Introduction
On 16 July 2020, the Minister for Finance, Paschal Donohoe TD announced that many sections of the Consumer Insurance Contracts Act 2019 (the “Act”), which was signed into law on 26 December 2019, will commence on 1 September 2020, with the commencement of some of the more onerous sections being deferred until 1 September 2021.
The introduction of the Act is a significant development in insurance law for consumers. It is important insurers are aware 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.
Summary of 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 2017 which means 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 Act.
Commencement of the Act
The key sections of the Act which are due to commence on 1 September 2020 are as follows:
(i) Section 7 provides for the abolition of the insurable interest principle as a pre-requisite to a consumer making a valid claim. A claim under an otherwise valid contract of insurance may no longer be rejected on the basis of a consumer not having a valid interest in the subject matter of the contract at the time the contract was entered or at the time of the loss.
Where the insurance contract is also a contract of indemnity, the Act acknowledges that a consumer may be required to have an interest in the subject matter, however, such interest does not extend beyond a factual expectation of the economic benefits or losses that would arise in the ordinary course of events.
(ii) Section 11 provides that a consumer may cancel a contract of insurance within 14 days of being notified of the conclusion of the contract. This right only applies to contracts that are not covered by the cancellation rights set out in the Solvency II Regulations or in the European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004.
(iii) Section 16-18 detail claims handling duties for both the consumer and insurer and proportionate remedies.
Insurers will be required to (i) handle claims promptly and fairly; (ii) engage with the insured and allow them to submit evidence; and (iii) notify the insured at the conclusion of the matter the amount for which a claim has been settled or otherwise disposed of and the reasons for same. Insureds are required to cooperate with the insurer with the investigation of insured events. An insurer cannot refuse liability solely on the basis that the consumer has failed to comply with a specified notification period, unless the late notification prejudices the insurer.
(iv) Section 21-25 detail modifications to subrogation rights including distribution of recovered funds and modification in family and personal relationships and in employment and third party rights.
In limited circumstances third parties will, essentially, be able to “step into the shoes” of the insured to recover against the insurer where the insured is deceased, insolvent, or in circumstances where the court so directs. The Act places an obligation on insurers to give details to third parties to facilitate such actions. However, this may create challenges for insurers regarding their obligations to the insured under the General Data Protection Regulation 2016/679.
The Act introduces a statutory exemption to the historic “privity of contract” common law principle.
Deferred commencement of certain sections of the Act
Commencement of the following sections of the Act is likely to be deferred to 1 September 2021:
(i) Section 8 introduces a statutory obligation on consumers to answer all questions posed by the insurer honestly and with reasonable care, replacing the contractual obligation of utmost good faith;
(ii) Section 9 provides for remedies that are proportionate to the effects of any misrepresentation on the interests of the insurer and the consumer by reference as to whether the misrepresentation was innocent, negligent or fraudulent;
(iii) Section 12 sets out certain duties on insurers at the renewal of a contract of insurance stage including, for example, insurers are required to provide consumers with a schedule of all premiums and claims paid in the past 5 years, in respect of non-life insurance contracts; and
(iv) Section 14(1) - (5) set out duties of consumers and insurers at renewal stage.
The abovementioned sections impose more onerous obligations on insurers compared to other sections of the Act and are likely to require some careful consideration as well as system and process changes.
Impact
Insurers should continue taking steps to ensure compliance with the sections of the Act due to come into force on 1 September 2020. This may include a review of their existing policy terms and conditions, contract documentation and proposal forms.
Upon the implementation of all sections of the Act, the Act will have implications on consumers and insurers both before and after an insurance contract is entered into. The Act provides discretion for a court of competent jurisdiction to impose certain financial sanctions for breaches of any duties under the Act (other than those to which section 9 or 18 of the Act apply), which could be significant for both the insurer and the consumer.
Consumers will need to be informed of their duty of disclosure and proposal forms will, most likely, need to be revised to include more specific questions and particulars of underwriting, renewal and claims handling processes in accordance with the Act. It is not all one sided however, as consumers will have a duty to answer specific questions honestly and with reasonable care however, consumers are not obliged to provide insurers with any additional information to that which is specifically requested in the proposal form. Therefore, insurers must carefully consider what changes are required to policy wordings and pre-contractual proposal forms to ensure the right questions are asked of consumers.
The Act will also impact the relationship between brokers and clients. Brokers will need to carefully explain to their clients the nature and effect of the additional obligations on consumers as a result of the Act and in particular, the pre-contract duty of disclosure. This, in effect, means consumers are under a duty to take reasonable care in responding to the questions asked by insurers. Brokers will also need to inform their clients there is a presumption that, if an insurer asks a specific question, consumers are aware that such question is material to the risk, or the calculation of premium, or both.
Conclusion
There will be substantial changes to the operation of consumer insurance contracts in Ireland as a result of the commencement of the Act. The Act places quite onerous obligations on insurers and shifts the apparent imbalance in insurance law in favour of consumers.
Helpfully, the phased implementation of the Commencement Order gives insurers an opportunity to ensure their proposal forms and contractual documentation continues to align with the obligations imposed under the Act.
This Article is for information purposes only. Please contact us for guidance on specific areas of the Act and the impact it may have on how you operate your insurance business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
