Global menu

Our global pages

Close

Consumer Insurance Contracts Act 2019

  • Ireland
  • General

18-02-2020

Reform of insurance law for consumers has been evolving over the past number of years.  In 2015, the Law Reform Commission (“the LRC”) published a Report on Consumer Insurance Contracts, prompted by the need to review and modernise insurance contract law principles and rules that had developed in the 18th and 19th centuries. Of particular concern to the LRC was the prevailing state of the respective bargaining powers of insurers and consumers. The LRC review culminated in a report with 105 recommendations.  Legislation to give effect to these recommendations has recently been brought onto the statute book under the Consumer Insurance Contracts Act 2019 (the “Act”).

Scope

  • Unless otherwise provided, the Act applies to life insurance and non-life insurance contracts agreed or varied or renewed following commencement of the Act.
  • The Act applies to consumers as defined in the Financial Services and Pensions Ombudsman Act 20171 (the “FSPO Act 2017”), which means that the Act applies to insurance contracts with individuals, unincorporated bodies (such as sole traders, partnerships and charities) and incorporated bodies with a turnover of less than €3 million, provided such businesses are not members of a group having a combined turnover greater than €3 million.
  •  The Act extends the EC (Unfair Terms in Consumer Contracts) Regulations 1995 to consumers under the Act2.

Key Provisions

Although the Act is not yet in operation3, insurers will need to familiarise themselves with the provisions of the Act to ensure timely compliance.

Insurable Interest

The Act modifies the concept of insurable interest, such that otherwise valid claims cannot be rejected by the insurer on the ground that the claimant is deemed not to have an interest in the subject matter of the contract. The Act will however require an interest where the contract of insurance is also a contract of indemnity, provided the interest does not extend beyond a factual expectation of the economic benefits or losses that would arise in the ordinary course of events. 

Pre-contractual duty of disclosure

The Act overhauls the law on disclosure by replacing the principle of utmost good faith (uberrima fides) at pre-contract stage with a limited duty of disclosure on a consumer to answer specific questions asked by the insurer.

The questions must be asked in plain and intelligible language and must be asked on paper or in another durable medium.  There is no duty on the consumer to provide additional information over and above the questions posed by the insurer. The Act imposes a duty on consumers to answer all questions honestly and with reasonable care.  Reasonableness in this context is judged by reference to the average consumer. 

Prior to finalising the contract of insurance, an insurer must inform the consumer on a durable medium of the general nature and effect of the pre-contractual duty of disclosure. Where there is ambiguity about the meaning of a question or any term of the concluded contract, the interpretation most favourable to the consumer will prevail.

Cooling-off period

The Act provides that a consumer may cancel a contract of insurance within 14 days of being notified of the conclusion of the contract. However, this right only applies to contracts of insurance not governed by the cancellation right in the Solvency II Regulations or in the European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004.

Proportionate remedies for misrepresentation

The Act introduces tiered proportional remedies for misrepresentation such that in cases of:

a. Innocent misrepresentation - the insurer cannot avoid the contract

b. Negligent misrepresentation - the remedy shall reflect what the insurer would have done if aware of the full facts.  This is based on a compensatory and proportionate test and allows the insurer avoid the contract and return the premiums, or provide a proportionate reduction of the amount to be paid on a claim

c. Fraudulent misrepresentation - the insurer is entitled to avoid the contract. 

Renewal of contracts

Upon the renewal of contracts of non-life insurance, an insurer must provide the consumer with a schedule outlining how much they charged the consumer on policies over a five year period, as well as all claims paid out in that period.  In respect of renewal, there is no pre-contractual duty of disclosure on the consumer to provide the insurer with any additional information, unless the insurer has expressly required the consumer to do.  An insurer must notify the consumer of any alteration of the terms and conditions of the policy at least 20 working days before the renewal date.

Post-contractual duties

As with the pre-contractual duties, the Act removes the duty to act with utmost good faith. The Act now makes provision for an insurer to refuse a claim where there is an “alteration of risk” clause in a contract of insurance. However, such a clause is void where it merely modifies the risk as opposed to altering the subject matter of the contract of insurance. Any clause in a contract of insurance that refers to a “material change” will be interpreted as being a change that takes the risk outside what was in the reasonable contemplation of the contracting parties when the contract was concluded.

Claims and proportionate remedies

Consumers must notify the occurrence of an insured event within a reasonable timeframe.  Unless non-notification within such reasonable time prejudices the insurer, it will not be a valid ground for the insurer to refuse liability.  Where a claim is settled/disposed of the insurer must inform the consumer of the amount of and reason for settlement/disposal. 

Where the insurer or consumer becomes aware of information following the making of a claim, which could either support or prejudice the validity of the claim, the consumer (or the insurer as the case may be) must disclose the information obtained to the other party.

An insurer is entitled to refuse to pay a claim and terminate a contract where a consumer knowingly or fraudulently provided false or misleading information in any material respect and which the consumer either knows to be false or misleading or consciously disregards the fact that it is.

Where the insurance contract excludes cover for loss or damage to property caused by criminal or intentional acts or omissions, that exclusion will be deemed to apply to a claim of a person whose act or omission caused the loss or damage, or if they colluded in, or consented to it knowing it would cause the loss or damage. 

Insurance warranties

The Act replaces the concept of insurance warranties by providing that any term that imposes a continuing restrictive condition on the consumer during the course of the contract will be treated as a “suspensive condition” such that upon its breach, the insurer’s liability is suspended for the duration of the breach, and if the breach is remedied by the time loss occurred, the insurer is obliged to pay any claim made.

Third Parties

The Act allows third parties to benefit from the rights of the insured party in limited circumstances (e.g. where the insured party is deceased) where liability is incurred by the insured party to a third party. In such circumstances, the third party as the right to recover loss suffered against the insurer.

Comment

The introduction of the Act is a significant development in insurance law for consumers.  It represents a furthering of the protection of consumers in financial matters following the abolition of the six-year limitation period for consumer complaints in relation to long-term financial services under the FSPO Act 2017, and the enactment of the Central Bank (National Claims Information Database) Act 2018.

Insurers need to be conscious of the new statutory obligations for insurance policies, particularly the obligations around plain and intelligible language and ensuring that the right questions are asked of consumers. 

For further information please contact:


Norman Fitzgerald, Dispute Resolution & Litigation Partner - NormanFitzgerald@eversheds-sutherland.ie

Alison Murray, Dispute Resolution & Litigation Senior Associate - AlisonMurray@eversheds-sutherland.ie


1Previously the Central Bank and Financial Services Authority of Ireland (Amendment) Act 2017.

2The Regulations protect consumers ensuring they are not bound by unfair terms, which are those terms which significantly imbalance the contract to the consumer’s detriment.

3A Commencement Order is required to bring the Act into operation.

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

< Go back

Print Friendly and PDF
Register to receive regular updates via email.