Big changes proposed to Irish insurance contracts
If you work in the insurance industry, you will be aware of significant changes in insurance law in the UK. The Consumer Insurance (Disclosure and Representations) Act 2012 ("CIDRA") and the Insurance Act 2015 have, together, radically altered how insurers do business. Until now, none of these changes applied under Irish law which retained the application of avoidance for material non-disclosure.
However, in January 2017 a private members' Bill was introduced in Ireland entitled the Consumer Insurance Contracts Bill 2017. Although it is in the early stages, if the Bill is ultimately passed, it will lead to huge changes to Irish insurance contracts.
In summary, the Bill combines elements of at least four UK Acts: CIDRA, the Insurance Act 2015, Third Parties (Rights against Insurers) Act 2010 and the Enterprise Act 2016. Its provisions will apply to all insurance contracts with any "consumer" which uses the same definition as the Financial Services Ombudsman: individuals and groups of persons in business with a turnover of less than €3 million.
Here is a brief summary of some of the key changes:
Duty of consumer
The duty of utmost good faith is replaced.
The only pre-contractual duty of disclosure on a consumer is to provide responses to specific questions, in writing, asked by the insurer. All answers must be answered honestly and with reasonable care.
At renewal, the only duty on a consumer is to answer specific questions in writing (again honestly and with reasonable care). If the insurer does not ask specific questions, the consumer is under no obligation to provide additional information, whether matters have changed or not from inception.
A consumer must notify the occurrence of an insured event within a reasonable time or in accordance with the contract, providing the contract term is not unfair or onerous. If a consumer does not comply with a specified notification period, providing the insurer does not suffer prejudice, the insurer cannot refuse indemnity on that basis alone.
Duty of an insurer
An insurer must ask specific, not general, questions in plain and intelligible language.
An insurer must inform a consumer of the general nature and effect of the pre-contractual duty of disclosure.
If a consumer provides no answer or an incomplete answer, and the insurer fails to investigate further, the insurer is deemed to have waived any further duty of disclosure of the consumer. This does not apply if the consumer has acted fraudulently, intentionally or recklessly.
An insurer must provide pre-contractual information to the consumer before the consumer is bound by the contract.
An insurer must handle claims "promptly and fairly".
Damages for late payment
An insurer must pay sums due to the consumer within a reasonable time. Similar rights are given to consumers to claim damages (as well as interest) for "unreasonable" withholding or late payment of insurance claims as were introduced in the UK under the Enterprise Act 2016.
Proportionate remedies for misrepresentation
As with the UK Insurance Act, proportionate remedies are introduced where a consumer's answer involves misrepresentation, depending on whether it was innocent, negligent or fraudulent.
If the consumer makes a fraudulent claim an insurer is entitled to refuse to pay the claim, keep premium payments and avoid the policy.
Further proportionate remedies are provided for false or misleading claims, or where both valid and fraudulent claims are made, or where a fraudulent or criminal act is by another person, thereby providing cover for the innocent insured party.
Unfair or onerous terms
These can be included, providing the insurer takes reasonable steps to bring them to the attention of the consumer.
Certain types of terms are presumed to be unfair or onerous including, rather surprisingly, arbitration or mediation clauses.
Third Party rights against Insurers
For the first time in Ireland the Bill now provides unequivocal rights to third parties in a similar situation to the UK legislation. Third parties in defined situations can issue proceedings directly against the insurer without first having established the liability of the person. However, the third party does have to establish the person's liability before the contract can be enforced against the insurer.
A third party can take any steps to fulfil a condition of a contract which presumably includes payment of an excess.
When the Insurance Act 2015 (as passed) was introduced in England, the stated aim of the Law Commission was to strike a balance between insurers and non-consumer policyholders to arrive at a more "neutral" law rather than seeking to "protect" the policyholder as had been the aim with CIDRA. In submissions to the English Law Commission, more than 80% of those consulted (including insurers) supported changes to the law on disclosure. The aim was to have a law that was fit for purpose in the 21st century, rather than relying on the 1906 Marine Insurance Act and all of the case-law arising out of insurance disputes over the prior 100 years.
Avoidance of a policy for innocent non-disclosure was a huge issue for commercial insurance buyers. Whilst many professional policy wordings specifically include innocent non-disclosure clauses, many more general policy wordings did not. Proportionate remedies were generally welcomed.
The difficulty is that the proposed Irish legislation will apply not only to individual consumers, but also to SMEs and smaller professional partnerships, providing their turnover is less than €3 million. The English Insurance Act 2015 (which applies to anyone seeking insurance for their business) requires the proposer to make a "fair presentation of the risk". The English Act sets out in clear unambiguous language what is expected of the parties in terms of "knowledge" at the time of proposing. The onus on the proposing party is to give "sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal those material circumstances".
If the Irish Bill is introduced as law (it has a long way to go) Insurers will be given 18 months from its enactment during which they will have to:
(a) Draft proposal forms for each line of business with specific questions which should elicit all material information;
(b) Draft policy wordings that meet the requirements of the legislation, paying particular attention to any clauses which could be deemed to be "unfair or onerous".
The Bill is currently at Committee stage and Insurers should consider if they wish to make submissions before the Bill becomes law.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.