The Consumer Contracts Bill 2017 was introduced as a private members bill by Sinn Fein (Pearse Doherty TD) with the express intention that it would ‘shift the balance in favour of policyholders by increasing transparency and strengthening the hand of the policyholder during their insurance contract’.
The Consumer Contracts Act (the “Act”) was signed into law at the end of 2019 and reflects the intentions of its drafters and proposers as outlined above. The Act, therefore, was drafted for the purpose or addressing the perceived current imbalances in favour for the most part of the Policyholder. Once commenced this Act will have a significant impact on life and non-life insurance engagement between Insurers and their consumer Policyholder.
The Act applies to consumer contracts only. Consumers are defined as private individuals and/or entities with a turnover of €3M or less and so the scope of its application is very broad and it will apply across all policies of insurance wherein the Policyholder comes within the definition of Consumer. From an Insurers perspective, each component of the Policy of Insurance from Proposal Form to Terms and Conditions (the Contract) to the Statement of Facts will now have to be reviewed as well as Claims Handling and an effective way of making determinations regarding the new Third Party Rights to be found in the Act.
The key developments under the Act can be summarised as follows:
- Insurable interest in the subject matter of a contract is no longer an exclusive basis for declinature;
- Replacement of duty of disclosure with statutory duty to answer questions posed honestly and with reasonable care;
- Introduction of proportionate remedies for misrepresentation;
- Where ambiguity of any term is in existence, its interpretation will be for the benefit of the consumer under legislation;
- Renewal and Cancellation of Policy is now legislated;
- Post contractual duties of parties is legislated for;
- Claims handling process is now set out as obligations;
- Deferral of payment on completion of works (property damage) has changed substantially;
- Insurance warranties have been replaced;
- Third parties now have a right to claim directly against an Insurer – significant change in contract law in Ireland providing rights to individuals/entities not party to a contract of insurance;
- Modification of subrogation rights of an Insurer (with regard to familial, personal and employment relationships);
- Subrogation generally has been amended; and
- Remedies for breach of or failure to comply with the Act have been introduced.
Whilst the changes will ultimately benefit the consumer, insurance companies will have to review and revise each component of the Insurance Contract and the manner in which they provide their Policy documentation and Statement of Facts. Underwriters are going to have to consider responses to specific questions, or perhaps more importantly the absence of a response, as the alternative is the acceptance of the risk without any means of challenging same at a later date. In addition, the Act clearly sets out how claims are to be handled and requires engagement with Policyholders that to date was not a legal obligation.
The knock on effect of the Act will be to require an overhaul of the Insurance Contract and its operation across the consumer insurance sector.