Insurance

Law Commission - The post-contract duty of good faith

The Law Commission and the Scottish Law Commission have published an issues paper discussing the insured’s post-contract duty of good faith (July 2010). The issues paper has been published as part of the Commissions’ ongoing insurance contract law review project. A consultation paper on this and other areas being considered under the Commission’s project is planned for 2011.

The issues paper discusses the insured’s post-contract duty of good faith, in particular the duty not to make fraudulent claims, and asks, among other things, whether the law on the remedies for fraudulent claims is unnecessarily complex and whether it would be helpful to introduce legislation to clarify the insurer’s remedy for such claims. Comments on the paper are invited by 11 October 2010.

Download the paper on the duty of good faith [PDF, 440 KB ]

 

Equitable Life - Final advice of Sir John Chadwick

The final advice of Sir John Chadwick in relation to the Equitable Life ex-gratia payment scheme was published on 22 July 2010.  The principal findings of the report are:

• the compensation policyholders receive should be based on an assessment of their 'external relative loss'. This is, broadly, the lower of (i) the difference between the payout policyholders expected to receive from Equitable before certain policy value cuts carried out by Equitable and the amount actually received by them and (ii) the amount the policyholder would have received in respect of a comparable product offered by an alternative provider and the amount actually received by them
• any relative losses suffered by a policyholder in respect of one Equitable policy should be adjusted to reflect any relative gains which they have experienced in respect of another Equitable policy
• the Government or independent commission should consider how relative loss should be adjusted to take account of the time value of money and tax
• policyholders should also be compensated in respect of any 'internal relative loss'. This is the difference between the payout a policyholder would have received if the maladministration had not occurred and the payout the policyholder has actually received
• external relative loss should be discounted to reflect the fact that not all those who suffered losses did so as a result of reliance on regulatory returns or misleading information provided by the FSA (i.e. maladministration). This is an alternative to the recommendation of the Ombudsman that cases should be assessed on an individual basis, which Sir John Chadwick suggests is impractical. The report proposes that losses should be discounted by a proportion equal to the proportion by which the premium income received by the Society during the relevant period would have been reduced absent maladministration and, therefore, that policyholders should be treated as having suffered 25% of their external relative loss in the case of investment in WPA policies and 20% in the case of all other policies
• internal relative loss should also be discounted, with policyholders treated as having suffered a proportion of their loss with the proportion being the complement of the proportion applicable to their external relative loss.

Also on 22 July the Government announced that it was setting up an independent commission to assist in the design of the payment scheme, which would report by the end of January 2011, and that the amount of funding which would be provided for the payment scheme would be set out in the Autumn Spending Review on 20 October 2010.

On 26 July 2010 the Parliamentary Ombudsman published a letter to MPs commenting on the final report, in which she stated "It seems to me that those proposals, if acted upon, would not in any sense enable fair and transparent compensation to be delivered".

View the final advice

View the HM Treasury announcement

View the Parliamentary Ombudsman's response

 

PPI - FSA policy statement

On 10 August 2010 the FSA published PS10/12 - The assessment and redress of Payment Protection Insurance complaints (feedback to CP10/6 and final Handbook text). In the policy statement the FSA has confirmed its intention (despite industry criticism) to proceed with the approach outlined in CP10/6, with some amendments, stating that "we remain of the view that the rationale for our measures is sound, their scope appropriate, and their likely cost impact necessary and proportionate".

Industry responses to CP10/6 criticised, among other things, the open letter published by the FSA setting out a list of failings in the sale of PPI. Some responses suggested that the FSA was using its Principles to retrospectively change the standards applying to past sales of PPI and argued that breaches of the Principles do not give rise to any liability towards a complainant. This argument was rejected by the FSA.

The new rules will come into effect from 01 December 2010.

View the policy statement