Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move: "That the Bill be now read a Second Time."

Tá áthas mór orm bheith i mo sheasamh anseo mar bhall den choiste airgeadais, mar bhall de Shinn Féin agus mar ionadaí poiblí. Tá sé feicthe agam thar na blianta an dóigh ina gcaitheann cuid mhór comhlachtaí árachais leis na gnáthdhaoine. Tá sé seo le feiceáil ó thaobh mótarárachas, mar shampla. Níl daoine áirithe ábalta clúdach árachais a fháil dá gcuid tithe nó dá gcuid gnóthaí agus iad i mbaol tuilte. Is léir go bhfuil na comhlachtaí árachais ag plé go scannalach leis na daoine seo le blianta anuas.

The House has discussed the issue of motor insurance previously and has made it clear that the industry is not fulfilling its side of the arrangement, whereby the private sector is given sole responsibility for insurance. We have also seen areas in which the insurance industry behaves despicably when, for example, it fails to insure households and businesses that are not even likely to be at risk of flooding as a result of a 100-year event.

Another issue relates to the contracts individuals enter into in terms of how the balance is shifted towards the companies as opposed to the consumer. This legislation, the Consumer Insurance Contracts Bill 2017, attempts to provide a level playing field. The Judiciary has been crying out for this legislation and has found itself, time and time again, siding with the insurers because it must follow the letter of the law but has expressed time and time again regret to the consumer in doing so.

The question we must ask revolves around why there is a need for this Bill. As a Parliament, we have the power to act. We make the law within which the insurers must act. At least, we should be doing that but, in fact, decades and even centuries of complacency have left us with laws on insurance contracts that are hundreds of years old and no longer fit for purpose. I previously won support for a Bill I introduced that would have ended the six-year rule, by means of which consumers were banned from taking complaints in respect of financial products sold to them more than six years ago.

More recently, I won support in respect of support for tracker mortgage victims. Now this Bill can mark a huge win for consumer protection when it comes to insurance claims. I wish to acknowledge the work and expertise of the Law Reform Commission in producing the report on this Bill. Its report, published in 2015, makes a powerful argument that reform in this area is long overdue.

In its 2011 report the Law Reform Commission quoted the expert Buckley who said, referring to a code of conduct for the insurance industry a code of conduct, or statement of self-regulatory practice, is not a substitute for reform of the law. The need for reform is confirmed by the very existence of the code and by the recent repudiation of it in open court by a major insurer. For decades, the need to legislate has been identified. There is no reason to delay any more. I hope all Deputies can support my Bill and bring about that reform.

This is a medium length Bill but it is dense in content. Section 1 Bill defines a consumer along the lines used for the purposes of the Financial Services Ombudsman jurisdiction and the consumer protection code. There are valid arguments why in other contexts such as the Financial Services Ombudsman scope why this definition might be considered too broad. While in that case the argument is that very large companies can access the Ombudsman when the commercial court might be more suitable, in this case I believe the definition is well suited because small and medium enterprises are the core beneficiaries here alongside the individual consumer. The section also defines an "average consumer" and "fraudulent misrepresentation" and other technical terms used throughout.

The purpose of section 2 is to clarify the relationship between this Act and other Acts already in force, such as the Marine Insurance Act 2015. No provision of these Acts applies to contracts covered by this Bill.

Section 3 allows the Minister to make necessary regulations and the Central Bank codes as required. Section 4 allows any such code of practice to be admissible for consideration by the Financial Services Ombudsman, a court or any other adjudicating bodies.

Section 5 abolishes the outdated concept of "insurable interest" with only a very small exception where the contract is also a contract of indemnity. Insurers would no longer be able to avoid a claim because after the fact they decide that the insured had no interest in the policy. Here we see how out of date some of the existing law provisions are. The "insurable interest" concept goes back to naval insurance and was designed to prevent gamblers or speculators from betting on the non-arrival of ships at their destinations. In 2017, however it has the effect that where for example a child would take out insurance on the parent's home because for whatever reason the parent deems it not necessary to insure the family and subsequently the home burns down the child would not be able to make valid claim because he or she has no insurable interest despite having paid premiums to the insurance company for many years. Modern contracts have developed beyond the point where such gambling would be profitable or exploitable. The Bill therefore abolishes the concept of "insurable interest" and replaces it with a legislative provision suitable to the modern day.

