Insurance Law Reform Fairer treatment for consumers Peter J Tyldesley

The role of the Law Commissions Joint project between the English and Scottish Law Commissions running from 2005 to 2018 The stated aim of the English Law Commission is to ensure that the law is: Fair Modern Simple Effective

Initial questions Is the current law fit for purpose? Are there satisfactory alternatives to law reform? Should consumers and business insureds be treated differently? Should insurers be allowed to contract out of the reforms?

Current position Consumer Insurance (Disclosure and Representations) Act 2012 Insurance Act 2015 Enterprise Act 2016 (amending the Insurance Act 2015) Possible future Insurable Interest Bill

Consumer topics Insurable interest (Draft Bill) Disclosure and representations (CIDRA 2012) Warranties and basis of the contract clauses (IA 2015 and CIDRA 2012) Fraudulent claims (IA 2015) Damages for late payment (EA 2016, amending IA 2015) (Group insurance and the rights of third parties against insurers, CIDRA 2015 and IA 2015)

General points Far from full codification… Different commencement dates for different reforms (6 April 2013, 12 August 2016, 4 May 2017) No retrospective effect Consumer insureds and business insureds treated differently only in respect of disclosure and representations and the rules on contracting out No distinction between small business insureds and large commercial insureds (cf Financial Ombudsman Service) Accessibility?

The approach “The Bill has been drafted to provide high-level overarching principles… Our view was that trying to lay down detailed guidance covering every eventuality…would quickly become out of date and the Bill would become ossified, so we tried to set out principles rather than detailed practices” David Hertzell, House of Lords 11 October 2011 (CIDRB 2012)

Who is a consumer? “an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession” (s1, CIDRA 2012; s1 IA, 2015)

Non-disclosure and misrepresentation — perceived problems Required the consumer to look into the mind of a prudent underwriter No obligation on the insurer to ask any questions Degree of culpability of the consumer was irrelevant A single remedy—avoidance ab initio—which was often disproportionate Once a policy had been avoided, any claim could be rejected, even if there was no connection between the non-disclosure or misrepresentation and the loss Encouraged poor underwriting practice Avoidance hit the consumer with a triple whammy

Non-disclosure — solution Duty of disclosure abolished (s2(4) and (5), CIDRA 2012)

Misrepresentation — solution New central duty: “to take reasonable care not to make a misrepresentation to the insurer” (s2(2), CIDRA 2012) New categorisation of misrepresentation: Deliberate or reckless (qualifying, s5, CIDRA 2012) Careless (qualifying, s5, CIDRA 2012) Reasonable (non-qualifying, implicit) Inducement survives (s4, CIDRA 2012), materiality does not Proportionate remedies (s4 and Schedule 1, CIDRA 2012)

Warranties — perceived problems Breach caused immediate and automatic cessation of cover (the Good Luck) No requirement of causal connection between breach and any subsequent loss No requirement of materiality Remedying the breach did not reinstate the cover Basis of the contract clauses converted pre‑contractual statements to warranties

Warranties — solutions Basis of the contract clauses rendered ineffective (s6(2) CIDRA) Breach of a warranty will merely suspend cover until the breach is remedied (s10(1), (2) and (4), IA 2105) Where compliance with a term tends to reduce the risk of loss of a particular kind or at a particular location or time, the insurer may not rely on breach if the insured can show that non-compliance could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred. (s11, IA 2015)

Fraudulent claims — perceived problems Common law rules Post-contractual utmost good faith and the impact of s17 Marine Insurance Act 1906: 17 Insurance is uberrimæ fidei A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party

Fraudulent claims — solutions Relatively clear statutory rules—insurer not liable to pay the claim and may treat the contract as terminated from the time of the fraudulent act (s12, IA 2015) Repeal of the latter part of s17 Marine Insurance Act 1906 (s14, IA 2015) (NB: no reference to fraudulent devices, see Versloot Dredging BV v HDI Gerling Industrie Versicherung AG)

Damages for late payment — perceived problems Legal fiction prevented an insured from claiming consequential losses flowing from a failure to pay a claim in a reasonable time

Damages for late payment — solutions Implied term that claims will be paid within a reasonable time (s13A(1), IA 2015) Breach will give rise to a right to damages A range of protections for insurers (s13A(2)‑(4), IA 2015)

Insurable interest — perceived problems Uncertain, antiquated and unduly restrictive rules Solutions?

Contracting out Contracting out terms in a consumer insurance contract are of no effect where they would “put the consumer in a worse position as respects the matters mentioned” (s10, CIDRA 2012; s15 and s16A, IA 2015)

Application Financial Ombudsman Service DRN2871481: “For complaints which turn on whether a consumer has misrepresented their circumstances to an insurer, we take the relevant law into consideration - the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA). Even before this legislation existed, it’s the approach we’d follow, as we think it usually produces a fair and reasonable outcome.” Courts Southern Rock Insurance Company Limited v Hadar Hafeez [2017] CSOH 127

Why has reform taken so long to achieve? The failure of previous reform initiatives The success of the current project The contribution of the Financial Ombudsman Service—and current criticisms

Question How does this compare with the treatment of consumers in Israel?