The Law
May/June 2001

Insurance - getting it right

By Tom Williams, Solicitor

Almost everyone will in their lifetime take out insurance for the purpose of safeguarding themselves against circumstances in which they may suffer financial loss. Yet despite insurance being an integral component of our lives it remains a confusing and impenetrable area for many consumers.

We have all heard old war stories where insurance companies have denied claims arbitrarily without providing adequate reasons with the consumer having no recourse but to cop it sweet. However this need not be so provided you take the proper steps when obtaining insurance.

Categories Of Insurance
There are two categories of insurance - general insurance and life insurance. However, the focus of this article shall be on general insurance which covers home and contents, motor vehicle, travel, personal accident, income protection, public liability insurances. General insurance is regulated by Federal legislation namely the Insurance (Agents and Brokers) Act 1984 (IABA) and the Insurance Contracts Act 1984 (ICA) and the common law.

The ICA requires the consumer to satisfy certain obligations to the insurer. They are:

a) Disclose any information which would be relevant to the decision of the insurer whether to accept the risk. This is called the insured's "duty of disclosure". It is an extremely important duty and must be clearly understood when obtaining insurance because it could mean the difference between the insurer honouring a claim or denying it.

b) Not make false claims or exaggerate any claims.

c) Co-operate with the insurer.

Disclosure
When applying for insurance the consumer must give the insurer all information which is relevant to the insurer in deciding whether to take the risk, and if so, on what terms. It is extremely important to understand the extent of this duty because a person who fails to comply with it may find themselves uninsured at the time when they make a claim.

Under the duty of disclosure all relevant information must be disclosed to the insurer before entering into the contract. A person applying for insurance must:

ª Fully and completely answer all questions on the proposal form. Special care should be taken when answering any questions that are very general or open-ended.
ª Be precise when answering any questions requiring detailed information (e.g. list all traffic offences in the last five years or a medical history for the last ten years). If you cannot remember a full list, you should state this on the form, and if necessary, obtain the details from the traffic authority, or from your doctors.
ª Include additional information if there is a 'tick box' question, with no category correctly describing your situation.

It is important to note that the duty of disclosure is limited to those facts that the insured knew or a reasonable person would have known to be relevant to the insurer's assessment of the risk. The sorts of facts that are relevant include:

ª Visits to doctors for medical treatment
ª Previous refusals by other insurance companies to insure the applicant, or rejection of claims made by the applicant
ª A criminal record
ª Convictions for road traffic offences (other than parking offences) when applying for motor vehicle insurance.

The failure to disclose all relevant information will fall into one of two categories of non-disclosure, them being innocent and fraudulent non-disclosure. Non-disclosure will be innocent if an insured honestly fails to disclose a fact which they regard as irrelevant. Non-disclosure will be fraudulent if a person knew the fact was relevant and still failed to disclose it.

Where the non-disclosure was fraudulent, then the insurer may cancel the policy and refund the premium. Where the non-disclosure was innocent and the insurer would have accepted the risk even if full disclosure had been made, the insurer cannot reject the claim on the basis of non-disclosure. But if the insurer would have charged a higher premium or larger excess if full disclosure had been made, the insurer can reduce the claim against that amount. However, in circumstances where the non-disclosure was innocent but the insurer would have rejected the proposal for insurance, the insurer can reject the claim. In these circumstances the insurer must prove it would have rejected the proposal.

Making A Claim
When making a claim the insured should:

ª Notify the insurer of the event as soon as possible. Telephone notification of the claim should be followed up in writing, and the letter should include all relevant details of the incident.
ª Produce any documents or records supporting the claim. It is a good idea to keep records such as receipts, valuations, serial numbers or photos, as accurate records help in having a claim paid promptly.
ª Cooperate with the loss assessors.

Where Claim is Denied
Where the insured has lodged a claim and the insurer has denied to pay out on the claim, the matter does not necessarily have to end there. The insured has recourse to the Insurance Enquiries and Complaints (IEC) dispute resolution scheme. The advantages of using this scheme is that the panel is familiar with insurance law; it is free and the insured does not need a lawyer to use them and finally, they will help investigate the complaint. It is important to note that, before the insured can go rushing off to the IEC they must have attempted to resolve the complaint with the insurer.

The IEC scheme then conducts an investigation into the complaint. The complaint may be settled or conciliated at this stage. If not, the complaint is referred to a panel for decision. The decision of the panel is not binding on the insured. Where an insured is dissatisfied with the decision, he or she has the choice of rejecting it and pursuing court action.

The insured should always address the following before a panel:

ª The letter of complaint should be clear about the reasons why a claim should be paid. It should specifically address any reasons the insurance company has given for refusing the claim, or rejecting the complaint.
ª Where it is argued that the event claimed for is covered on the basis of statements by the insurance company's agent, then the words used in those misrepresentations should be stated as precisely as possible, and it should be made clear why the consumer thought as a result that he or she was covered. Any corroborating details should also be provided, such as information which would make it more likely the consumer should be believed.
ª Where it is being argued that the insured did not receive various documents the history of the sale of the policy should be set out in detail, identifying which documents were received.
ªIn reaching its decision the terms of reference of the scheme require the panel to give consideration 'to what is fair and reasonable in all circumstances, to good insurance practice, the terms of the policy and established legal principle'. It may be possible to argue that the claim should be paid because the conduct of the insurer was unreasonable or unfair, even if legal.

It is important to note that the IEC can only hear disputes about refusal to pay a claim or arguments about the amount that should be paid under a claim and not other matters such as the price of the policy or loss of a no-claim bonus. The panel can hear disputes about the following types of insurance:

ªMotor vehicle insurance (but not compulsory third party motor vehicle insurance)
ªHome insurance
ª Sickness and accident insurance, consumer credit insurance, travel insurance
ªSome other insurance policies (insuring personal and domestic property and some small business insurance policies).

Where the insurer has alleged fraud as the reason for refusing the claim, the complaint is referred to the Fraud Referee. The referee will interview the insured, but may refuse to make a decision if it appears that the matter cannot be resolved without a contested hearing.

Insurer's Duty of Disclosure
The duty to disclose is not a one way street, the insurer has obligations to clearly disclose any restrictions in the insurance policy before the contract for insurance is entered into. Where the insurer does not do this then in most circumstances the contract will have its terms and conditions prescribed by law which are inevitably more generous and less restrictive than those in the policy.

This duty of disclosure by the insurer also encompasses exclusion clauses. The insurer is under a duty to specifically draw the insured's attention to an exclusion clause. Where the insurer fails to do so then it may be that the insurer cannot rely on the exclusion clause to deny a claim.

Renewal and Cancellation
Insurance companies must give at least 14 days notice in writing of the expiry date of the policy. If they do not give this notice, insurance cover continues at no cost to the policy holder unless and until a claim arises or they receive notice. The policy holder will only have to pay the premium from the date of the claim.

The insured on most policies has the right of cancellation. The insured can usually cancel the policy by way of written notice and the effect of this will be that the insured will receive a refund of the unexpired premium.