Consumer Insurance Contracts Act 2019
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, which was prompted by the need to review and modernise insurance contract law principles and rules that had developed in the centuries past. 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. The resulting legislation – the Consumer Insurance Contracts Act 2019 (CICA 2019) – gives effect to these recommendations.
The Act applies to life and general insurance contracts with consumers, i.e. persons and businesses with a turnover of less than €3m. Commercial customers who fall outside this definition will continue to be subject to legislation and insurance principles previously in place, such as the principle of utmost good faith, insurable interest, etc.
You will find the complete Act at the following link http://www.irishstatutebook.ie/eli/2019/act/53/enacted/en/html. The summary below provides a brief outline of the main provisions of the Act, is intended for general information purposes only and does not constitute legal advice.
Provisions effective 1 September 2020
Section 7: Insurable Interest
Going forward, an insurer cannot reject a claim from a consumer just because the consumer does not have insurable interest in the subject matter of the contract of insurance. A consumer will still be required to demonstrate loss in order to make a valid claim.
Section 11: Right to withdraw by consumer: cooling off period
A consumer may cancel a contract of insurance, by giving notice in writing to the insurer, within 14 working days after the date the consumer was informed that the contract is concluded. “Concluded” means when the risk was accepted by the insurer, i.e. when the insurer agreed to go on cover (and not the inception date of the policy), so the 14 working day clock may start ticking when the broker is advised by the insurer.
This section does not affect the notice period already provided under the EC (Distance Marketing of Consumer Financial Services) Regulations 2004 which is 14 calendar days in respect of general policies taken out solely via distance sales.
The giving of notice of cancellation by the policyholder will have the effect of releasing them from any further obligation arising from the contract of insurance. The insurer cannot impose any costs on the consumer other than the cost of the premium for the period of cover.
Section 13: Cancellation by insurer
Where the insurer cancels the insurance contract, the insurer must repay the balance of the premium to the consumer without imposing any financial cost on the consumer and must provide the reason for cancellation.
Section 14(6): Duty of insurer at renewal
The insurer, no later than 20 working days before renewal, must notify the consumer in writing of any alteration to the terms and conditions of the policy.
Section 15: Post-contractual duties of consumer and insurer
Any duty that existed under the principle of utmost good faith (post contract) is removed.
The consumer is under a duty to pay the premium within a reasonable time (or otherwise in accordance with the terms of the insurance contract).
The Act now makes provision for an insurer to refuse a claim where the change in the subject matter of the contract of insurance, including as described in an “alteration of risk” clause, has effectively changed the risk to one which the insurer has not agreed to cover. 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.
An insurer who intends to exclude certain matters from coverage under the contract of insurance must do so explicitly in writing prior to the commencement of the contract.
Section 16: Claims handling duties of consumer and insurer
Consumers must cooperate with the insurer in the investigation of a claim, including responding to requests for information in an honest and reasonable manner. The consumer must notify the insurer of a claim within a reasonable time or otherwise within the terms specified in the contract of insurance.
Where a consumer notifies the insurer of a claim outside of the specified notification and this does not prejudice the insurer, the insurer shall not be entitled to refuse liability under the claim on that ground alone.
If the claim is being settled or rejected, the insurer must inform the consumer of the reasons for the settlement or the rejection (or disposal). Claim settlement payments must be paid to the consumer within a reasonable time.
If, after a claim has been made, the consumer or the insurer becomes aware of information that would either support or prejudice the validity of the claim made by the consumer, the consumer and the insurer shall be under a duty to disclose that information to the other party.
Section 17: Deferring payment of claim until completion of works in property contracts
Where there is a provision within an insurance contract stating that the insurer is not obliged to pay the full claim settlement amount until any repair, replacement or reinstatement work has been completed and specified documents for the work have been furnished to the insurer, this provision will be void, unless the insurer brought this provision to the attention of the consumer in writing before the contract was entered into and again at the time of the making of the claim.
The claim settlement deferment amount cannot exceed:
- 5% of the claim settlement amount where the claim settlement amount is less than €40,000, or
- 10% of the claim settlement amount where the claim settlement amount is more than €40,000.
Section 18: Proportionate remedies and claims handling
Where a claim made by a consumer contains information which is false or misleading, and where the consumer knows it is false or misleading, or consciously disregards whether it is false or misleading, the insurer can refuse to pay the claim and terminate the contract.
Where an insurer becomes aware that a consumer has made a fraudulent claim, they may notify the consumer advising that they are voiding the contract of insurance, and it will be treated as being terminated from the date of the submission of the fraudulent claim. The insurer may refuse all liability in respect of any claim made after the date of the fraudulent act, and the insurer is under no obligation to return any of the premiums paid under the contract.
Section 19: Representations by consumer and terms that reduce the risk being underwritten (replacing insurance warranties)
The Act replaces the concept of insurance warranties.
