Consumer Insurance (Disclosure and Representations) Act 2012The Consumer Insurance (Disclosure and Representations) Act 2012 came into force on 6 April 2013 and applies to all consumer insurance contracts entered into on or after that date. The Act modifies principles of consumer insurance law in England, Wales, Scotland and Northern Ireland. This Act applies only to consumer insurance contracts, or insurance contracts made by individuals ‘wholly or mainly for purposes unrelated to their trade, business or profession’. This also includes ‘mixed-use’ contracts, or contracts that cover both personal and business use, as long as the main purpose of the insurance contract is personal. These new duties and responsibilities will not affect commercial or business insurance contracts. The following provides a general overview of the new requirements and duties for the consumer, and insurer remedies if duties are breached. GENERAL OVERVIEW Previously when purchasing personal insurance, the consumer had a legal duty to disclose and not misrepresent any material fact that a prudent insurer would consider relevant. If a consumer breached this duty, the insurer could then avoid paying out the claim, regardless of whether the non-disclosure or misrepresentation was an innocent one. The Act now places the duty to gather information on the insurer instead, requiring the insurer to request from the consumer any material information needed to assess the risk. The consumer’s new legal duty is to take reasonable care not to make a misrepresentation to the insurer. Consumer’s Duty to Take Reasonable Care Not to Misrepresent Even though the insurer now has the duty to ask for relevant information from the consumer before an insurance contract is entered into or amended, the consumer must still take reasonable care to not make a misrepresentation. A misrepresentation can include the failure to respond to a request to confirm or amend information previously given. The standard of care required is that of a reasonable consumer. Whether a consumer took reasonable care or not will be determined in light of all relevant circumstances. The Act lists several circumstances that can be considered when making a reasonable care determination, including: − The type of consumer insurance contract and its target market − Any relevant explanatory material or publicity produced or authorised by the insurer − How clear and how specific the insurer’s questions were − In cases where the consumer failed to respond to an insurer’s questions, how clearly the insurer communicated the importance of answering those questions and possible consequences − Whether or not an agent was acting for the consumer In addition, whether the insurer knew or should have known of particular characteristics or circumstances about the consumer must be taken into account. Any dishonest misrepresentation will always be determined as showing a lack of reasonable care.
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