The Consumer Insurance Act is the first formal change in law in this space for more than 100 years. Paul Dalgliesh looks at the implications for insurers and advisers.
Back in January 2006 the Law Commission and Scottish Law Commission began a piece of work. It invited views on which areas of insurance law were in need of reform by issuing a joint scoping paper Insurance Contract Law.
Over the course of the past few years, this wide-ranging and comprehensive work has been split into three distinct streams of activity:
1. The first report on Consumer Insurance Law was laid before Parliament in December 2009 and the Consumer Insurance (Disclosure and Representations) Bill was introduced in the House of Lords in May 2011. The bill, which became the Consumer Insurance (Disclosure and Representations) Act 2012, received Royal Assent on 8 March 2012 and will become law on 6 April 2013.
2. The Law Commissions' second joint consultation covering post contractual issues: damages for late payment, fraudulent claims, insurable interest and policies and premiums in marine insurance, was published on 20 December 2011.
3. The third consultation on business insurance and warranties was published on 26 June 2012.
This article focuses on the results of the first stream - the Consumer Insurance (Disclosure and Representations) Act 2012 and specifically its application to long-term insurances.
The Act
The Act itself is a very succinct document spanning just 10 pages.
In summary it:
• relates to consumer insurance contracts, not to business insurance;
• replaces the principle of ‘utmost good faith' with ‘a duty by the consumer to take reasonable care not to make a misrepresentation to the insurer';
• provides examples of what should be considered in establishing whether a consumer has taken reasonable care;
• defines misrepresentations and confirms the remedies available to insurers;
• removes the right for a representation to be converted to a warranty;
• clarifies that information provided by the life insured under a group scheme or life of another contract will be treated as if it is provided by the policyholder;
• establishes factors to determine whether an agent acts for the consumer or insurer.
The need for reform
The Marine Insurance Act 1906 - the current law - requires consumers to disclose anything that would ‘influence the judgement of a prudent insurer'. The consequences for failing to comply can result in the insurer declining a claim, and the Law Commissions' original documents contained some really strong case studies over the years of where the law failed claimants.
