REPORT The Law Reform Commission is an independent statutory body established by the Law Reform Commission Act 1975. The Commission’s principal role is to keep the law under review and to make proposals for reform, in particular by recommending the enactment of legislation to clarify and modernise the law. The Commission’s law reform role is carried out primarily REPORT under a Programme of Law Reform. Its Fourth Programme CONSUMER INSURANCE CONTRACTS of Law Reform was prepared by the Commission following broad consultation and discussion. In accordance with the CONSUMER 1975 Act it was approved by the Government in October 2013 and placed before both Houses of the Oireachtas. The INSURANCE Commission also works on specific matters referred to it by the Attorney General under the 1975 Act. CONTRACTS The Commission’s Access to Legislation project makes legislation more accessible online to the public. This includes the Legislation Directory (an electronically searchable index of amendments to Acts and statutory instruments), a selection of Revised Acts (Acts in their amended form rather than as enacted) and the Classified List of Legislation in Ireland (a list of Acts in force organised under 36 subject- matter headings). LRC 113 – 2015 E20 ADDRESS TELEPHONE FAX EMAIL WEBSITE (LRC 113 - 2015) 35-39 Shelbourne Road Dublin 4 Ireland +353 1 6377600 +353 1 6377601 [email protected] lawreform.ie The Law Reform Commission is a statutory body established by the Law Reform Commission Act 1975 lawreform.ie REPORT CONSUMER INSURANCE CONTRACTS (LRC 113 – 2015) © COPYRIGHT Law Reform Commission FIRST PUBLISHED JULY 2015 ISSN 1393-3132 LAW REFORM COMMISSION’S ROLE The Law Reform Commission is an independent statutory body established by the Law Reform Commission Act 1975. The Commission’s principal role is to keep the law under review and to make proposals for reform, in particular by recommending the enactment of legislation to clarify and modernise the law. Since it was established, the Commission has published over 190 documents (Working Papers, Consultation Papers, Issues Papers and Reports) containing proposals for law reform and these are all available at www.lawreform.ie. Most of these proposals have contributed in a significant way to the development and enactment of reforming legislation. The Commission’s role is carried out primarily under a Programme of Law Reform. Its Fourth Programme of Law Reform was prepared by the Commission following broad consultation and discussion. In accordance with the 1975 Act, it was approved by the Government in October 2013 and placed before both Houses of the Oireachtas. The Commission also works on specific matters referred to it by the Attorney General under the 1975 Act. The Commission’s Access to Legislation project makes legislation in its current state (as amended rather than as enacted) more easily accessible to the public in three main outputs: the Legislation Directory, the Classified List and the Revised Acts. The Legislation Directory comprises electronically searchable indexes of amendments to primary and secondary legislation and important related information. The Classified List is a separate list of all Acts of the Oireachtas that remain in force organised under 36 major subject-matter headings. Revised Acts bring together all amendments and changes to an Act in a single text. The Commission provides online access to selected Revised Acts that were enacted before 2006 and Revised Acts are available for all Acts enacted from 2006 onwards (other than Finance and Social Welfare Acts) that have been textually amended. ii MEMBERSHIP The Law Reform Commission consists of a President, one full-time Commissioner and three part-time Commissioners. The Commissioners are: President: Mr Justice John Quirke, former judge of the High Court Full-time Commissioner: Finola Flanagan, Barrister-at-Law Part-time Commissioner: Donncha O’Connell, Professor of Law Part-time Commissioner: Ms Justice Marie Baker, judge of the High Court Part-time Commissioner: Tom O’Malley, Barrister-at-Law iii LAW REFORM RESEARCH STAFF Director of Research: Raymond Byrne BCL, LLM (NUI), Barrister-at-Law Legal Researchers: Owen Garvey BA, LLB (NUI), Barrister-at-Law Kerri McGuigan LLB (Dub), LLM (UCL), Attorney-at-Law (New York) Michael O’Sullivan BCL (NUI), Dip IT (DCU), Solicitor Fiona O’Regan BCL, LLM, PhD (NUI) Tara Smith BCL, LLM, PhD (NUI), Attorney-at-Law (New York) ACCESS TO LEGISLATION Project Manager: Alma Clissmann, BA (Mod), LLB, Dip Eur Law (Bruges), Solicitor Deputy Project Manager: Jane Murphy LLB (UL), LLM (NUI), Barrister-at-Law iv ADMINISTRATION STAFF Head of Administration: Deirdre Fleming Executive Officer: [Currently vacant] Staff Officer: Annmarie Cowley Clerical Officers: Liam Dargan