The recent decision of the High Court case of Saunders v Irish Life Assurance PLC IEHC 312 serves as a timely reminder to the Irish insurance industry of the fundamental changes anticipated to take effect in respect of Irish insurance contract law. The Consumer Insurance Contracts Act 2019 (the Act) was signed into Irish law on 26 December 2019 and it is expected to be commenced by Ministerial Order in the coming months. The Act aims to address some of the perceived imbalances between insurers and consumers, and one of the most radical changes to be introduced relates to the duty of disclosure which came under specific focus in this recent case.
Duty to Disclose Material Facts
In a judgment delivered by Mr Justice O’Connor on 24 June 2020, the High Court held that the defendant insurer was entitled to refuse to pay out on a life assurance policy worth €250,000 in respect of the plaintiff’s former partner, a Mr Eamon Dunne. The High Court held that the policy was void by reason of the non-disclosure of material facts when Mr Dunne took out the policy in 2008. Evidence was given that the past drug use and abuse of alcohol combined with Mr Dunne’s depression, were all material facts which were not disclosed, and if such facts had been disclosed, it would have precluded the defendant from offering cover on the life of the deceased.
Significant Changes Under the New Act
Although the introduction of the Act is unlikely to have ultimately changed the High Court’s finding in this particular case, the legal analysis of key aspects would certainly be different. Under the Act, the long-established duty of “utmost good faith” will no longer apply to consumer insurance contracts. Instead, the Act introduces a new pre-contractual duty of disclosure which requires a consumer to take reasonable care in answering specific questions posed by the insurer, with no obligation on the consumer to supply any other information. If there is any ambiguity about the meaning of a question, the interpretation most favourable to the consumer will apply.
In addition, the Act introduces proportionate remedies for misrepresentation, be they innocent, negligent or fraudulent. For fraudulent misrepresentation, an insurer may still deem a contract void; however, in circumstances where a misrepresentation is merely negligent, the remedy available to the insurer concerned must reflect what the insurer would have done if had been aware of all the facts. For example, where the insurer would not have entered into the contract had it known the true facts, the insurer may avoid the contract, refuse all claims and return premiums to the consumer. However, if the insurer would have entered into the contract but would have charged a higher premium, the insurer can reduce proportionately the amount to be paid on any claim. It seems likely that insurers will encounter challenges in determining if a misrepresentation is innocent, negligent or fraudulent in many circumstances before being able to decide what, if any, remedy may potentially be available.
What Next for Insurers?
This recent case prompts a discussion of only some of the many substantial changes to consumer insurance contracts that will take effect upon the commencement of the Act. Undoubtedly, the Act shifts the pre-contractual burden to insurers, and it is vital that insurers check that all relevant proposal forms are carefully redrafted to ensure that specific information relevant to the underwriting of the risk is sought. It seems inevitable that the High Court will, in the not-too-distant future, be delivering a judgment in respect of the new Act and perhaps only then, will we understand precisely how much the burden has shifted in favour of consumers.
For more information on the full impact of the Act, please see our briefing.
Contributed by Shannon O’Neill