(1) Barbara Parker (2) Michael Parker v National Farmers Union Mutual Insurance Society Ltd (2012) EWHC 2156 (Comm)
The High Court in England has recently held that a general condition in a property policy, requiring the policyholder to provide all written details and documents requested by the insurer if anything happened which might result in a claim, was not unfair under the Unfair Terms in Consumer Contracts Regulations 1999 ("the Regulations").
Regulations 5 and 6 state that a contractual term which hasn’t been individually negotiated is unfair if "contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer".
Unfairness will be assessed "taking into account the nature of the goods and services for which the contract was concluded" and "all the circumstances attending the conclusion of the contract".
Regulation 8 provides that "an unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer".
Facts of the case
The relevant property was damaged by fire. It belonged to Mrs Parker but was not occupied by her and her husband. It was insured in both their names. National Farmers Union (NFU) denied cover alleging, amongst other things, arson, and fraud in respect of two previous claims by Mr Parker relating to watches apparently stolen from him in 2002 and 2007.
NFU sought a ruling that Mrs Parker’s refusal to provide bank statements, which were relevant to determining whether the couple had sufficient funds to rebuild the property, and therefore whether fraud was likely in this insurance claim, was in breach of the following condition, which the parties agreed was a condition precedent:
"How to claim - if anything happens which might result in a claim, YOU must do the following: provide all the written details and documents that WE ask for; ..."
The court held that this was a fraudulent claim, noting that there was no credible explanation for the fire other than it was set by persons directed by Mr Parker and that NFU had proved that no watches were stolen from Mr Parker in 2007.
As to whether the condition precedent created a "significant imbalance in the parties' rights", the court was not persuaded that it did, citing Lord Bingham’s previous reasoning that:
"The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in his favour … The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps."
The court said, however, that any discretion to ask for documents must not be exercised unreasonably and must therefore be relevant to the claim being made.
It rejected the suggestion that the requirement of strict compliance with the term made it unreasonable, as the obligation on insurers pursuant to ICOBS 8.1.1 not to reject a claim unreasonably (which was binding) provided a safeguard against insurers denying coverage on the basis of a procedural transgression.
Taking the above points, the Court held that the condition precedent was not unfair and therefore enforceable against the Parkers.
Points to note for insurers
- Be aware of terms in consumer policies which are not individually negotiated, as they may be deemed unfair and unenforceable
- When seeking to enforce policy terms, be aware of the requirement of reasonableness
- A court is unlikely to allow avoidance of coverage because of a mere procedural transgression in consumer policies – some prejudice to the insurer must be shown
- A court will, however, allow avoidance if the clause is clear and reasonably drafted and enforced
Relevance in Hong Kong
The Control of Exemption Clauses Ordinance (Chapter 71) has a similar test for reasonableness, requiring a term to be a "fair and reasonable one … having regard to the circumstances which were, or ought reasonably to have been, known or in the contemplation of parties when the contract was made".
In determining whether a term is reasonable, the court shall take account of:
- The relative strength of the bargaining positions of the parties to the contract
- Whether the customer received an inducement to agree to the term, or had an opportunity to enter a similar contract elsewhere without having to accept the term
- Whether the customer knew or ought to have known of the existence and strength of the term
- Whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable
Insurers should therefore be reminded to take note of the requirements of fairness and reasonableness in wording its consumer insurance policies and the inability to refuse coverage where those requirements are not met.