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Law Reform Commission issues consultation paper on Insurance Contracts

AUTHOR(S): Darren Maher
PRACTICE AREA GROUP: Insurance and Reinsurance
DATE: 24.01.2012

The Law Reform Commission (the “LRC”) has issued a consultation paper on insurance contracts. The consultation paper looks in depth at the current system of law of insurance contracts in Ireland and, in recommending various changes, compares the Irish system to that of other EU and third country jurisdictions (including South Africa, Canada and Australia). The consultation paper specifically examines the following:

•  the concept of insurable interest,
•  the duty of disclosure placed on the insured;
•  the nature and scope of pre-contractual misrepresentation by the insured;
•  the nature and effect of warranties in insurance contracts, and their connection with basis of contract clauses;
•  the relationship between exclusions in insurance contracts and the general law on unfair contract terms;
•  formalities (including specific terms that need to be drawn to the insured‘s attention);
•  the duty of utmost good faith (uberrimae fidei) in insurance contract law;
•  the rights of third parties; and
•  remedies available for breach of the contract (including the scope of repudiation of the contract and monetary compensation).

The LRC has made various recommendations including the following:

•  The term "Insurable interest" should be more broadly defined in legislation as "an interest that subsists when a person may benefit from the continued existence or safekeeping of the subject matter of the insurance or may be prejudiced by its loss";
•  Statutory provision should provide that an otherwise valid insurance claim cannot be rejected by the insurer solely because the insured lacks an insurable interest (as traditionally defined);
•  With regard to life insurance, the LRC recommended that  spouses, civil partners, cohabitants, children (in relation to their parents) and parents (in relation to their dependent adult children), should be deemed to have an insurable interest in a life policy. There is also a suggestion that grandparents in relation to their grandchild and siblings should also be deemed to have an insurable interest in a life policy;
•  The pre-contractual duty of disclosure should continue to be on the basis of uberrimae fidei. However, the LRC recommended that the pre-contractual duty of disclosure should be retained but it should be restricted to facts and circumstances which the proposer has actual knowledge of and it should not extend to every fact that ought to be known by the individual. The LRC also sought assistance on the best definition of "material facts" for the purposes of future legislation; and
•  Section 62 of the Civil Liability Act 1961 should be extended to allow a third party to proceed against an insurer where the insured cannot be located.

The LRC invited interested parties to provide submissions by contacting them in writing or by emailling info@lawreform.ie by 31 March 2012.  We would be happy to discuss the LRC’s paper with you at any time. Full text of the consultation paper is available here.

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