Consumer insurance accounts for a large percentage of insurance purchased in the United Kingdom. It is therefore unsurprising that many insurance disputes involve consumers, and the implications for an individual who has a claim declined can be catastrophic.<\/p>\n
A recurring issue is an insurer avoiding a policy for an alleged non-disclosure or misrepresentation. Our experience is that, in a worryingly large number of cases, insurers appear to rely on a consumer\u2019s lack of knowledge and resources to properly challenge the avoidance. In other words, Insurers raise with a consumer what appears to be an unanswerable case and present a declinature\/avoidance as a fait acompli. However, in reality, the matter is very rarely as clear cut as the Insurer seeks to present.<\/p>\n
The Financial Ombudsman Service (which is available to all consumers) has recently increased the size of the awards it can make from \u00a3150,000 to \u00a3350,000. It is, therefore, now even more important for consumers to be familiar with their obligations and rights in relation to their insurance policies given the wider scope of cost-free redress.<\/p>\n
The Law<\/strong><\/p>\n The Consumer Insurance (Disclosure and Representation) Act 2012 (CIDRA) came into force on 6 April 2013, and applies to all insurance policies which began or were renewed after that date. CIDRA applies to all types of insurance where the policyholder is acting in a personal (as opposed to commercial) capacity.<\/p>\n CIDRA governs the duties of consumers prior to inception of an insurance policy. It was introduced to address the vulnerability of consumers based on outdated law which imposed an unfair disclosure burden on them.<\/p>\n While CIDRA has been in force for a number of years, the more recent Insurance Act 2015 (\u201cthe Insurance Act\u201d) has increased awareness both within and outside of the insurance market of the obligations of policyholders before entering into an insurance policy. As a result, CIDRA and the Insurance Act are often confused (by both policyholders and insurers). While there are similarities between them, particularly in relation to the remedies available to an insurer for non-disclosure disclosure, it is important for consumers to have an understanding of CIDRA because it is even more favourable to them than the Insurance Act.<\/p>\n CIDRA: Duty of Disclosure<\/strong><\/p>\n Prior to CIDRA, if a consumer had either given incorrect information or failed to disclose something important to an insurer when applying for insurance, the insurer could \u201cavoid\u201d the policy (effectively cancelling the policy and treating it as if it had never existed). A heavy burden rested on the consumer (who had a duty of \u201cutmost good faith\u201d towards the Insurer) to disclose to an insurer all material facts. This duty was particularly onerous for unadvised individuals who purchased insurance directly from an insurer or through, for example, price comparison websites without the assistance of a broker.<\/p>\n CIDRA replaced this onerous burden with a new \u201cduty to take reasonable care not to make a misrepresentation\u201d. The effect was that a consumer was no longer obliged to volunteer information to an insurer, but rather to take care not to answer any of the insurer\u2019s questions incorrectly. The insurer must also prove that the consumer failed to take \u201creasonable care\u201d when making the misrepresentation and that, if the correct information had been given, the insurer would either not have written the policy on any terms at all, or would have written it on different terms or with a different premium. A misrepresentation which would have caused the insurer to act differently is referred to in CIDRA as a \u201cqualifying misrepresentation\u201d. If the insurer cannot show that, but can show that there was a qualifying misrepresentation, the insurer will be entitled to a proportionate remedy. If it can show that it would not have written the policy at all, it can avoid the policy but must return the premium. If it would have written the policy on different terms, the policy may be amended to reflect those terms. If it would have charged a higher premium, the insurer is entitled to proportionately reduce the amount it pays on a claim by reference to any such hypothetical premium.<\/p>\n
\nThe bottom line for individuals who have had a claim declined is that it is not enough for an insurer to establish that an incorrect answer was given to it when the policy was simplywritten – under CIDRA, that is only the first hurdle the insurer needs to overcome.<\/p>\n
\nAlternatively, In order to avoid the policy and retain the premium, the insurer will need to show that the consumer acted deliberately or dishonestly in making a misrepresentation.<\/p>\n