Previously insurers could rely on statements made by consumers and convert them into warranties – a fundamental term permitting the insurer to void the contract. These statements will have the effect solely as representations made by the consumer to the insurer prior to entering into the contract. Any term in a contract of insurance which purports to convert any statement into a warranty including by means of a declared “basis of contract” will be invalid.
Any term in a contract of insurance that imposes a continuing restrictive condition on the consumer during the course of the contract will be treated as a “suspensive condition”. The effect of a suspensive condition will be that for the duration of a condition’s breach, the insurer’s liability will be suspended and if the breach is remedied at the time of the occurrence of a loss, then the insurer will be liable to pay the claim. The liability of the insurer is only suspended where the breach of that restrictive condition increased the risk of the loss.
Section 20: Unfair or onerous terms
The protections arising from the terms of the EU (Unfair Terms in Consumer Contracts) Regulations 1995 (i.e. those terms which significantly imbalance the rights of the parties to the consumer’s detriment) are extended to all consumers as defined in the CICA 2019.
Section 21: Right of third party to claim against insurer
Where a person is insured under a contract of insurance against liability to a third party and where:
- the insured person has died, or cannot be found, or is insolvent, or
- for any other reason it appears to a court to be just and equitable to so order,
the rights of the insured person will be transferred to and vest in the third party, even though the third party is not a party to the contract of insurance.
The third party will be entitled to seek and obtain information from the insurer or from any other person who is able to provide it concerning:
- the existence of the insurance contract,
- who the insurer is,
- the terms of the contract, and
- whether the insurer has informed the insured person that the insurer intends to refuse liability under the contract.
Before the terms of the contract can be enforced against the insurer in the proceedings, the third party must establish the insured person’s liability.
Section 23: Subrogation in family and personal relationships and in employment
The right of insurers to pursue another person in the name of the insured where the person who caused the loss is an employee of the insured, a family member of the insured, or where the insured consented (impliedly or expressly) to the use by the other person of a motor vehicle is limited, unless the conduct of the person giving rise to the loss was serious or willful misconduct, or the loss was caused recklessly or intentionally.
Section 26: Effect of failure to comply with the Act
A court of competent jurisdiction can reduce the payout to the consumer where they are in breach of their duties under the Act, in proportion to the breach involved.
Provisions effective 1 September 2021
Section 8: Pre-Contractual Duties of Consumer and Insurer
The pre-contractual duty of disclosure of a consumer (including any duty to volunteer information) is now confined to providing responses to specific questions asked by the insurer, honestly and with reasonable care, and the consumer shall not be under any duty to volunteer any information over and above that required by such questions.
The onus of proving that the questions are plain and intelligible shall rest with the insurer. Where there is an ambiguity or a doubt about the meaning of a question the interpretation most favourable to the consumer shall prevail.
Every insurer shall, at inception and renewal, inform the consumer in writing of the general nature and effect of the pre-contractual duty of disclosure. An insurer shall be deemed to have waived any further duty of disclosure of the consumer where it fails to investigate an absent or obviously incomplete answer to a question.
Section 9: Proportionate Remedies for Misrepresentation
The applicable remedy will depend on whether the misrepresentation was:
a. innocent (neither negligent nor fraudulent, i.e. the consumer answered the questions honestly and with reasonable care): the insurer is required to pay the claim
b. negligent (i.e. not fraudulent): the insurer must do what it would have done had it been aware of the full facts), such as:
- if the insurer would not have entered into the insurance contract on any terms, the insurer may avoid the contract, refuse all claims, but shall return the premiums paid
- if the insurer would have entered into the contract but on different terms, the contract is to be treated as if it had been entered into on those different terms
- if the insurer would have entered into the contract but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.
c. fraudulent (i.e. conduct by the consumer involves fraud of any kind): the insurer may void the contract.
In instances where the insurer becomes aware of a misrepresentation and no claim has been made, the insurer may either give notice of the three remedies above that will apply in the event of a claim, or terminate the contract with reasonable notice.
Section 12: Renewal of Contract of Insurance
When issuing a renewal notice to a consumer, the insurer must provide the consumer with a schedule detailing their premiums paid and claims made over the previous 5 years. Where there have been mid-term adjustments, these adjustments must be taken into account also (i.e. annualised premium).
The section refers to premiums received and claims paid by the current insurer. It does not mean that the broker must seek this information from previous insurers if the client changed insurers within the 5 years.
Section 14: Duties of Consumer and Insurer at Renewal
Consumers are no longer under an obligation to provide the insurer with any additional information in relation to changes, unless the insurer asks specific questions in writing or requests the consumer to update information previously provided.
Consumers are under a duty to respond honestly and with reasonable care. The renewal by the insurer of a contract of insurance shall not in itself be taken to remedy any previous breach of duty of disclosure.