The Consumer Insurance Contracts Act 2019: a new era for insurance contracts
The Consumer Insurance Contracts Act 2019 (the Act) was signed into Irish law on 26 December 2019 and we expect it to be commenced by Ministerial Order in the coming months.
Much like the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015 in the United Kingdom, the Act will have a significant effect on Irish insurers, or indeed any insurers conducting insurance business in Ireland.
The Act aims to address some of the perceived imbalances between insurers and consumer policyholders, to increase transparency for the consumer and to strengthen their rights.
The Act will apply to any insurance contracts concluded or varied after the commencement of the Act. It will concern life and non-life insurance contracts alike and applies to individuals and business with a turnover of less than €3 million.
Duty of disclosure
One of the most radical changes which the Act introduces is in relation to the duty of disclosure. The longstanding “duty of good faith” will be replaced by a duty on the policyholder to answer specific questions honestly and with reasonable care.
There will be a duty on insurers to pose unambiguous questions in plain and intelligible language and the policyholder will not be expected to volunteer additional information above what is asked of them. The insurer will not be able to ask open ended questions.
An insurer shall be deemed to have waived any further duty of disclosure on the policyholder when they fail to investigate a missing/incomplete answer; this does not apply to answers provided fraudulently or recklessly.
The burden of disclosure is shifting away from the policyholder and on to the insurer and insurers will have to assess their current policy wordings carefully in light of these new duties.
The Act abolishes “basis of contract” clauses in insurance contracts, so that any term in a contract that seeks to convert a statement made by a consumer, for example, in a proposal form or a statement of fact, into a warranty will be invalid and unenforceable.
A consumer must notify an insured event within a reasonable time, however, where there is a failure to comply with a specified notification period, the insurer must show prejudice before being entitled to refuse cover.
Insurers are under a duty to handle claims promptly and fairly, notify consumers of a third party claim (if not made by the consumer) as soon as practicable and inform consumers where a claim has settled or otherwise disposed of. Importantly, any sums due to consumers shall be paid within a reasonable time and where it is not possible to quantify the total value of the claim but part can be, that element should be paid to the consumer.
There is a continuing obligation on both a consumer and an insurer to disclose information that they become aware of after a claim is submitted which would either support or prejudice the validity of the claim. This includes information that would otherwise be privileged.
Third party rights
Prior to the Act, a person not a party to an insurance contract did not have any rights of redress against the insurer save for some limited exceptions.
The Act now provides that where a person (defined as an individual, partnership or any corporate body) is insured against a liability which may be incurred by that person to a third party (being a consumer), the consumer will be permitted to claim directly against the insurer in circumstances where the insured person has died, cannot be found, is insolvent or for any other reason it appears to a court to be just and equitable to do so. This is a significant expansion of the law in relation to third party rights and is designed to to ensure that third parties (such as a person injured in an accident at work) are not prevented from recovering based on the doctrine of privity of contract. This is likely to see an increase in the payments of claims which might traditionally have been resisted by insurers.
Remedies for misrepresentation
The Act recognises an insurer’s right to refuse to pay a claim and to avoid a contract of insurance, where a consumer makes a claim containing fraudulent information that the he/she knows to be false or misleading.
The remedy available to insurers for negligent misrepresentation must reflect what the insurer would have done, had it been fully aware of the facts, and the remedy must be proportionate, for example an increased premium rather than a declinature.
Insurers cannot avoid a contract of insurance where a consumer makes an innocent misrepresentation.
The Act places more onerous obligations on insurers. Some practical tips for insurers include:
- Adapt proposal forms accordingly so that specific information relevant to the underwriting of the risk is sought.
- Be cautious in relation to the information underwriters elicit from customers who fall within the definition of consumers, at policy inception and at the policy renewal stage, for the purposes of the Act.
- Deal with claims as promptly and fairly as possible.