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Legal Developments
CZECH REPUBLIC
Legal framework of a distance, consumer insurance contract
The Act on Business at the Capital Market No 56/2006 Collection of Law came into force on March 8, 2006. The Act has among all involved a legal form of consumer insurance contract, mainly insurance contract concluded in a distance form. The insurers were given new obligations provided by the Civil Code. In order to conclude an insurance contract in a distance form the insurer must fulfil, above obligations set by the Act on Insurance Contract, the following conditions:
• Automatic telephone systems without a (human) attendance, fax devices and automatic distribution of electronic mail may be used only with a prior explicit consent of the consumer.
• If the consumer places his order through one of the means of remote communication, the supplier is obliged, through one of the means of remote communication, without delay, to acknowledge its receipt.
• Where electronic means are used, i.e. electronic communication networks, electronic communication devices, telecommunication terminal equipment and electronic mail, the proposal must contain information on whether the contract is going to be archived by the supplier after conclusion and whether it is accessible, information on the different technical steps leading to the conclusion of the contract, information on languages in which the contract may be concluded, information on the possibility to identify and correct input errors made before the order is placed, and information on codes of conduct which are binding on the insurer or which the insurer observes voluntarily.
• The consumer has to be allowed, prior to the placing of the order, to review and change input data.
M.Wawerková
UK
Insurance Contract Law Reform - Time for the Market to have its say
The English and Scottish Law Commissions’ review of insurance contract law has entered an important consultative phase.
Feedback upon the Commissions’ Scoping Paper led to proposals set out in three Issues Papers: (i) Non-Disclosure/Misrepresentation; (ii) Warranties; and (iii) Intermediaries/Pre-Contract Information. Discussion of these then led to the publication, on 17 July 2007, of the Commissions’ first Consultation Paper. We review some of the most noteworthy recommendations below.
Consumer and Business Insurance
The Commissions continue to distinguish between "consumer" and "business" insurance. A “consumer” is defined as "an individual acting for purposes which are outside of his trade, business or profession".
A new mandatory regime is proposed for “consumer insurance”, based largely on existing Financial Ombudsman Service (FOS) guidelines.
For “business insurance”, a new default regime is proposed. No distinctions are drawn between marine, aviation and transport classes or reinsurance - all fall within the ambit of the Commissions’ proposals. Specific proposals extend variously to consumer, life and group schemes.
Non-Disclosure/Misrepresentation
As codified in the Marine Insurance Act 1906 (MIA), insurers have remained entitled to avoid a policy for any breach by a proposer of its duty of good faith to disclose all material facts, irrespective of how innocently, negligently or fraudulently any breach occurred.
In the consumer context, some have long considered this unfair, yet the Commissions concede the effect of the implementation of the ABI’s Statements of Practice, the FOS’s dispute resolution service and FSA regulation - all have narrowed the circumstances in which a policy is likely to be avoided by an insurer against a consumer insured for non-disclosure/misrepresentation.
Nonetheless, the Commissions recommend that it is timely, in effect, to embody in the law the spirit of many of the FOS’s decisions whilst removing any concerns about the gaps in the types of claims being handled (the FOS being only able to make binding awards up to £100,000) and to produce certainty in the application of the law in all cases.
The most important measures affecting consumer insureds include:
1 The abolition of the duty of disclosure. The consumer should not be required to disclose matters about which no questions have been asked. Where the insurer asks general questions it should have no remedy in respect of an incomplete answer unless a reasonable consumer would understand that the question was asking about the particular information in issue.
2 Distinguishing the consequences of honest/reasonable failures to disclose/misrepresent from negligent and dishonest ones. A consumer's duty should now be to act honestly and to take all reasonable care to answer questions accurately and completely. The insurer may only avoid where it can demonstrate that: (i) the consumer made a misrepresentation; (ii) which induced the insurer to enter the contract; and (iii) that a reasonable person in the circumstances would not have made the misrepresentation.
3 Making the remedy depend upon the proposer's state of mind. Where the consumer has made a "deliberate or reckless" misrepresentation, the insurer may avoid. Where the consumer was negligent only, the insurer should be put in the position it would have been in had it known the true facts. If the consumer acted reasonably, the insurer should have no remedy.
In the business context, the Commissions propose a default regime whereby :
1 The duty of disclosure continues to apply so that the proposer must disclose every material circumstance which is known to it (and is deemed to know every circumstance which, in the ordinary course of business, ought to be known to it). However, to avoid the policy for non-disclosure the insurer must either show: (i) that a “reasonable insured” in the circumstances would have appreciated that the fact was one that the insurer would have wanted to know; or (ii) that the proposer actually knew was one that the insurer would want to know. Further, the non-disclosure must have induced the insurer to subscribe to the contract on the relevant terms.
2 For any actionable misrepresentation, the insurer must show that: (i) the business insured made a misrepresentation; (ii) which induced the insurer to enter the contract; and (iii) which a reasonable person in the circumstances would not have made.
The Commissions query whether the remedy of avoidance should be reserved for dishonest conduct or retained, in addition, for negligent non-disclosures and misrepresentations.
Warranties and Basis of Contract Clauses
A breach of warranty - whether of existing fact or regarding future conduct or circumstances - presently automatically discharges an insurer from any further liability under a policy from the time of breach, irrespective of whether the insured acted fraudulently, negligently or innocently and regardless of whether or not the breach was subsequently remedied.
The use in proposal forms of “Basis of the Contract” clauses, sees the applicant warranting the accuracy of all answers in the proposal form, and so agreeing that those answers form the basis of the contract, elevating all statements in the proposal form into contractual warranties. The effectiveness of such clauses in the consumer context has been negated since the implementation of the ABI’s Statements of Practice.
The Commissions call for the abolition of Basis of the Contract clauses. They propose that fact warranties be treated as representations so that the insured cannot automatically avoid the contract and the available remedy depends on whether the breach was made recklessly, negligently or innocently.
As regards warranties as to future conduct or circumstances, the Commissions observe that existing law is at odds with civil law systems and many common law jurisdictions.
In the consumer context, they propose that an insurer may refuse a claim for breach of warranty only if it had taken sufficient steps to bring the requirement to the consumer’s attention and the consumer should be entitled to be paid a claim if it can prove, on the balance of probabilities, that the event or circumstances constituting the breach did not contribute to the loss.
The key proposal in the business context is that a business insured should be entitled to be paid a claim provided it can prove, on the balance of probabilities, that the event constituting the breach did not contribute to the loss.
Pre-Contract Information and Intermediaries
Where intermediaries fail to relay information provided by insureds or cause proposals to be completed inaccurately, the Commissions consider existing law governing for whom an intermediary acts as agent or to whom it should be directly accountable, too difficult to apply.
They propose an intermediary should generally be treated as acting for the insurer, not the insured, unless they are “independent”: in consumer cases, taking into account whether a “fair analysis” of the market has been conducted and a fee received; elsewhere, by the number of companies with whom business is placed, otherwise by existing law.
Next Steps
Such proposed changes to some long-familiar features of existing insurance contract law merit close examination. Now is the Market’s opportunity to probe the Commissions’ proposals and ask some challenging questions. Are such fundamental changes necessary? Does the proposed accountability of an intermediary adequately recognise existing market forces? May insurers adequately safeguard against fraudulent claims? Will the legitimate interests of insurers be protected? Will London prove in consequence any more commercially attractive and reliable a marketplace than before or less attractive or distinguishable from others?
The closing date for responses to the Consultation Paper is 16 November 2007. The time for the Market to be considering its responses is now.
By Tim Hardy and Tracey Anderson,
Barlow Lyde & Gilbert LLP, London
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