Whilst FOS rightly considered itself ahead of the consumer insurance law reforms, the FCA has now caught up. In this month's FCA Handbook update the provisions of the new Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) have been transposed into ICOBS.
The FOS' guidance on mis-representation and non-disclosure published in August boasted that "The Act has not changed the way we look into cases about misrepresentation and non-disclosure because the law now reflects the approach we were already taking". We have previously discussed the potential impact of CIDRA when the Act first came into force on 6 April. At the time we noted that although CIDRA merely clarifies the law to reflect market and FOS practice the new Act conflicted with existing provisions in ICOBS.
With the update to the Handbook, effective as of 1 October 2013, the categorisation of a 'mixed' customer in ICOBS has been brought into line with CIDRA but only for the purposes of applying CIDRA. The old definition at ICOBS 2.1.3(1) G will continue to apply, such that a 'mixed' customer acting as a both 'consumer' and a 'commercial customer' will be a 'commercial customer', except in relation to the new provisions on disclosure and 'qualifying misrepresentations' at ICOBS 5.1.4 G and ICOBS 8.1.2 R respectively. For these provisions, a customer who enters into a contract of insurance "mainly" for purposes unrelated to his trade or profession is still a 'consumer' who can benefit from the 'qualifying misrepresentations' provisions. Lest you think this clarifies matters, there remains a distinction between mixed use customers and 'status uncertain' customers; under ICOBS 2.1.2, "if it is not clear in a particular case whether a customer is a consumer or a commercial customer, a firm must treat the customer as a consumer"!
The new ICOBS 5.1.4(3) and (4) G reflect s.3(1) and s.3(2) CIDRA and require insurers to "explain… to the customer the responsibility of consumers to take reasonable care not to make a misrepresentation and the possible consequences if a consumer is careless in answering the insurer’s questions, or if a consumer recklessly or deliberately makes a misrepresentation; and [to] ask… the customer clear and specific questions about the information relevant to the policy being arranged or varied."
The new ICOBS 8.1.2(2) makes it unreasonable for insurers, in relation to contracts or variations agreed on or after 6 April, to reject a claim for "misrepresentation by a customer [if] the misrepresentation is not a qualifying misrepresentation". The definition of a qualifying misrepresentation derives from s.2(2) CIDRA which is set out in the new ICOBS 8.1.3 R: (1) the consumer must take reasonable care not to make a misrepresentation and (2) the insurer must show that without the misrepresentation they would not have entered into the contract or would have done so only on different terms.
Now the new Handbook rules are in force it is essential that insurers ensure that all their consumer documentation has been amended to remove any references to the old duty of disclosure. Not only will attempts to avoid a policy based on the old duty of disclosure be ineffective, an insurer's failure to ensure that consumers (in the new, wider sense) are familiar with the new, limited, duty of disclosure will be a failure to follow ICOBS 5.1.4 G, and an attempt to rely on the old rules will likely be a breach of ICOBS 8.1.2 R.
Following Imogen's blog, any insurer looking for a case to run to the High Court by way of Judicial Review of the FOS' approach to directions should find a 'commercial customer' to which CIDRA does not apply but which (at the time of the complaint rather than placement of the policy) was eligible to complain to FOS as a micro-enterprise.