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The Consumer Insurance (Disclosure and Representations) Act 2012
received Royal Assent yesterday and is expected to come into force
in a year's time.
The Act has received the backing of consumer groups, regulators and
the insurance industry in general. It provides a long overdue
update of consumer insurance law, shifting the balance of the law
in favour of the consumer. It results from the Law Commissions'
2009 Report on Consumer Insurance Law, which set out to ensure that
consumer insurance law be clear, straightforward and fair.
Main legal changes to consumer insurance
The Act abolishes a consumer insured's duty to volunteer
information to the insurer. A consumer's duty will be limited
to making sure it answers questions raised by insurers honestly and
reasonably.
Insurers will have to ensure they ask for any information they
need to assess the risk being insured.
If a consumer acts honestly and reasonably the insurer will
have to pay the claim.
Where a consumer acts carelessly a proportionate remedy will be
applied; the test will be what the insurer would have done had it
known the full facts.
An insurer will only be able to refuse to pay a claim if a
consumer acts deliberately or recklessly in making
misrepresentations.
An insurer will need to prove on the balance of probabilities
that a consumer knew: a) that a deliberate or reckless
misrepresentation was untrue or misleading, or did not care whether
it was or not; and b) that the matter was relevant to the insurer,
or did not care whether it was or not. If a misrepresentation does
not pass this test then it will be a careless representation and
must be treated accordingly.
If the intermediary is an appointed representative of the
insurer, or is acting as the insurer's agent, they will be
considered as acting for the insurer. In all other cases the
intermediary will be presumed to be acting for the consumer.
Other provisions
Insurers will be prohibited from contracting out of the effect
of the Act.
The Act abolishes basis of contract clauses. Therefore
statements made by the consumer will not automatically be
transformed into warranties.
For group schemes, if a group member makes a misrepresentation,
this will only have consequences for the particular individual
concerned.
If a consumer takes out life insurance on the life of another
and the insured makes a careless or deliberate misrepresentation,
the insurer will have the normal remedies.
The application of the Act is limited to individuals taking
insurance wholly or mainly for purposes unrelated to their trade or
business.
Comment
The Act finally brings the law into step with current market
practice already adopted by the Financial Ombudsman Service and
Financial Services Authority rules, providing clarity and
consistency between regulators and the courts.
Insurers will now have one year to implement the necessary changes
before the Act comes into force in 2013.
For further information please see our previous
Law Now on the topic.
This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance
only. The information and opinions expressed in all Law-Now
articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.
The original publication date for this article was
09/03/2012.
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