UK: Insurance Law Reform: Status Of Intermediaries

Last Updated: 30 March 2009
Article by Ed Foss and Chris Bradshaw

The Law Commission has published a policy statement on the status of intermediaries when obtaining and passing pre-contract information from consumer to insurer. The issue is important because it affects the remedies available to the insurer where the intermediary misrepresents or fails to disclose matters that are material to the risk. The present legal position, based on the law of agency, is that the intermediary normally acts for the insured and in such circumstances the insurer may be entitled to avoid the policy on the grounds of misrepresentation/non-disclosure.

The Law Commission has proposed a new statutory code for identifying for whom the intermediary is acting when obtaining and passing pre-contract information to the insurer. It is intended that this will be a free-standing code in a Bill on pre-contract information in consumer insurance to be published later this year. The proposals are intended to shift the emphasis from the intermediary normally acting for the insured and to strike a balance: insurers should bear responsibility for intermediaries within their control but not for the actions of genuinely independent agents.

To view the article in full, please see below:



Full Article

As part of its ongoing review of insurance contract law, the Law Commission has recently published a policy statement on the status of intermediaries when obtaining and passing pre-contract information from consumer to insurer. The Law Commission is drafting a Bill which will be ready later this year based on the policy statement.

The policy statement follows on from the Consultation Paper published by the Law Commission in July 2007 on the reform of insurance contract law and the summary of responses relating to consumer insurance published in May 2008. To read our Law-Nows on these publications please click below:

Insurance/PI: Proposed insurance law reforms

Proposed insurance law reforms: brokers, insurers' agents and other intermediaries

Despite the reform proposals the Law Commission is suggesting to a consumer's duty of disclosure, the question whom an intermediary acts for will still be important where that intermediary acts negligently or dishonestly in obtaining or transmitting pre-contract information and the insurer purports to avoid the policy on the grounds of misrepresentation and/or non-disclosure.

If the intermediary is held to be acting for the insurer at the time then the insurance cover will not be affected. However, if the intermediary is acting for the consumer then the insurer may then be able to avoid the policy. The only remedy available to the consumer in such a case would be to sue the intermediary. The current legal position is based in the law of agency and is that the intermediary normally acts for the insured. The Law Commission has identified problems surrounding the transmission of pre-contractual information as being fairly common and that the current law is uncertain and dated.

A new statutory code

After a detailed consideration of the options, the Law Commission proposes a new statutory code for identifying for whom an intermediary acts in the obtaining and passing of pre-placement information, based largely on the existing law but also drawing on Financial Ombudsman Service (FOS) practice and industry understanding. The proposals are intended to shift the emphasis from the intermediary normally acting for the insured and to strike a balance: insurers should bear responsibility for intermediaries within their control but not for the actions of genuinely independent agents.

The statutory principles will only have direct effect in cases concerning errors/omissions in the obtaining and transmission of pre-contractual information in consumer insurance and not to other areas of agency (such as for whom an intermediary acts for in collecting premiums) or to business insurance.

The Principles

The Commission sets out a series of high-level principles, based on its review of existing case law.

In three circumstances, an intermediary will always be considered to act for the insurer whatever the strict agency position:

  • if the intermediary has authority to bind the insurer to cover;
  • if the intermediary is an appointed representative of the insurer;
  • if the intermediary has express authority from the insurer to collect and pass on pre-contract information.

In all other cases, the intermediary will still remain acting for the consumer unless there is a close relationship between the intermediary and the insurer that indicates that the insurer has granted the intermediary implied or apparent authority to act on its behalf. The Commission sets out a non-exhaustive list of the factors relevant to deciding whether or not such an agency relationship will exist between insurer and intermediary.

Factors that indicate that an intermediary acts for an insurer include:

  • An intermediary only placing insurance with a limited number of insurers or an insurer only selling that particular policy through a limited number of intermediaries.
  • Brand-sharing and white-label relationships, where an insurer permits an intermediary to brand its services with the insurer's name or permits its policies to be branded with the intermediary's name.
  • An insurer requesting that the intermediary approach the consumer to market a particular product or an insurer exerting substantial control over the way that the intermediary conducts its business.

Factors which indicate that an intermediary will act for the consumer include the intermediary undertaking to give impartial advice or provide a fair analysis of the market, the consumer paying the intermediary a fee and the intermediary disclosing the commission it has received from the insurer.

The proposal understands that there may be situations of dual agency - the intermediary acting for different parties at different stages of the insurance process and also allows for different intermediary activities to be treated differently. The Commission emphasises that a statement in the Terms of Business Agreement between insurer and intermediary that the intermediary acts on behalf of the insured is not definitive; instead the court must consider all aspects of the relationship. The exercise of control by the insurers over the intermediary will be an important factor - if, however, there are no factors either way then the intermediary will be acting for the consumer.

Comment

The Law Commission conducted a thorough review of the options and considered the relevant policy implications. The new proposals reflect the desire of the Law Commission to seek to update the law, as it effects consumers, as a development of the present case law and the recent practice developed by FOS rather than to undertake a wholescale redefinition of intermediaries' agency position.

The Law Commission has thus abandoned its attempt to draft a single 'bright line' test to establish that any given intermediary always acts for one party or another in obtaining and transmitting pre-contract information, stating instead that whom an intermediary acts for must depend on a range of factors. The Law Commission has listened to responses to previous consultations made by Insurers. This change is welcomed as it reflects more the reality of the insurance buying process and allows for flexibility in outcome, depending on the relevant factors at play, when the previous proposal was that unless independent, intermediaries should be deemed to act for insurers. The new proposal also better reflects the diverse roles undertaken by intermediaries as well as the broad range of entries covered by this term. The introduction of a high level statutory code will also allow the law to develop and is intended to be a framework for the court's use.

Given the complexities of the changing insurance landscape, this seems the most sensible option and allows FOS practice to become enshrined in the law. Intermediaries will need to consider the precise terms of the code when issued and will then need to assess how the code will impact their processes and adapt them accordingly.

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 25/03/2009.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.