What Are Unfair Terms In Insurance Contracts?

Author:Ms Sharon Daly, Helen Noble and Darren Maher
Profession:Matheson Ormsby Prentice

The United Kingdom's Financial Services Authority (the "FSA") recently published a notice of an undertaking given by AXA Insurance UK plc ("AXA") under which AXA agreed not to use certain terms in its contents and buildings insurance policies. These terms, the FSA found, were considered to be unfair under the UK Unfair Terms in Consumer Contracts Regulations 1999.

Given the Irish Central Bank's increased enforcement priorities, the FSA's guidance should provide a useful guide for insurers in Ireland as to terms that might be deemed to be 'unfair' by the relevant authorities.

It is also important to remember that in addition to the Central Bank's administrative sanction authority, failure to adhere to the requirements of the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (the Irish equivalent of the aforementioned UK regulations) is of itself an offence which could result in monetary fines and sanction by the Director of Consumer Affairs. Therefore, insurers should be careful to ensure that the terms of their policies are 'fair' and where they are in doubt, should seek further advice.

Terms requiring the provision of information and assistance by consumers

An AXA Policy reviewed by the FSA contained the section entitled "What you must do after making your claim", with this requiring the policyholder to "provide at your own expense all reports, certified plans, specification information and assistance that we may need". The FSA found that this requirement was excessive and unreasonable in that it required consumers to provide ongoing and unlimited assistance and documentation to AXA. The FSA found that the term had the potential to cause a significant imbalance to the detriment of the consumer.

Similarly, in another AXA policy reviewed by the FSA policy, the section entitled "What you must do when making your claim" contained a term which read "You must give us, at your reasonable expense, all the information, reports, certified plans, specification information and assistance that we may need in progressing your claim".

While the FSA noted that the term somewhat limited the scope of the requirement by its use of the words "reasonable expense", it found that the consumer's obligation remained otherwise unlimited by any reference to relevance or reasonableness. The FSA also found that the term still had the potential to cause significant imbalance to the detriment of the consumer because it might not be clear...

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