Unfair Terms in Consumer Insurance Contracts: Regulations and Case Law, Lecture notes of Law

Download Unfair Terms in Consumer Insurance Contracts: Regulations and Case Law and more Lecture notes Law in PDF only on Docsity! THE UNFAIR TERMS IN CONSUMER CONTRACTS REGULATIONS AND INSURANCE CONTRACTS Robert M Merkin Bracton Professor of English Law, Exeter University Insurance Consultant, Wilde Sapte 1 Perceptions of unfairness The average consumer's approach to insurance cover is to read the contract only when the loss occurs, and to regard refusals of cover as in some way devious. This attitude is compounded with an often encountered unsympathetic attitude at the first tier claims level. Particular allegations of unfairness include the following: • ambiguous cover, which is more restricted than it appears by excluding obvious risks • generally there is no sight of the policy until the premium is paid • daunting length and phraseology • obligations (conditions) imposed on the assured not always apparent • use of basis clauses and other means of creating warranties permits avoidance of liability on immaterial grounds • the operation of doctrine of utmost good faith is effectively unilateral 2 Common law response There is no common law acceptance of the doctrine of reasonable expectations of assured (contrast US, and see Malcolm Clarke [1990] JBL) - an extreme example is Waterkyn v Eagle Star (1920) 5 LI LR 42, where insurance against the collapse of a Russian bank was held to refer to physical and not financial collapse. Some attempt has been made by the courts, with insuring and exceptions clauses, 33 to use generous constructions and the contra proferentem rule in consumer cases, e.g., Houghton v Trafalgar Insurance [1954] 1 QB 247. The common law has also imposed some restraints on the widespread use of warranties, particularly: (a) refusal to construe warranties as continuing obligations; (b) the development of the doctrine of 'suspensory condition'; (c) an occasional refusal to accept the general description 'warranty' as applicable to all obligations under that head. However, the general position, in the absence of possible ambiguity, required enforcement of contractual provisions no matter how 'unfair' in terms of accessibility and effect: Koskas v Standard Marine (1927) 27 LI LR 59 Walter v Pennine Insurance [1980] 2 Lloyd's Rep 56 There is reported insurance case in which Interfoto v Stiletto [1989] QB 433 (requiring explanation or disclosure of particularly harsh and unusual terms prior to the making of the contract) has been applied, but its principle is clearly general. 3 Statutory intervention Unfair Contract Terms Act 1977 - insurance contracts are excluded. Financial Services Act 1986 - the marketing of insurance contracts is regulated if they constitute investment contracts - most life policies fall within this description. Consumer Arbitration Agreements Act 1988 - insurance contracts are excluded, although such clauses are not enforced in consumer insurance cases. Road Traffic Act 1988 - policy conditions relating to the condition of assured or the vehicle, and to post-loss conduct, are not excludable in face of a third party claim, and see also the more limited provisions of the Employers Liability (Compulsory Insurance) Act 1969. Misrepresentation Act 1967, s 2(2) - is applicable to consumer misrepresentations, although has by judicial decision been excluded from reinsurances (and, presumably, commercial insurances). 34 to avoid the policy and recover the premium (cf La Banque Financiere v Westgate Insurance [1990] 2 All ER 947). It is not possible to argue that the 1994 Regulations can modify the assured's own duty of disclosure in the situation in which the insurer has not drawn this duty to the assured's attention: while it has been suggested that the insurer's failure is of itself a breach of duty, that duty is not contractual and therefore the Regulations do not preclude the insurer from relying on what may be its own breach of duty in helping the assured to preserve his rights. The Core Provision: it follows that allegations of unfairness in the scope of cover provided by the policy are excluded by 'core provision', reflecting the rationale of the exclusion of insurance from UCTA 1977. The assured cannot therefore challenge an excess, a premium loading or an exclusion for a common form of risk. The Regulations will nevertheless affect ancillary terms only, e.g., notice of loss, accelerated limitation periods, and possibly unreasonable restrictions on increase of risk. Under art 4(2) fairness is to be assessed in the light of the situation prevailing at the date of the policy, so presumably it must be shown that unfairness was foreseeable at that date. It might therefore be possible to argue that all warranties which are not by their nature potentially causative of any loss are unenforceable as warranties. The core provision does not operate unless the provision in question is couched, in 'plain, intelligible language'. Does this mean that the rule, that an ordinary English word in an insuring or exclusion clause is to be given its technical meaning (theft, riot, piracy) no longer stands: it is arguable that an ordinary English word with a special meaning is not a word which is in 'plain, intelligible language'. If this is right, the core provision is not as wide-ranging as it at first sight appears. Could this principle be extended to ordinary words found in a specific context? What about ordinary words with special insurance meanings, e.g. 'event' as construed in subsidence cases? Does the decision in Young v Sun Alliance [1976] 3 All ER 561 still stand? Few of the terms in the presumptive black list is sched 2 are relevant to insurance. Of those which might be: • a term conferring on the insurer the right to terminate the policy at any time is possibly contrary to (c) and (f) (such terms tend to be confined to marine policies) • a term forfeiting the premium in the event of avoidance might be caught by 37 • ground (i) (no reliance unless sight is first given of terms) is potentially important, although it may be that a statement that a specimen is available is enough to satisfy the reasonableness requirement here • ground (n) (avoidance of terms restricting the insurer's liability under contracts made by agents) may prevent reliance on any 'transferred agency' clause, of doubtful validity at common law • ground (q) (restricting access to relief) probably condemns consumer arbitration clauses and accelerated limitation provisions Regulation 6, the codification of contra proferentem, applies to all contract terms, including those caught by the core provision, as terms not expressed in plain, intelligible language are outside the core provision. Regulation 6 is wider than the common law rule, which has been held to be neutral in insurance cases where the proposal or the policy wording is prepared by the broker, as the broker is the assured's agent. Regulation 6, by contrast, seems to apply whoever has prepared the wording. SEAWORTHINESS-CONDITION SURVEYS Christopher Kidd, Partner, Inee & Co. The problem of rust buckets is not new. What is different is the level of concern and steps which are being taken to bring the problem under control, no doubt as a result of escalating claims and the increased number of ships trading but not complying with Class Rules or international conventions. There is also a body of opinion that the classification societies are not effectively policing tonnage. Further fuel has been added to the fire by the recent spate of headline making casualties such as the "BRAER" and "AEGEAN SEA" which have aroused media interest to the extent that they now regularly report on problems of bulk carriers, double skinned and ageing tankers. The proliferation of surveys carried out by owners/managers, Class, port state control, flag authorities, charterers, hull underwriters and P & I Clubs undoubtedly adds to the pressures on owners, masters and crew. But there are some alarming 38