court Judgment (CCJ) is obtained, the debt will be paid automatically. However, while a CCJ marks an important legal milestone, it does not guarantee payment and this is where enforcement becomes crucial. 

What Is a County Court Judgment (CCJ)?

A CCJ is a Court order that formally confirms that the amount of the judgment debt is owed by the debtor. It establishes your legal entitlement to payment of the debt and is recorded against the debtor’s credit record, often affecting their ability to obtain credit in the future.

Obtaining a CCJ is often the next step when an overdue invoice remains outstanding after pre-action steps and the issue of a Court claim.

Key Enforcement Methods After a CCJ

Once a CCJ has been entered against a debtor, a number of enforcement routes become available. Each route has different strengths and can be tailored to suit each debtors circumstances – which is why experienced advice is valuable.

1. High Court Enforcement Officers (HCEOs)

High Court Enforcement Officers are often the preferred method for enforcing CCJs where the debt exceeds £600 (and where the debt is not regulated under certain consumer legislation). They are incentivised to collect the debt and can take more robust action, including attending the debtor’s premises and, in some cases, forcing entry to recover assets. 

2. County Court Bailiffs

County Court bailiffs can also visit the debtor’s premises and attempt to recover the outstanding judgment debt — they can also seize certain goods to satisfy the debt. This option can be used for debts under £600 or subject to consumer legislation. This can be an appropriate method of enforcement for certain CCJs and is another practical way to exert pressure when informal communication fails. 

3. Attachment of Earnings Orders

If the debtor is an individual with regular employment, an Attachment of Earnings Order can be sought. This means deductions are taken directly from their wages by their employer to satisfy the judgment amount. This option is not available where the debtor is self-employed.

4. Charging Orders

Where the debtor owns property, a Charging Order can be used to secure the debt against that property. This does not force immediate payment but creates a legal charge that must be settled when the property is sold. This may be a suitable option where the debtor’s circumstances mean that they are unable to access sufficient cash to pay the debt in full or the debt is significant and the debtor wishes to pay by instalments and you wish to secure the debt.

If the debt is of a significant sum and there is sufficient equity in the property you may be able to consider an order for sale in some circumstances after a final charging order has been secured over the property.

5. Third Party Debt Orders

A Third Party Debt Order can be used to freeze funds owed to the debtor, such as money held in bank accounts or by third parties, before the debtor is even notified. This gives a strategic advantage by reducing the debtor’s ability to dissipate funds and the Court can order the third party to pay funds directly from the debtor’s account.

6. Winding-Up Petitions or Bankruptcy

In certain situations, issuing a winding-up petition (for companies) or bankruptcy proceedings (for individuals) may be appropriate if the debtor is genuinely unable to pay their debts as and when they fall due. These are more serious options and require careful consideration. This option is only available where there is no dispute and can be used both before and after obtaining a CCJ.  

Choosing the Right Enforcement Route

There is no one-size-fits-all enforcement strategy – the best course of action depends on the debtor’s circumstances, the size of the debt and commercial considerations. For example, while High Court Enforcement Officers can be very useful as they will make direct contact with the debtor at their home (individuals) or at their offices (companies) and can quickly obtain information about the debtor’s circumstances that will help with enforcement. However, they may not be suitable for smaller debts where other options might be proportionate.

At Lovetts our legal team can assist and assess each case individually to help you decide the most appropriate enforcement method based on experience with similar situations. This tailored approach helps you to find the most cost effective and expedient way to enforce a CCJ and protect cashflow. 

Before starting court proceedings for an unpaid invoice, English law requires creditors to take reasonable pre-action steps. These steps are not box-ticking exercises, they exist to encourage early resolution and ensure fairness before litigation. If these steps are not followed the Court can impose costs sanctions should the matter be determined at trial.

The pre-action requirements will depend on whether you debtor is an individual/sole trader or a limited company.

Step 1: Identify who the debtor is

This is the most important starting point.

✔ If the debtor is a limited company or LLP

You must follow general pre-action conduct. This means writing to the debtor to demand payment of the outstanding sums, explaining what the sums are for and giving them a reasonable period of time to respond or make payment before issuing Court proceedings.

A properly drafted Letter Before Action (LBA) is usually sufficient at this stage.

✔ If the debtor is an individual or sole trader

You must follow the Pre-Action Protocol for Debt Claims, which is designed to give individuals additional protection before legal proceedings are issued.

This requires more than just a standard LBA and there are stricter requirements for the pre-action process under this pre-action protocol.