Brian Purcell Library and Information Manager: Órla Gillen, BA, MLIS PRINCIPAL LEGAL RESEARCHER FOR THIS REPORT Denise Roche BCL (Int.), Solicitor v CONTACT DETAILS Further information can be obtained from: Head of Administration Law Reform Commission 35-39 Shelbourne Road Ballsbridge Dublin 4 Telephone: +353 1 637 7600 Fax: +353 1 637 7601 Email: [email protected] Website: www.lawreform.ie vi ACKNOWLEDGEMENTS The Commission would like to thank the following who provided valuable assistance: Dr Oluyemisi Awoye Roderick Bourke, Solicitor, McCann FitzGerald Solicitors Austin J Buckley, Chartered Insurance Practitioner Robert Buttle, Swiss Re Europe SA John Casey, CEO, Motor Insurers’ Bureau of Ireland Prof Robert Clark, Emeritus Professor of Law, University College Dublin Michael Corrigan, Corrigan & Corrigan, Solicitors Bill Cox, Department of Jobs, Enterprise and Innovation Deirdre Fagan, Solicitor, AXA Legal Services Solicitors Kevin Fingleton, Marsh Ireland Robert Fitzpatrick, Barrister-at-Law April Gilroy, Solicitor, Matheson, Solicitors Emer Gilvarry, Solicitor, Mason Hayes & Curran Brian Hunt, Solicitor, Head of Government & Industry Affairs, Zurich Insurance Ireland plc Julie K Hutchison, Head of International Technical Insight, Standard Life Mr Justice Ronan Keane Mike Kemp, Insurance Ireland John Larkin, Solicitor, William Fry Solicitors Mary-Michelle O’Connor, Aviva insurance Europe SE Paulyn Marrinan Quinn, Senior Counsel, former Insurance Ombudsman of Ireland Bernie Mooney, Consumer Protection, Banking & Policy, Central Bank of Ireland Liam Reidy, Senior Counsel Emma Roche-Cagney, Barrister-at-Law Bernard Sheridan, Director of Consumer Protection, Central Bank of Ireland Full responsibility for this publication lies, however, with the Commission. vii TABLE OF CONTENTS Table of Key of Acronyms xv Table of Legislation xvii Table of Cases xxi SUMMARY 1 CHAPTER 1 SCOPE OF THE REPORT: CONSUMER INSURANCE CONTRACTS 11 A Scope of the Report 11 (1) A single regime that applies to consumers and businesses 11 (2) Separate regimes for individual consumers and businesses 12 (3) The status of statutory and non-statutory codes in litigation 16 (4) General application to life and non-life insurance; and exclusion of certain insurance-related matters 18 B Note on Use of “Consumer” rather than “Proposer”, “Policyholder” or “Insured” in the Report 19 CHAPTER 2 PRE-CONTRACTUAL DUTIES: UTMOST GOOD FAITH AND THE DUTY OF DISCLOSURE 21 A Current Law on Utmost Good Faith and Pre-Contractual Disclosure 21 (1) Utmost good faith and the duty of disclosure: from Carter v Boehm to the Marine Insurance Act 1906 21 (2) The duty of disclosure, the prudent insurer and the objective test of materiality: the Chariot Inns case 24 (3) The duty of disclosure, the prudent insurer and a test of reasonableness in determining materiality: the Aro Road case and applying the good faith principle to both parties 26 (4) Judicial activity since Aro Road: good faith applies to both parties and the insurer must make reasonable enquiries in a professional manner 29 (5) Impact of the Financial Services Ombudsman 31 (6) Impact of the Consumer Protection Code 2012 31 (7) Impact of Insurance Ireland’s voluntary codes 32 B Comparative Developments 32 (1) United Kingdom 32 ix (2) Australia 35 C Good Faith and the Duty of Disclosure: General Conclusions and Recommendations 37 (1) The principle of utmost good faith (uberrima fides) 37 (2) The duty of disclosure 39 CHAPTER 3 PRE-CONTRACTUAL DISCLOSURE: SPECIFIC RECOMMENDATIONS AND PROPORTIONATE REMEDIES 43 A Reformulated duty of disclosure: the consumer’s duties 43 (1) No general requirement to volunteer information 43 (2) Duty to answer questions honestly and with reasonable care 44 (3) Exceptions to the duty of disclosure 48 B Reformulated duty of disclosure: the insurer 49 (1) Types of Questions 49 (2) Materiality 52 (3) Whether the answers “induce” the insurer to enter into the contract 58 (4) Duty to explain the consequences of non-disclosure 60 C Proportionate Remedies: Avoidance, Rescission and Damages 60 (1) The penalty for misrepresentations 60 (2) From the “all-or-nothing” approach of repudiation towards proportionality 61 (3) Categories of misrepresentations: innocent, negligent and fraudulent 63 D Renewal of Insurance Contracts 74 CHAPTER 4 WARRANTIES AND TERMS THAT DESCRIBE THE RISK 79 A Defining Warranties 79 (1) Types of insurance warranties 80 (2) No specific form of words required for warranty (general rules for interpretation of contracts apply) 81 (3) Non-compliance with warranty may be excused (a) where circumstances change, (b) where compliance would be unlawful or (c) through waiver 82 (4) Codification of general rules on warranties in Marine Insurance Act 1906 83 (5) Insurance Ireland Codes