Public Consultation on Private Members’ Bill – Consumer Insurance Contracts Bill 2017

The Consumer Insurance Contracts Bill (“the Bill”), was introduced in the Dáil as a Private Members’ Bill by Deputy Pearse Doherty TD in January 2017. It passed Second Stage in February 2017 where the Government expressed its support in principle for the objectives of this Bill, which is aimed at reforming and modernising the law of consumer insurance contracts.

In December 2018, the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach published a Report on Scrutiny of the Bill wherein it was recommended that the Department of Finance undertake a cost-benefit analysis of the Bill in order to inform the legislative process.

For context it should be noted that the Bill was drafted subsequent to an extensive consultation process undertaken by the Law Reform Commission on the substantive issues under consideration for reform. Furthermore, the Department of Finance has engaged with relevant stakeholders on the substance of the Bill as part of its policy and technical review of the Bill. The objective of this consultation is therefore to seek the views of stakeholders principally on the cost of implementing these measures and the benefits to be gained for consumers, as defined by the Bill. However, interested parties are welcome to also comment on the broad policy thrust of the Bill and to provide any additional perspectives on it.

Report of the Law Reform Commission

The Law Reform Commission (“the Commission”) published a Report on Consumer Insurance Contracts in 2015. The rationale for the review of the area by the Commission was that insurance contract law principles and rules had been developed in the 18th and 19th centuries when insurance contracts involved wealthy landowners and ship owners and there was a need to review these principles and rules to determine their appropriateness in the 21st century. Of particular concern to the Commission is the current state of the bargaining powers of insurers and consumers.

The Commission concluded that while recent EU and domestic legislation on the regulation of insurance contracts had benefited ordinary people and small businesses in Ireland, there was a need for further reform and the relevant provisions should be consolidated into a single statutory framework. It undertook extensive research which culminated in a report with 105 recommendations, including the abolition of some laws and their replacement with specific legislative measures.

Draft legislation to give effect to these recommendations was included in the report and this has provided the basis for the Bill as proposed by Sinn Fein.

Introduction of the Bill as a Private Members’ Bill

The Bill was introduced as a Private Members’ Bill by Deputy Pearse Doherty TD in January 2017. Second Stage was held in February 2017 wherein Government provided support for the objectives of the Bill in principle and confirmed a willingness to engage constructively on it. The Government proposes to bring forward amendments to the Bill and these are currently in the process of being developed. It should be noted that the Government amendments will not fundamentally change the underlying purpose of the Bill but will broadly speaking complement and strengthen it.

Scrutiny Report of the Joint Oireachtas Committee

As required by Standing Orders, the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach undertook scrutiny of the Bill and published a “Report on Scrutiny of the Consumer Insurance Contracts Bill 2017” on 13 December 2018. In this Report, the Joint Committee made four Recommendations, one of which called for a cost-benefit analysis on the Bill to be completed. Specifically, the Joint Committee stated in Recommendation 1:

The Committee notes that the Bill was read a second time on 9 February 2017 and has been subject to detailed scrutiny by the Joint Committee as required by Standing Orders, including consultation with the Department of Finance, the Central Bank of Ireland and other stakeholders. The Committee is of the opinion that the interests of consumers lie in progressing the Bill without delay. The Committee is also of the opinion that there may be benefit in further consultation with stakeholders and a cost-benefit analysis of the Bill in order to inform the legislative process. However, such consultation and cost-benefit analysis should not cause further delay in progressing the Bill. The Committee, therefore, recommends that the Department of Finance proceed to undertake a consultation with stakeholders and a cost-benefit analysis of the Bill without delay, concurrent with the passage of the Bill through the legislative process in both Houses of the Oireachtas.

Stakeholder Consultation

The Department has engaged with relevant stakeholders on the detail of the Bill. This consultation has included the Central Bank of Ireland, the Financial Services and Pensions Ombudsman, Insurance Ireland and the Law Reform Commission. The Department is publishing this cost-benefit public consultation on the basis of the above recommendation of the Joint Committee.

Main Aspects of the Bill

The main aspects of the Bill as proposed are as follows:

1. That the legislative framework proposed should apply to consumers as defined for the purposes of the jurisdiction of the Financial Services and Pensions Ombudsman and in the Central Bank's Consumer Protection Code 2012, namely, natural persons and a person or group of persons (including limited companies and unincorporated bodies such as partnerships, charities, clubs, trusts and sole traders) having an annual turnover of €3 million or less in the preceding financial year.