Step 2: Prepare the right pre-action letter

✔ For companies and LLPs

A Letter Before Action should clearly:

✔ For individuals and sole traders

A more detailed Letter of Claim is required.

In addition to the core information above, the debtor must be given:

Step 3: Allow the correct response period

✔ Company debts

The general pre-action protocol states that debtors must be given a reasonable period of time to respond to a letter before action. Whilst there is no fixed timeframe, guidance states that a reasonable time for an opportunity to respond is 14 days for a straight forward debt claim. In practice, this may vary depending on the prior correspondence between the parties and whether the debtor has been provided with ample opportunity prior to the letter being sent to respond or make payment. It may therefore be reasonable to give a company 7–14 days to respond.

✔ Individual / sole trader debts

You must allow at least 30 days for the debtor to respond before issuing court proceedings.

Issuing a claim too early can result in:

Step 4: Deal with any response properly

If the debtor responds to your pre-action letter, you must consider the reply and respond fully before considering taking any further legal action.

A reply might include:

You are required to respond reasonably. Ignoring a genuine response, particularly from an individual or sole trader can weaken your position later and may prejudice your costs position.

Step 5: Only then consider issuing proceedings

Court proceedings should only be considered as a last resort once:

Issuing a claim too early or without following the correct process can result in delays, additional costs, or the Court staying proceedings and ordering the parties to complete the process fully.

Lovetts are a specialist firm of UK & International debt recovery solicitors with more than 30 years of industry experience. If your business has outstanding debts that it is needs assistance recovering, contact us today.

As the festive season approaches, businesses often find themselves wrapped up in holiday cheer and celebrations. However, there is a pressing concern: late payments. The months of December and January can be particularly challenging for many SMEs, with statistics showing that 6 in 10 clients tend to delay settling their invoices during this time.

Understanding the Impact of Late Payments During December & January

Late payments during December and January can create a ripple effect for businesses. The holiday season typically sees increased expenditures, making cash flow even more critical.

For many companies, late payments mean delayed projects and stunted growth. When invoices go unpaid, it becomes challenging to manage operational costs or invest in new opportunities.

When service providers struggle financially due to delayed payments, the quality of work may suffer. Maintaining strong partnerships relies heavily on timely transactions – something that often takes a hit during this festive period. Recognising these dynamics helps shape a proactive response for your business in addressing potential issues before they escalate into larger problems.

6 in 10 clients pay late during December and January

The holiday season can lead to financial strain. During December and January, research shows that 6 in 10 clients fail to pay on time. This trend is not a coincidence; it is a seasonal pattern impacting many businesses. Clients often have multiple expenses during the festive period. This combined with an increased number of staff on annual leave can cause a tightening of cash flow and delays in payment.

Understanding your clients’ behaviour is key. By anticipating potential late payments during these months, businesses can implement proactive measures for smoother transactions moving forward.

Strategies to Avoid Late Payments

How Lovetts Solicitors Can Help

At Lovetts Solicitors, we specialise in commercial debt recovery, helping small businesses:

  1. Sending Letters Before Action which can include interest and compensation under the Late Payment Act;
  2. Issuing legal proceedings to recover the debt, together with interest, compensation and reasonable costs if payment is not received; and
  3. Enforcing judgments obtained against debtors.

Late payments should never be accepted as the cost of doing business. If you are struggling with overdue invoices, take action today.

ROYAL & SUN ALLIANCE (“RSA”) V EQUITAS  INSURANCE LIMITED  

London Circuit Commercial Court (KBD) HHJ Keyser KC, [2025] EWHC 2704

The insurance – For many years, BOC, a British multinational manufacturing group, took out general liability insurance which included cover for products liability.  For one particular period (referred to in this note as the ‘Four Year Period’) BOC purchased cover from a member of the group that became RSA and whose liabilities RSA took over. This provided cover of £20m in respect of any claim, or number of claims, arising out of an occurrence during the policy period, and in the annual aggregate.  

In addition, the insurance provided that RSA would indemnify BOC against costs and expenses (i) recoverable from BOC by any third party claimant and/or (ii) incurred by BOC itself with the consent of the insurers.

The reinsurance – RSA partly laid off this exposure by purchasing facultative excess of loss reinsurance from various Lloyd’s syndicates whose relevant years of account were later transferred into Equitas.  This reinsurance was stated “to follow original terms, conditions and settlements” and recorded that the original policy had been seen.  

This reinsurance provided cover of £16m, excess of £4m, for any one loss or series of losses arising out of one occurrence and in the annual aggregate.  

