LAW REFORM COMMISSION PUBLISHES CONSULTATION PAPER ON INSURANCE CONTRACTS
CONSULTATION PAPER RECOMMENDS FURTHER DEVELOPMENT OF STATUTORY CODES OF PRACTICE FOR INSURANCE CONTRACTS; AND THAT THERE IS A NEED TO RE-BALANCE THE RIGHTS OF INSURANCE COMPANIES AND INSURED PERSONS
Wednesday 11th January 2012: The Law Reform Commission has today published a Consultation Paper on Insurance Contracts. The Consultation Paper forms part of the Commission’s Third Programme of Law Reform 2008-2014 and makes over 40 detailed provisional recommendations for reform of the law.
Current insurance contract law, including recent regulatory developments
The Consultation Paper notes that some aspects of insurance contract law include long-established common law (judge-made) principles. This includes the principle that there is a duty on the person taking out the policy of insurance to disclose material information that is relevant to the risk that the insurer is being asked to take on. The Paper also points out that a number of Insurance Acts enacted by the Oireachtas have already made important changes to the common law rules. In addition, the Central Bank’s new Consumer Protection Code 2012 also contains general principles and specific rules that affect the format and content of insurance contracts. Along with these statutory innovations, voluntary Codes of Practice have also been developed by representative bodies such as the Irish Insurance Federation (IIF), and the Commission considers that these have further potential if they were given statutory backing.
Among the detailed recommendations in the Consultation Paper are:
- regulatory bodies (in particular the Central Bank and the National Consumer Agency) should continue to liaise with each other in order to develop comprehensive statutory Codes of Practice setting out standards of best practice, building on the best practice standards developed by the Irish Insurance Federation and on the statutory model of the Central Bank’s Consumer Protection Code 2012; these would, in general, apply to consumer insurance contracts and those involving small and medium sized enterprises (SMEs).
- in any litigation or other dispute resolution process, such statutory Codes of Practice setting out standards of best practice should be admissible in evidence; and that, if any provision of such Code is relevant to a question arising in the litigation or other dispute resolution process, the provision may be taken into account in determining that question, but that this would be without prejudice to the substantive rights between the parties.
- legislation should provide that an otherwise valid insurance claim cannot be rejected by the insurer solely because the insured lacks an “insurable interest” as it has been traditionally defined, that is, a legal or equitable relationship between the insured and the subject matter of the insurance contract. The Commission provisionally recommends that, instead, insurable interest should, in the interests of certainty, be defined in legislation (to reflect current Irish case law) as an interest that operates when a person may benefit from the continued existence or safekeeping of the subject matter of the insurance or may be prejudiced by its loss; and that this definition would apply both to non-life insurance (in particular property and liability insurance) and to life insurance. In connection with life policies, the Commission also recommends reform of the “natural love and affection” category of insurable interest to include civil partnership, cohabitation and other familial relationships.
- the pre-contractual duty of disclosure in insurance contract law should be retained, but that it should (in accordance with authoritative case law in Ireland) be restricted to facts or circumstances of which the person applying for insurance cover – the proposer – has actual knowledge; and that the duty of disclosure would not, therefore, extend to every fact or circumstance which ought to be known by him or her (constructive knowledge).
- the current duty on the proposer/insured to give “true” answers should be replaced by a duty to answer specific questions honestly and carefully. The Commission also considers that the insurer must ensure that any question posed in writing to the proposer/insured is drafted in plain, intelligible language; that any such question should be specific as to the information being sought by the insurer; and that where there is doubt about the meaning of a question, it should be interpreted by reference to a standard of what is fair and reasonable; and that the failure of an insurer to follow up on an obviously incomplete answer should be regarded as a waiver of the duty of disclosure in appropriate cases.
- the Commission considers that, under current law, there is an excessive emphasis on repudiation of liability under an insurance policy as a remedy for the insurer. The Commission has, accordingly, provisionally concluded that repudiation should no longer be the main remedy, and that in cases of non-disclosure and misrepresentation the principal remedy should be one of damages in proportion to the failure by the insured.
For further information / interview with Director of Research Raymond Byrne contact: Winifred McCourt, McCourt CFL T: 087-2446004
Background Notes for Editors
The Law Reform Commission is an independent statutory body whose main role is to keep the law under review and to make proposals for reform. To date, the Commission has published over 180 documents (Working Papers, Consultation Papers and Reports) containing reform proposals, available on its website www.lawreform.ie. About 70% of these proposals have led on to reforming legislation. The Consultation Paper, which is also now available on the Commission’s website, contains the Commission’s provisional recommendations on this area, and submissions are invited on all of these until 31 March 2012 in advance of the Commission’s final recommendations and Report on this area.