2. That the current pre-contractual duty of disclosure imposed on consumers be replaced with a statutory duty to answer carefully and honestly specific questions posed by an insurer that identify the material risks and the relevant information actually relied on by the insurer. This is designed to avoid a situation whereby a consumer is required to try and anticipate what the insurance company needs to know, even where they are not sure about what information is relevant. The current position puts an insurer in a position to refuse a claim when it has not received a full and complete disclosure, even in a situation where if this information had been disclosed, it would have had minimal or no impact on the decision to provide cover in the first place.

3. That there should be proportionate remedies for innocent or negligent mistakes by a consumer, but that insurers should continue to be able to repudiate liability completely in cases of fraud.

4. That the concept of insurance warranties should be replaced with statutory provisions allowing insurers to include provisions that precisely identify or define the risk insured but which also protect consumers from unfair and unjust outcomes. Warranties in insurance contracts are special terms or conditions that permit a party to an insurance contract (usually the insurers) to repudiate the contract and refuse to meet the claim if the particular provision (warranty) is breached. There have been cases over the years highlighted by the courts whereby although insurers have relied on breaches of warranties which appeared to be unfair and unjust, the courts have had no choice but to uphold them, as such actions by insurers were ultimately deemed to be legal.

5. That the requirement that a consumer must have an "insurable interest" in the risk insured be abolished and replaced with legislation that (a) requires a consumer, when making a claim, to prove actual loss, and (b) applies the principle of indemnity (that is, that a policyholder cannot make a profit on any claim).

6. That third parties intended to benefit under an insurance contract be permitted to make a direct claim against the insurer. This is designed to address the general rule that a person who is not party to a contract (a ‘third party’) does not have an enforceable legal right under a contract even where they are meant to be the beneficiary. This can happen, for instance, where the policyholder is a corporate body in liquidation, and an employee wishes to take a claim against it. Under current legislation, this is difficult to do.

7. That the current laws governing subrogation should be reformed and modified in order to avoid unintended consequences for family and employer-employee relationships. Subrogation is a legal concept which entitles an insurer to ‘step into the shoes’ of its policyholders and recover against a third party who is responsible for the damage to the insured. The rationale for this proposal is that the current way it is applied can cause difficulties with insurance claims involving family members as it may discourage them from pursuing a claim for fear that once compensation is paid out, the family member who has caused the damage may be pursued by the insurer in order to recover the cost of the claim.

8. That the post-contractual duty of good faith be replaced with specific statutory duties, including a duty on consumers to pay premiums within a reasonable period and a duty on insurers to handle claims and complaints promptly and fairly.

9. That existing legislation on unfair terms be adapted for insurance contracts.

10. That there be consolidation and reform of existing legislation to ensure that policyholders receive clearly written information on the essential terms of the insurance contract, including policy documents.

Detail of Consultation

Taking into account the view of the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach, the Department is seeking the views of any interested or relevant parties on the following matters:

1. The specific costs of implementing the measures proposed by the Bill

2. The specific benefits to be gained for consumers and businesses falling within the scope of the Bill if the measures proposed by the Bill are implemented, and

3. A view on whether the benefits outweigh the costs – i.e., a cost benefit perspective on the proposed legislation

When addressing these matters, the Department asks for respondents to please clearly set out the basis for their views.

Please note that the Department reserves the right to publish the responses to the consultation on the Department’s website. In addition, the responses will be provided to the members of the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach to inform the legislative process.

Please make your submission in writing, preferably electronically as a Word or a pdf document by email, on or before 1pm Friday 24 May 2019. Submissions should be marked “Consultation on Consumer Insurance Contracts Bill” and sent by email to insurance@finance.gov.ie

In the event that you are unable to send your response electronically, please forward it by post – ensuring that contact details are included – before 1pm Friday 24 May 2019 to:

Insurance Policy Section

Department of Finance

Government Buildings,

Upper Merrion Street,

Dublin 2, D02 R583

Freedom of Information

Please be aware that responses to this consultation are subject to the provisions to the Freedom of Information Acts.

Queries

Please email insurance@finance.gov.ie should you have any queries.

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