The Consumer Insurance Contracts Act 2019 (the “Act”) was signed into Law on the 26th December 2019 last. The Act will have a significant impact on Insurers conducting insurance business with consumers in Ireland.
The commencement date for the Act is anticipated to be 1st September 2020 although some provisions are delayed to 1st September 2021.
The Act followed from the Law Reform Commissions 2015 report – Consumer Insurance Contracts. The Act received cross party support in the Oireachtas and was sponsored by Pearse Doherty TD “in this day and age the insurance consumer is at a huge disadvantage when faced with the lawyered up, technically savvy insurer. We know the results, the insurer holds all of the cards”.
The Act was passed against a background of Insurance Reform and pressures to ensure consumers and small businesses are given better standing and rights therein in a relationship with the Insurance Industry.
The Minister for Finance advised that he intends the Act to commence on the 1st September 2020 with some sections delayed for one year.
A consumer has the meaning given to it in Section 2 (1) of the Financial Services and Pensions Ombudsman Act 2017 for the purposes of this act.
It applies to Insurance Contracts with individuals, unincorporated bodies (sole traders), partnerships and charities and incorporated bodies with a turnover of less than €3 million (provided such businesses are not members of a group with a combined turnover of greater than €3 million).
It remains to be seen whether similar legislation will be brought forward in regard to Commercial Insurance Contracts.
The impact of these changes will of course take time to filter through. Many of the changes are not dissimilar to those in the UK and the likelihood is that Irish Court Judgements will have cognisance and regard to UK practice and applicable case law. The Central Bank of Ireland has also been given the authority to issue a code of practice on the form of a Contract of Insurance but developments in that regard remain to be seen.
DUTY OF DISCLOSURE/PROPOSAL
Much litigation regarding indemnity disputes between consumers and insurers centres around the duties imposed in proposal situations. One of the most significant changes in the Act is regarding the Duty of Disclosure and obligation of utmost good faith (uberrima fides). The Act replaces these duties with requirements to answer specific questions honestly and with reasonable care. This shifts the obligation from the requirement to volunteer information imposing a duty on Insurers to pose unambiguous questions in plain and intelligible language. The Insurer can no longer rely or ask open ended questions. Forms will require to be updated and this imposes a significant burden or duty onto both Brokers and Underwriters.
Insurers therefore can no longer rely on the old historic and well established principle of uberrima fides. Many practices regarding insurance proposals will not remain fit for purpose given these reforms.
The above Duty of Disclosures apply to insurance renewals as well as fresh new insurance proposals. Insurers in addition will now be obligated to share Policyholders claims history and premia cost for the previous five years. Health Insurers are exempt in that regard.
The former contractual duties and requirements under the uberrima fides obligations sometimes resulted in “an all or nothing” remedy for misrepresentation by consumers. The Law Reform Commission Report described the full rescission of a contract in such circumstances as “draconian” and belonging to another legal era. This Act replaces this absolute remedy with proportionate type remedies. In the event that a misrepresentation is fraudulent the Insurer will remain entitled to void the contract in full. However, where a misrepresentation is innocent an Insurer will be required to pay the relevant claim in full. If the misrepresentation is negligent the Insurer will require to seek to demonstrate what it would have done had it known all relevant facts.
There will be likely much case law in the Irish Courts regarding these changes. In simple terms one could view matters through the following:
- Fraudulent misrepresentation – Insurer remains entitled to void contract in full.
- Innocent misrepresentation – Insurer required to deal with a claim in full.
- Negligent misrepresentation – Insurer will require to seek to demonstrate what it would have done differently.
The above is an extremely simple outline of these areas of law that undoubtedly will throw up significant disputes requiring legal interpretation.
The Act is attempting to allow proportionate remedies for misrepresentation but the provisions in regard to remedies are not likely to commence until 1st September 2021.
The Act abolishes one significant “basis of contract clauses” in Insurance Contracts. This had resulted in consumer statements in proposals being elevated to those of a warranty. This was perceived as one sided and an unfair clause and will now be invalid and unenforceable.
