The Consumer Insurance Act has been heralded as simply codifying current best practice within the insurance market. This does not reflect the fundamental change to pre-contract disclosure brought about by this legislation, abolishing the consumer's duty to volunteer material facts.
This shift in onus reverses the previous position with insurers now being required to ask clear and specific questions to elicit the information needed to assess a proposed risk at placement.
It will then be at the claims stage that the true litigious impact of the Act will be seen. The new definitions and remedies within the Act are, as yet, untested. Until any ambiguities and boundaries are disputed in court, no one will be able to predict with any certainty the outcome of judicial ruling on such ambiguities and indeed where the boundaries will fall.
For example, the scope of the Act itself is confined to consumer insurance contracts. These are contracts wholly or mainly for purposes unrelated to an individual's trade, business and profession. But how is this definition to be applied in each case?
Consider a holiday apartment used by the consumer for a couple of weeks a year, but let for the remainder. Surely home insurance for this circumstance would not fall under the Act. But at what point does the balance tip, say if the apartment is used by the consumer for most of the year? Where each insurer decides to draw the line may differ and disputes as to the correct approach is highly likely.
The courts will then be called upon to clarify the position, but at what cost - both financially and in terms of coverage - to the insurer seeking to contest such a contract?
As for intermediaries; on whose behalf they are acting remains key. Any misrepresentation made by an agent is treated as if made by the principal.
The new Act prescribes 'rules for determining the status of agents', seeking to provide a framework for identifying for whom an intermediary acts. But again, for whom an intermediary is acting at the time of any careless or reckless misrepresentation, will be fact-specific and as such the source of potential argument.
It will ultimately be up to insurers to challenge insurance claims in court, deciding the basis upon which such challenges are to be made and what remedies are to be sought. But with the new Act designed with the protection of consumers firmly in mind, will insurers' appetite for contesting claims dwindle in the face of such a consumer friendly approach?
Helen Chapman is partner at law firm Hogan Lovells
