Historically insurance law was heavily weighted to insurers when it came to considering claims. They were able to walk away from claims for all sorts of unexpected reasons.
In 2013 the law for consumers was radically overhauled to be more equal as between insureds and insurers, but there are still very few cases on how that new law is being applied and whether the landscape has truly altered to assist consumers pitted against large insurance companies.
In this article we consider the position and a 2016 case, in particular, that gives some guidance.
Tesco Underwriting v Achunche [2016] EWHC 3869 (QB) concerned car insurance. Mr Achunche applied for cover and on the application there was a question about whether the applicant had any previous motoring convictions within the last five years. Achunche answered that he had no previous driving convictions, but he had in fact been convicted of driving without insurance within the last five years.
When taking our insurance an insured owes a duty to take reasonable care not to make a misrepresentation under the Consumer Insurance (Disclosure and Representations) Act (2012) (CIDR).
Tesco sought a declaration that they were entitled to avoid the policy because, if the conviction had been disclosed, they said they would have charged a higher premium on the policy. Achunche’s defence was to the effect that the conviction was under appeal and he honestly did not consider that it was a valid conviction needing to be disclosed to insurers in reply to the question.
Under CIDR insurers are entitled to a remedy if a consumer has made a misrepresentation before entering into an insurance policy. There are two types of misrepresentation:
- Deliberate or reckless (ie untrue or misleading and which was known to be relevant to the insurer); or
- Careless (ie any other misrepresentation).
If the misrepresentation was deliberate or reckless, then the insurer may avoid the policy, treating it as if it never existed, and retain the premium.
If the misrepresentation was careless and the contract would never have been entered into then the insurer may avoid the policy but must return the premium. If the insurer would have provided the policy, but on different terms, then the policy is treated as if it is in those terms.
There is also a presumption under section 5(5) that the consumer has the knowledge of a reasonable person, and that if the insurer asks a specific question, then the consumer understands that it is relevant to the policy.
It is therefore vital whether the misrepresentation was deliberate/reckless or careless. If deliberate/reckless then the likelihood is that the policy will be ripped up and the insured left without any insurance cover. If careless, and particularly if the misrepresentation would still resulted in insurance on some terms, it is more likely that some insurance cover will remain in force.
In this case, the decision focussed on the conclusion that Mr Achunche should have understood from Tesco’s question that disclosing convictions was an important part of their decision making. The court decided that there was little doubt, set against that specific question, that the answer given was deliberate or reckless. On that basis Tesco were entitled to walk away as if no insurance had been provided.
The lack of cases on these issues is somewhat surprising since the law has been in force since 2013. That might reflect the practical reality that many issues between insurers and consumer insureds are being referred to the Financial Ombudsman instead of Court. The Ombudsman can now order an insurer to pay up to £350,000 and is guided by consumer regulations rather than the law. Those regulations make a similar distinction between deliberate/reckless misrepresentations and innocent or inadvertent ones.
The difference between a deliberate/reckless or careless breach of the insured’s duty is also adopted in the Insurance Act 2015 which similarly overhauled insurance law in relation to business contracts. That only came into effect in August 2016 though and it might be too early for cases dealing with that difference to have resulted in final Court judgments. We will watch with interest to see how the Court deals with the difference as cases come to Court, which seems more likely in a business context where FOS might not be a suitable (or available) scheme to resolve higher value business disputes.
In the meantime, if you find yourself being accused of having misrepresented anything in the proposal for insurance you are likely to want to consider the Ombudsman as a first port of call. If legal proceedings then result, the guidance in the Tesco case will be valuable. If you answer a direct question incorrectly it seems that it will be difficult to justify a defence that the misrepresentation was careless, which could mean you find yourself without any insurance cover just when you needed it.
