“Always read something that will make you look good if you die in the middle of it” (P J O’Rourke)
It is debatable whether the FCA Handbook fulfils P J O’Rourke’s requirements for a good book, although attempts to read it from cover to cover may well result in a premature end.
Fortunately the FCA has tried to address that shortcoming by issuing entertaining updates. The latest brings ICOBS in line with the provisions of the new Consumer Insurance (Disclosure and Representations) Act 2012 (“CIDRA”) which came into force on 6 April 2013.
In our April 2012 briefing note we identified the main changes to insurance law introduced by CIDRA, which are as follows:
- CIDRA abolishes a consumer insured’s duty to volunteer information to the insurers. A consumer’s duty will be limited to making sure he or she answers questions raised by insurers honestly and reasonably.
- Insurers will have to ensure that they ask for any information they need to assess the risk being insured. If a consumer acts honestly and reasonably the insurer will have to pay the claim.
- Where a consumer acts carelessly, a proportionate remedy will be applied; the test will be what the insurer would have done had it known the full facts.
- An insurer will only be able to refuse to pay a claim if a consumer acts deliberately or recklessly in making misrepresentations.
- An insurer will need to prove on the balance of probabilities that the consumer knew: (a) that a deliberate or reckless misrepresentation was untrue or misleading, or did not care whether it was or not; and (b) that the matter was relevant to the insurer. If a misrepresentation does not pass this test then it will be a careless representation and must be treated accordingly.
- If the intermediary is an appointed representative of the insurer, or is acting as the insurer’s agent, it will be considered as acting for the insurer. In all other cases the intermediary will be presumed to be acting for the consumer.
With its latest update, which is effective as of 1 October 2013, the FCA Handbook brings the categorisation of a “mixed” customer in ICOBS in line with CIDRA only for the purposes of applying CIDRA. The old definition at ICOBS 2.1.3(1) G will continue to apply, except in relation to the new provisions on disclosure and qualifying misrepresentations at ICOBS 5.1.4.G and ICOBS 8.1.2.R respectively. Under these provisions, a customer who entered into a contract of insurance mainly for purposes unrelated to his trade or profession is still a consumer who will therefore benefit from the qualifying misrepresentations provisions. In the case of “status uncertain” customers, ICOBS 2.1.2 states that, if in doubt, a firm must treat the customer as a consumer.
Under section 3(1) and 3(2) of CIDRA, insurers are required to (1) explain to the customer the responsibility of consumers to take reasonable care not to make a misrepresentation and the consequences of the same; and (2) ask the customer clear and specific questions about the information relevant to the policy being arranged or varied. The new ICOBS 5.1.4(3) and (4) G reflect this requirement.
The new ICOBS 8.1.2(2)
The new ICOBS 8.1.2(2) makes it unreasonable for insurers, in relation to contracts or variations agreed on or after 6 April, to reject a claim for “misrepresentation by a customer [if] the misrepresentation is not a qualifying misrepresentation”.
The definition of a qualifying misrepresentation is set out in the new ICOBS 8.1.3 R: 1 and reflects the provisions in CIDRA section 2(2). In other words, a consumer must take care not to make a misrepresentation and the insurer must show that without the misrepresentation they would not have entered into the contract or would have done so only on different terms.
The new Handbook rules are already in force and brokers need to be sure that they correctly advise their consumer clients on their disclosure obligations. Perhaps more importantly, brokers need to make sure that they do not accept repudiation arguments from insurers based upon the rules under the old regime.
The best advice, as always, is to familiarise yourself with the FCA Handbook and the relevant provisions in ICOBS.
As Marx said (Groucho, not Karl): “outside of a dog, a book is a man’s best friend. Inside of a dog it is too dark to read”.
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