Section 6 is one of the most important aspects of the Bill. It shifts the burden of disclosure away from the consumer and to a degree places the responsibility on the insurer to asks questions. What is more, the questions the insurer asks must be in plain, intelligible language. On average, although the detail is confidential, we know that duty of disclosure features in nearly 100 cases a year that the Financial Services Ombudsman deals with.Again, outdated concepts that work only in favour of the insurer such as utmost good faith are replaced. The invisible duty of the consumers to volunteer information that they know is relevant is removed. This is a real shift in the power relationship between consumer and insurer. All the duty and obligations are shifted from the shoulders of the consumer. The consumer must, of course, answer all questions honestly and with reasonable care.

Section 7 flows from section 6. It introduces the concept of proportionate remedies for misrepresentation. In layman's terms a small omission with little material impact should not lead to a complete refusal of a claim. Common sense and proportionality must come into play. A simple innocent misrepresentation should not lead to families and businesses being left completely empty handed when a fire breaks out or some other insurable event occurs. Consumers who are found to be negligent in the information given likewise are to be treated proportionately under the legislation. Again, the key is proportionality. This section ensures mistakes or even negligent replies to questions do not lead to a blank cheque for insurers to avoid all responsibility. It is a question of balancing the power relationship between consumers and insurer.

Section 8 tidies up what forms and paperwork that must be supplied to the consumer. The various provisions around this scattered throughout different Acts are collated together into the Bill. The clarity in the section about the exact information to which the consumer is entitled benefits the consumer. Insurers must make this documentation intelligible to the average consumer. If there is any dispute over language the benefit of the doubt lies with the consumer.

Section 9 allows a 14 day cooling off period for non-life insurance and 30 days for life assurance contracts in which consumers can withdraw from a contract without penalty. There are some sensible exceptions such as very short-term contracts. There are already some Acts regarding consumer credit where a cooling off period is in place. The concept is one that favours the consumer and should be included in insurance contract law. Section 10 puts into law the obligations of an insurer regarding renewals. The 15-day notification period is already found in regulations and it is sensible that it is being placed in primary legislation. The main focus of this section is in listing the information that insurers must make available in the case of life insurance policies. This list includes surrender and maturity values, investment growth and charges deducted among other things. This approach could be considered for non-life insurance too given the darkness motor insurance consumers can be kept in regarding the reasons for some of the massive increases that seem to be popping up for consumers in that sector. I would be willing to consider amendments on Committee Stage if this Bill passes Second Stage.

Section 11 brings the duty of the insurer into the twenty first century when it comes to cancelling a contract because of, for example, failure to pay. The duty will now be on the insurer to make sure the cancellation notice has been received. This can be an e-mail or text message as long as there is proof that it was received.

Section 12 is linked to section 6 and carries the logic of putting the onus on the insurer to ask the questions and not the consumer to guess which information he or she should be volunteering. A renewal does not mean the consumer has to give additional information unless explicitly requested to do so. Many individuals would not be aware that when they renew their insurance contract they are entering into a new contract and many of their insurance contracts will require them to give additional information. Failure to do so will mean that the insurance company will not pay out on the claim. In this section the insurance company will have to ask specific questions to be answered by the consumer upon renewal if it wants additional information. The Law Reform Commission report gives an example of why this is important. A more extreme example arose in the High Court decision of Hanna J. in Flynn v. Financial Services Ombudsman and Allianz Plc, where the respondent insurer had declined to indemnify the appellant under a household policy on the basis that he had failed to disclose, at the renewal of the policy, that he was facing pending criminal charges in relation to alleged possession of cocaine. Although the charges were subsequently dismissed, the Financial Services Ombudsman, FSO, held that the pending charge was a material fact that should have been disclosed to the insurer. In the High Court, Hanna J. dismissed the appellant's appeal on the basis that the correct test of materiality had been applied by the FSO and that the insurance contract in question had converted the non-disclosure into a "basis of contract" warranty. Hanna J. added that it was "regrettable" that the appellant who stands wholly innocent of the drugs charges which were levelled against him, must find himself in a position where he cannot recoup insurance on a premises seriously damaged in wholly innocent circumstances. That is how bizarre our insurance laws are today.

