The Consumer Insurance (Disclosure and Representations) Act 2012 is set to come into force on 6 April 2013.

The Act, which received royal assent in March 2012, will bring English consumer insurance law in line with the rest of Europe by shifting the balance of the law in favour of the consumer.

What can you expect to change on 6 April 2013?

The Act will abolish, in respect of consumers, the established law on the insured's duty of disclosure and replace it with a duty not to misrepresent.  A consumer insured’s duty will be limited to ensuring that it answers questions raised by insurers honestly and reasonably.  Thus placing the burden on insurers to ask for any information that they need to assess the risk.

Provided a consumer insured acts reasonably and honestly, the insurer will be obliged to pay any claims.  However, where a consumer acts carelessly, a proportionate remedy based on how the insurer would have behaved had it been apprised of the full facts will apply.  An insurer will only be entitled to decline to pay claims where a consumer insured acted deliberately or recklessly in making a misrepresentation.  The insurer will be obliged to prove, on the balance of probabilities that a consumer knew that:

  • a deliberate or reckless misrepresentation was untrue or misleading, or did not care whether it was or not; and
  • the matter was relevant to the insurer.

Brokers will also see a changing legal exposure with the Act detailing when a broker will be acting as the insured’s agent and when it is acting as the insurer’s appointed representative or agent.

Who will the Act affect?

The application of the Act is limited to individuals taking out insurance wholly or mainly for purposes unrelated to their trade or business.  It should be noted that while the Act’s definition of consumer is not dissimilar to that of the Financial Services Authority, they are not an exact match.

While the Act does not reach as far as including business insurance, the Law Commissions are currently reviewing the law as it applies to business insurance contracts and the possibility of adopting similar legislation for business insurance has been mooted.  The responses to the Law Commissions' proposals relating to disclosure and warranties in business insurance have now been published, which will be the subject of a separate Law Now.

Comment

The drafters of the Act aim to bring consumer law into step with the practices and directions adopted by the Financial Services Authority and the Financial Ombudsman Authority.

Market players will now need to consider how the changes affect their business with a view to implementing any necessary changes as soon as possible given the imminent commencement date.

For further detail on the Act please see our previous Law-Now.