On 6 April 2013, the Consumer Insurance (Disclosure and Representations) Act 2012 ("the Act") will come into force, and apply to all consumer insurance contracts entered into on and after that date.As such, it is important to be aware of the impact of the Act.
- The provisions in the Act are mandatory.
- A duty of utmost good faith is replaced with a statutory duty upon a consumer to take reasonable care not to make a misrepresentation to an insurer.
- An insurer cannot avoid a policy:
- if a consumer exercises reasonable care and makes a misrepresentation; or
- where a misrepresentation is made; that misrepresentation would not have influenced its decision to agree to the policy.
- An insurer can avoid a policy and refuse all claims if it can show that without the misrepresentation by the consumer, it would not have entered into the policy or would have agreed it on different terms.
A deliberate or reckless misrepresentation will allow an insurer to retain all the premiums paid. A careless misrepresentation means an insurer must return all the premiums paid.If an insurer would have agreed to a policy on different terms, the policy is treated to have been entered into on those terms.
- An insurer should also take greater care when extracting information from consumers. The Act specifies that clear and specific questions should be posed to a consumer, and the importance of answering questions in full should be communicated (specifically if a policy is being renewed or varied).
- Further, the rule that a consumer's representation can be converted into a warranty is abolished, therefore, an insurer cannot rely on this to avoid a policy.
For a more detailed discussion of the Act, please click here.