It is completely unjust that an individual who does not inform his or her insurance company when he or she is renewing his or her insurance contract that charges are pending against him or her in respect of untrue allegations can lose €200,000, €300,000 or €400,000 if his or her house burns down because the insurance company is able to walk away without having to pay the claim. This legislation fixes that.

Section 13 is important because it removes much of the ground which insurers can use to avoid paying out. It takes the logic of the duty of disclosure to changes in circumstances. It distinguishes between cases in which there is a new risk about which the insurer did not originally know and cases in which there is an alteration of risk. In other words, a house insurer will not be able to refuse to pay out after someone's house burns down on the basis that he or she did not mention that he or she lights candles in his or her house. However, substantive changes made without the insurer’s knowledge that would have changed the decision on whether to insure the house are still grounds for a refusal to pay out.

Section 14 deals with what happens after an insurable event occurs. This means that the duties of the consumer to co-operate fully and respond to reasonable requests from the insurer are provided for in law. In return, the insurer is legally bound to pay out in a reasonable time period. In addition, neither party can hide any information it has that might be relevant to a decision on compensation.

Section 15 allows the consumer to seek extra compensation if the insurer unreasonably delays a valid claim. It asserts the principle that insurers do not have to pay out on fraudulent claims, but, importantly, it does not allow for a party making an innocent claim to have that claim disallowed because a second party may have acted fraudulently, for example, in a joint claim.

Section 16 deals with warranties which have been described in the courts as vicious devices and traps for the unwary. I refer to the small print used to prevent legitimate claimants from receiving compensation. Until we pass this Bill, insurers will continue to have the power to include in contracts so-called "warranties" which form the basis of a contract. These warranties have rightly been criticised by the Judiciary. In an infamous case the court found in favour of an insurer after a pizzeria had burned down because there had been some waste on the premises. That was enough to trigger an avoidance of the claim because it was in the small print that all waste should have been removed from the premises at night. Warranties should be abolished and replaced with specific reforms. That is what is being dealt with in this legislation. I will give an example. There may be a condition or a warranty in a contract of home insurance which requires the homeowner to maintain a burglar alarm at his or her premises. If the house burns down after the burglar alarm had malfunctioned for a period of time before subsequently being fixed, an insurance company can refuse to pay out, even though the burglar alarm had nothing to do with the fire at the property.

Section 17 places an onus on the insurer to bring to the attention of the consumer terms that might be considered "unfair or otherwise". Such terms need to be explained in order that they are not hidden.

Section 18 concerns the right of a third party to make a claim directly against an insurer in certain cases; for example, where the owner of a shop has passed away or where a shop is in liquidation. In such cases the insurer would be treated in the same way as the insured party.

Sections 19 to 21, inclusive, cover the issues of subrogation or substitution. Insurers will no longer be able to step into the shoes of a family in certain circumstances. For example, if a home has been damaged by a visiting relative, the insurer will not be able to sue that relative if the family do not wish that to happen. Exceptions are built into the legislation. Wilful damage, for example, is excluded. Similarly, an insurer cannot seek to go after an employee who causes damage to an insured party, unless it was done on purpose. The Bill codifies the common law "recovery down" principle for the distribution of funds where subrogation is used.

This Bill is what we need. It is about moving forward. It is about a new culture that will protect consumers from banks and other financial institutions. We need only look at the laws we have, some of which date back to the 1870s, to see that this is required. Some of them were introduced to deal with the 19th century practice of gambling on whether the cargo of naval ships would be landed in port. These are the laws judges are currently under an obligation to pass and adjudicate on. It is time for us to do what the Judiciary is demanding by bringing our laws into the 21st century. I hope all Members of the House can support this legislation.

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