Intermediaries should be regarded as agents of insurers when they obtain pre-contract information, unless they are genuinely searching the whole market on the insured's behalf, suggests the Law Commission.
The Law Commission has published its third issues paper on insurance contract law, which discusses who the intermediary is acting for in receiving pre-contract information and what should happen if a mistake or fraud by an intermediary leads to information not being disclosed to an insurer.
It states: “Our tentative view is that the intermediary should be regarded as the insurer’s agent for the purposes of obtaining pre-contract information, unless the intermediary is genuinely searching the market on the insured’s behalf. This means that single tied agents and multi-tied agents will be taken to act for the insurer.”
As a result, the Commission says if single-tied or multi-tied advisers act fraudulently or negligently, the insurer will have to bring an action against the adviser, rather than seek a remedy against the innocent insured.
It does not go as far to say all intermediaries who receive commission should be regarded as the insurer’s agents, as it believes this might disadvantage small independent intermediaries who may find insurers are no longer prepared to deal with them.
But the Commission does propose that an intermediary regarded as acting for the insurer in obtaining pre-contract information remains the insurer’s agent while completing a proposal form.
It states: “This would be true unless both insured and the intermediary are parties to fraud together. If the intermediary is fraudulent but the insured is not, we think the insurer should bear liability for the fraud of their own agent (and if only the insured is fraudulent, the issue of the intermediary’s status does not arise).”
If a consumer signs an application form declaring the statements are correct, the Commission says it would be “unrealistic” to treat the signature as conclusive because in some cases the adviser will not tell the consumer they need to check, or may actually say there is no need to worry about the form.
It adds: “We all regularly sign documents that we have not read carefully; but most of us think that in our private lives this is often excusable particularly where the other party knows ‘what we meant’ or ‘what the true position is’. When coupled with a general impression that the intermediary ‘represents’ the insurer, the failure to check seems excusable.”
The Commission says it recognises the concerns of some insurers who fear moving away from signatures being conclusive may undermine the certainty they need to operate, but it adds the burden of proof will be on the policyholder to establish the intermediary failed to correctly record information.
It says: “A signature on a proposal form may not be conclusive but it will still be evidence for these purposes.”
Nick Kirwan, protection market director at Scottish Widows, says: “The issue of who the intermediary is acting for is unclear at present and it is something intermediaries should get involved in and make their views known. Non-disclosure is a prime reason why claims are declined and what the intermediary said or did during the sales process is a material part of that.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email [email protected].IFAonline
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