The claims – BOC became subject to bodily injury claims in the USA, in which third parties pursued ‘toxic tort’ claims.  The claimants alleged that they had been exposed to welding fumes or asbestos-containing products manufactured, designed or distributed by BOC.  As a result, BOC incurred extensive defence costs and paid substantial damages, for which BOC sought and obtained insurance recoveries.  One of the most substantial claims made by BOC against its insurers was in respect of BOC’s contribution to the Toxic Torts Settlement Agreement (‘TTSA’), in which damages agreed with a large number of claimants were allocated across the insurers who had participated in BOC’s insurance program over the years. 

RSA sought to recover from Equitas in respect of those claims occurrences which it calculated exceeded £4m, including the share of the TTSA that had been allocated to the Four Year Period.  Equitas denied liability.  In the subsequent proceedings, the court had to decide the following issues.

  1. Defence Costs Erosion Issue

The issue – The question here was whether, as the reinsurers asserted, the £4m excess in the reinsurance was eroded only by indemnity payments or, as RSA asserted, it was eroded also by defence costs.

In the court proceedings to determine this issue, it was common ground between the parties that the liability to indemnify BOC in respect of defence costs was not subject to any financial limit but that it was the subject of a temporal limit, in that the obligation continued only while the £20m indemnity limit in respect of third party claims had not been exhausted.

The decision – The court held that the excess was not eroded by RSA’s contribution to BOC’s defence costs.  The court’s reasoning was that the reinsurance was a facultative excess of loss policy, ‘back to back’ with the underlying insurance and stated to ‘follow original terms’. In the original insurance, the obligation to indemnify defence costs sat alongside the obligation to indemnify BOC for the compensation paid to third parties.   The natural understanding of the ‘limit’ provisions would be that the £16m for cover and the £4m of excess reflected and related to the indemnity cover and not defence costs.  

The court held that this view was supported by the wording of the reinsurance contract and further that the result was not uncommercial.  This was so even though, pursuant to the Claims Co-operation Clause (for which, see Issue 2 below), reinsurers had to be consulted about the defence of claims for less than £4m.

  1. How the reinsurance was to operate, containing as it did both a Claims Co-operation Clause and a Follow Settlements Clause

As indicated above, the reinsurance provided that reinsurers were to follow claims settlements entered into by RSA with BOC or third party claimants (as far as applicable to the layer of coverage).  However, the reinsurance also contained the Claims Co-operation Clause referred to in the preceding paragraph.  To paraphrase, the latter clause required RSA to notify reinsurers in the event of an occurrence which might be the subject of a claim under the reinsurance; in that event, the course to be adopted by RSA was to be agreed with the reinsurers and RSA was not to litigate without the consent of the reinsurers.

In these circumstances, the second issue before the court was whether the Claims Co-operation Clause annulled, modified or circumscribed the operation and effect of the Follow the Settlements Clause.

The decision -The court held that the two clauses could be read consistently because the Claims Co-operation Clause was to be read as not prohibiting the reinsured from settling claims without the reinsurers’ consent:  the prohibition was against the reinsured litigating without consent.  Therefore, the Claims Co-operation Clause did not modify the obligation upon the reinsurers to follow RSA’s settlements.

  1. The proper and business-like steps issue

The effect of a clause binding reinsurers to follow the settlements of the insurers is that reinsurers agree to indemnify insurers in the event that they settle a claim by their insured, provided that the claim so recognised by them falls within the risks covered by the reinsurance as a matter of law and provided also that in settling the claim the insurers have acted honestly and have taken all proper and businesslike steps in making the settlement (ICA V Scor, 1985).

RSA’s participation in the TTSA had proceeded on the basis that under the relevant legal system, that of New Jersey, the courts would treat progressive injury, such as that which follows exposure to welding fumes or asbestos, as an occurrence within each of the years of the injuring company’s liability insurance following the exposure.  Moreover, in such cases, losses should be allocated among the various triggered years of coverage with reference to the degree of risk transferred, i.e. with reference to how much insurance the injuring company purchased in the year in question.  The precise way in which this process of allocation would work had not been fully clarified in the case law of New Jersey, but it could be that insurers on upper layers of cover would be counted in the allocation process even though actual losses to the year in question were not in the circumstances likely to exhaust lower layers of cover.

