The Consumer Insurance Contracts Act 2019 was signed into law by the President of Ireland on 26 December 2019. The Commencement Order is expected early this year.
The Act applies to insurance contracts with individuals and businesses with a turnover of less than €3 million.
In brief, its key changes are as follows:
Pre-contractual duty of disclosure
Consumers now only have to provide responses to specific, written questions. This requirement replaces the traditional duty on a consumer to act with utmost good faith and provide full disclosure. There is now no duty to volunteer any information over and above the questions posed. Where there is doubt over the meaning of a question, the interpretation most favourable to the consumer will prevail.
If an insurer doesn’t investigate an unanswered or incomplete answer, they shall be deemed to have waived any further duty of disclosure except where the non-disclosure arises from fraudulent, intentional or reckless concealment.
An insurer may still repudiate the contract or limit the amount payable but only if they can establish that non-disclosure of material information was an effective cause of them entering into the contract on the terms they did.
Proportionate remedies for misrepresentation
Where questions have been answered honestly and with reasonable care but an answer involves misrepresentation, the remedies available are dependent on the category of misrepresentation:
Innocent misrepresentation – the insurer cannot avoid the contract on this basis
Negligent misrepresentation – the remedy shall reflect what the insurer would have done had it known the full facts and is based on a compensatory and proportionate test
Fraudulent – the insurer is entitled to refuse payment, keep premiums and avoid the policy
Renewal of contract of insurance
The insurer is now under an obligation, when issuing renewal notice, to furnish a schedule of any premiums and a list of claims paid out in the preceding five year.
At renewal, if the consumer does not provide any new information in response to the insurer’s specific questions, it shall be presumed the information previously provided remains unaltered. Any renewal does not remedy a previous breach of any duty of disclosure.
Post contractual duties
An insurer may refuse a claim where the subject matter of the contract has altered but not where the risk has only been modified.
Right of third party to claim against insurers
The Act confers a statutory entitlement on third parties to claim against insurers in certain circumstances. Where a person has died, cannot be found, is insolvent, or “for any other reason it appears to a court to be just and equitable to so order” that person’s contractual rights against the insurer shall be transferred to a third party to whom a liability was incurred.
A consumer must notify an insured event within a reasonable time. Where there is late notification the insurer must show prejudice before they are entitled to refuse cover on that ground. A consumer shall cooperate in the investigation of insured events.
Insurers are under a duty to handle claims promptly and fairly, notify consumers of a third party claim as soon as practicable, engage with consumers about a claim and inform consumers where a claim has settled or been otherwise disposed of. Any sums due to consumers shall be paid within a reasonable time.
Both a consumer and an insurer are under a duty to disclose information that they become aware of after a claim is submitted which would either support or prejudice the validity of the claim,including information that would otherwise be subject to privilege.
Representation by consumer that reduces the risk
Any statement made by a consumer about the existence of a state of affairs or any statement of opinion shall have effect solely as a pre contractual representation. Any term purporting to convert such a statement into a warranty shall be invalid.
Any contract term which imposes a continuing restrictive condition on consumers shall be treated as a suspensive condition. If the condition is breached, the insurer’s liability is suspended until remedied. If the breach is remedied by the time of any loss, the insurer shall be obliged to pay the claim. The insurer’s liability is not suspended if the breach has not increased the risk of a loss that has occurred.
The Act’s primary focus is increasing protection for consumers. This appears to result in a greater burden on insurers to ensure their set of specific pre contract questions are sufficient to garner all material information needed. There is also a statutory onus on insurers to keep consumers informed of the costs of any claim against their policy.
Additionally, whilst non-disclosure of material information may still form the basis of repudiation of an insurance contract, this is now tempered somewhat and an insurer cannot avoid a policy on the basis of an innocent non-disclosure.
It remains to be seen whether this Act can be classified as a game changer but it certainly appears on its face to shift the balance in favour of consumers. We will have to wait its implementation to see what tangible effect it has on the insurance market.
For more information on this important legislative development and how it may affect your business, contact a member of our Insurance & Risk team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.