A new Private Member’s Bill has been put before the Oireachtas which could significantly enhance consumer protection and change the way in which insurance contracts are created and administered.
The Consumer Contracts Bill 2017 has its origins in a 2015 Law Reform Commission Report on Consumer Insurance Contracts. The Bill has passed second stage in the Dáil and will now proceed to Committee stage in the Oireachtas. Minister Eoghan Murphy indicated that while the government is “supportive of what the Bill is trying to achieve” that it is likely to submit substantive amendments at Committee Stage.
The Bill introduces a number of new protections for consumers, to include the following:-
1. Wider definition of consumer
A consumer has been defined as a natural person acting outside of their trade, business, craft or profession and specifically includes SME’s having an annual turnover of €3 million or less in the financial year.
2. Pre-contractual duties (onus shifts to the insurer)
The principle of uberrima fides (utmost good faith) will no longer apply. Instead, a consumer will only be required to provide responses to specific questions asked by an insurer. The consumer shall not be under any duty to volunteer any information over and above what is required by those questions.
Insurers also won’t be able to ask general questions, such as “is there anything in relation to your medical history that the insurer should be aware of?” Instead, they will have to ask specific questions which are relevant to the risk being insured.
The contra proferentem rule will still apply so that if there is any ambiguity or doubt about the meaning of a question, the interpretation most favourable to the consumer will prevail.
Importantly, an insurer may only use the remedies of repudiation or limiting liability if it establishes that non-disclosure of material information was actually an effective cause of the insurer entering into the contract of insurance and on the particular terms on which it did so.
3. Post-contractual duties – greater clarity regarding “material change”
Under the terms of the Bill, an insurer may refuse a claim where there is an “alteration of risk” but only where circumstances have changed so much that the insurer considers it a new risk which it had not agreed to cover. Such a clause will be void if there is only a modification of the risk insured.
Any clause which refers to a “material change” shall be interpreted as referring to changes that take the risk outside that which was within the reasonable contemplation of the contracting parties when the contract was concluded.
4. Remedies for misrepresentation
Where there is an innocent misrepresentation by the consumer, the insurer shall be required to pay the claim and shall not be entitled to avoid the contract.
Where there is a negligent misrepresentation (reckless or deliberate) by the consumer, the insurer shall reflect on what it would have done had it been aware of the full facts and shall be required to act accordingly.
If the consumer engages in fraudulent misrepresentation, the insurer shall be entitled to avoid the contract of insurance.
5. Duties of a consumer and insurer at renewal
On renewal, there will be no duty of disclosure on a consumer to provide the insurer with any additional information, whether concerning matters that have changed or otherwise, unless the insurer;
- Asks the consumer a specific question in writing regarding the matter; or
- Requests in writing that the consumer update information previously provided concerning that matter, which the insurer shall specifically describe and shall provide to the consumer a written copy of the information previously disclosed.
The consumer shall be under a duty to respond honestly and with reasonable care. It shall be presumed that the information previously provided has not altered unless specified.
6. Fraudulent claims
Where a claim made by a consumer contains information that is false or misleading in any material respect and which the consumer either knows to be false or misleading or consciously disregards whether it is false or misleading, the insurer shall be entitled to refuse to pay the claim and shall be entitled to terminate the contract.
However, an insurer shall not be entitled to claim the costs of investigating a fraudulent claim against the consumer.
This Bill echoes many of the changes made in the UK in their Consumer Insurance (Disclosures & Representations) Act 2012 and the Insurance Act 2015. Reforms in the UK have not led to a significant rise in claims against insurers or coverage based disputes in that jurisdiction.
It strikes us that the Insurance industry in this jurisdiction could take one of two broad approaches to this Bill. It could seek to dilute the main changes or in the alternative, it could embrace the proposed changes to enhance consumer confidence in the sector.