Consumers and agency

On 11 March 2009, the English and Scottish Law Commissions published a Policy Statement on the vexed question of information communicated by a consumer assured to an intermediary but not accurately transmitted to the insurers. English law currently permits insurers to avoid the policy for non-disclosure in this situation, unless the agent was in some way authorised by the insurers to receive the relevant information on their behalf. The Law Commissions’ Policy Statement indicates their current intentions.

Background

The original approach of the Law Commissions to this problem, set out in the 2007 Consultation Paper, was to suggest the limited reform that an intermediary should be treated as acting for the insurers unless he was clearly independent and appointed to undertake a fair analysis of the market. That would have made a marginal difference to the law: the position of brokers would have been unaffected, although the curious case law exemplified by Newsholme Brothers v Road Transport and General Insurance Co [1929] 2 KB 356 – under which even an agent appointed by the insurers was somehow transformed into the assured’s agent for disclosure purposes – would have disappeared. The Law Commissions’ approach was criticised by consumer groups for failing to provide a clear definition of exactly when an intermediary was and was not independent, and that criticism prompted the 2009 Policy Statement. The Law Commissions have stated that they now intend to lay down a more detailed test for distinguishing independent from non-independent intermediaries. The underlying principle is that ‘Insurers should bear responsibility for those intermediaries within their control, and have appropriate incentives to exercise that control in a way that prevents problems from occurring. Insurers should not, however, be liable for the actions of genuinely independent agents.’ It is to be emphasised that the Policy Statement is confined to consumer insurance and at this stage the proposals relate only to the transmission of information at the placement stage. The Law Commissions recognise that an agent may act for one or other of the parties for different purposes in relation to the overall transaction.