It so happened that, in the Four Year Period, the relevant BOC company purchased much higher levels of cover than in previous years because it participated for the first time in BOC’s global excess policies. Accordingly, RSA’s lawyers advised that, if the matter went to court, there was the potential for allocation of a disproportionately high percentage of the TTSA settlement to the Four Year Period, even though this would arguably create an inequitable result, and particularly as there had been no spike of claims in the Four Year Period.  RSA’s contribution to the TTSA settlement reflected this potential exposure, in that the allocated share ultimately agreed by RSA for the Four Year Period amounted to some 47% of the total amount paid out via the TTSA, even though the total period covered by the TTSA was some 70 years. 

In these circumstances, the third issue before the court was Equitas’ contention that, in entering the TTSA, RSA had failed to take all proper and business-like steps because they had adopted an unreasonable interpretation of New Jersey law and failed to obtain information relevant to decisions regarding settlement, with the result that RSA had agreed to bear an unreasonably high proportion of BOC’s losses.

The decision – The court proceeded on the basis that an allegation of failure to take proper and businesslike steps is tantamount to an allegation of professional negligence. The court then reviewed the relevant case law of New Jersey and the legal advice on which RSA acted. The court concluded that Equitas had not proved that there had been any failure to take proper and businesslike steps and that Equitas was therefore bound by the follow settlements clause.

  1. Interest

Date from which interest should run – The first notice of potential loss under the reinsurance policies had been given in 1986 and a standstill agreement had been in place for some 20 years until 2017,  Nevertheless, the court in its discretion did not restrict the time for which interest should run and ordered it to run from the date of each respective loss. 

Compound or simple interest – RSA claimed compound interest.  Having analysed the case law, the court concluded that there was no default rule that, in a commercial case, compensation for being kept out of one’s money will be awarded on the basis of the cost of commercial borrowing, i.e. by way of compound interest. The legal position is simply that compensation on that basis will be awarded if the facts pleaded and proved are sufficient to justify the inference that such an award reflects the claimant’s actual loss.  In the present case, the court had been referred to no evidence to justify departure from the general practice of awarding simple interest, which it set at 2% above the Bank of England’s base rate, as varied from time to time.

For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.

This week marks a landmark moment in the private rented sector in England. With Royal Assent granted on 27 October 2025, the Renters’ Rights Act 2025 (“RRA”) has now become law and is anticipated to come into force in Spring of 2026 — bringing to fruition the government’s promise to rebalance the relationship between the roughly 11 million private renters and 2.3 million landlords in England. 

What’s Changing?

Here are some of the key reforms that landlords (and tenants) will need to know about:

Why Is It Changing?

For many renters, the system has long felt skewed. The government sought to address the power imbalance which meant tenants may have felt insecure — or worried that even if they paid their rent and looked after the property, they might still be asked to leave without reason. 

By removing Section 21 evictions and converting tenancies into more stable forms, the RRA gives renters more security and places more costly sanctions on landlords that do not comply with the new requirements.

At the same time, the reforms aim to modernise and improve the private rented sector, recognising that long term renting is often the norm in many people’s lives now (not just a temporary stopgap) and that renters deserve dignity, safety and fairness. 

The new framework demands a more structured, transparent approach to property management. For the landlords who already uphold high standards, transition should occur smoothly, but ongoing compliance will be key.

But It Is Not Without Challenges

Of course, any major overhaul brings questions and potential unintended consequences. For example:

What Does This Mean For Possession Claims?

The RRA introduces significant changes to how landlords can make possession claims. Under this new legislation, landlords can no longer rely on “no-fault” evictions under Section 21 of the Housing Act 1988. However, landlords will have new grounds for possession to reclaim their property under the RRA. This means landlords can still seek possession for specific grounds such as rent arrears, antisocial behaviour, or when they genuinely need to sell or move back into the property.

It is anticipated that there will be a transition period between now and the implementation of the RRA where landlords can still seek possession under the Housing Act 1988, but there is no clear date when the new legislation will take effect.

There is no news as yet as to if or when the Court service will be updating possession claims online or the Court forms for manual claims to allow for new claims to be made under RRA once this takes effect. 

For now, the old rules still apply. Our solicitors can advise and assist should you wish to bring a possession claim under the Housing Act 1988 before the RRA takes effect, from the pre-action stages through to enforcement.

Final Thought

The RRA represents the biggest shake-up of England’s private rented sector in a generation. For renters, it promises more security, stability and fairness. For landlords and agents, it signals a move to a more regulated and transparent sector.

How smoothly it all works out in practice remains to be seen, but one thing is clear: change has arrived. If you’re in the rental market — whether as renter, landlord or agent — now is the time to pay attention.

We offer advice and assistance to landlords only in respect of possession claims, should you require any assistance please contact our client services team by email [email protected] or by telephone on 01483 457500.