The Act reiterates the requirement for a consumer to cooperate with an Insurer in the investigation of an insured event. This includes responding to reasonable requests for information in an honest and reasonably careful manner. In the event of a failure to comply within a specified notification period, the Insurer must show prejudice before being entitled to refuse cover. In the event of no such prejudice arising as a result of non-compliance the Insurer is not entitled to refuse liability under the claim on that ground alone.
The Act also deals with disputes after the conclusion or coming into being of the Insurance Contract. There are existing duties on both the consumer and insurer in respect of claims handling. A consumer must cooperate with an insurer in the investigation of events likely to lead to a claim and notify the occurrence of a notifiable event within a reasonable time.
The insurer has duties to handle claims promptly, fairly and engage with the consumer regarding a claim. There is an obligation to inform the consumer where a claim has been settled or otherwise disposed of and to make payments within a “reasonable time”.
In property matters the Act allows deferring of the insurers obligation to pay a claim until repair, replacement or reinstatement work has been completed and specified documentation has been furnished to the insurer. The Act introduced proportionate remedies in respect of claims handling. Where a claim made by a consumer contains information which is false or misleading or where the consumer knows it is false or misleading the insurer any refuse to pay the claim and terminate the contract in full.
Many of these provisions neglect current practices in claims handling but now enshrine these requirements in statute.
SUBROGATION/THIRD PARTY RIGHTS
The Act implements changes to avoid unintended consequences for family and employer/employee relationships where an insurer exercises or enforces subrogation rights.
Subrogation is a legal principle where it intitles the insurer to stand in the place of a Policyholder and recover against a Third Party (wrongdoer) who may be responsible for the cause of claim or damage discharged by the insurer.
The Act limits circumstances where an insurer cannot exercise its right of subrogation against family members who may be uninsured or employees of an insured employer. There are exceptions in the latter category where losses are caused unintentionally or recklessly by an employee.
PRIVITY OF CONTRACT
The Act introduces a statutory exemption to the rigidity of the so-called “Privity of Contract Rules”. Much of these rules are historic and Ireland has no direct equivalent to the United Kingdom Contracts (Rights of Third Parties) Act 1999. This legislation allows Third Party Claimants bring a case against an insurer where the insured has died, cannot be found or is insolvent or where the Court considers it just and equitable to allow it. There have been numerous high profile cases in personal injuries actions where significantly injured Claimants have not been in a position to bring an action for damages due to breaches of policy conditions or conditions precedent to the Contract.
In the case of Hu -v- Duleek Form Work Limited  the Plaintiff was aware his employer had a contract of insurance which was intended to cover employers negligence but a breach of a condition precedent to liability, namely the payment of an excess of €1,000.00 resulted in the insurance contract being not responding. Whilst this may have been unfair on the basis of those legal principles and Orders were made often with regret the new act now confers rights to the Third Party in such circumstances where they show an insurance contract existed. The Act aside from the above circumstances of death, missing or insolvency may also allow such matters proceed where “it appears to a Court to be just and equable to do so”.
PRACTICAL IMPLICATIONS OF THE ACT FOR INSURERS
When the Act comes into being it will have implications that affect both consumers and insurer both prior to the inception of the insurance contract and subsequent thereto. Insurers and Brokers will require to consider and amend proposal forms to reflect the new reality envisaged by the Act. Most current wordings and proposal forms will not be fit for purpose with the changes envisaged and must be reviewed fully in relation to new proposals and at renewal stage. Insureds will have to be advised regarding their rep-contractual duties of disclosure and proposal forms will become more detailed with specific questions.
Underwriters will have to be clear about assessing risks against this new reality. They will rely on new proposal forms, evidencing and attitudes. Claims handlers will require to redraft any written claims processes in being. They will require to process and deal with First and Third Party claims promptly and keep records. Engagement with the insured is important and advising them regarding settlements. Any late notification matters will have to be assessed on a case by case basis and the Courts will reluctantly refuse indemnity where clear prejudice is established. Third-Party rights are significantly enhanced which could lead to further claims. Insurers are disadvantaged somewhat when traditional “get out” Privity of Contract or Policy Breaches will not allow them to avoid coverage. This will be advantageous to Third Parties and remove many previous barriers.
Date published 21st July 2020
This document is for general guidance only and specific legal advice should be obtained as required.
Jack O’Brien Partner ([email protected])
Mary Byrne Partner ([email protected])