Consumer Insurance (Disclosure and Representations) Act 2012

Summary

The Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) fundamentally reformed the pre-contractual disclosure obligations of consumers in insurance contracts. Before CIDRA, consumers placing insurance were subject to the duty of utmost good faith (uberrimae fidei) derived from the Marine Insurance Act 1906, which required voluntary disclosure of all material facts whether or not the insurer had asked about them. Breach of this duty enabled the insurer to avoid the contract ab initio, refusing all claims, regardless of whether the undisclosed matter had any connection to the loss. This all-or-nothing regime was widely criticised as producing disproportionate outcomes for consumers. The Law Commission's reports on insurance contract law (2007, 2012) recommended replacing the duty with a more proportionate framework. CIDRA provides that a consumer must take reasonable care not to make a misrepresentation to an insurer (s.2(2)); there is no duty to volunteer information, and the insurer bears responsibility for asking the right questions (s.2(4)). The Act introduces a three-tier proportionate remedy regime in Schedule 1: (i) for deliberate or reckless misrepresentation, the insurer may avoid the policy and refuse all claims; (ii) for careless misrepresentation, the remedy is proportionate — the insurer may adjust the premium, adjust the terms, or avoid the policy, depending on what it would have done had it known the truth; (iii) where the consumer took reasonable care (innocent misrepresentation), the misrepresentation does not constitute a qualifying misrepresentation and the insurer must meet the claim in full. A misrepresentation is only a 'qualifying misrepresentation' if the insurer shows it would not have entered the contract, or would have done so on different terms (s.4(1)). The Act applies only to consumer insurance contracts (as defined in s.1 — contracts of insurance entered into by individuals wholly or mainly for purposes unrelated to the individual's trade, business, or profession).

Key Points

• Consumer's duty (s.2(2)) — a consumer must take reasonable care not to make a misrepresentation to the insurer before the contract is entered into; this replaces the old duty to volunteer all material facts; whether reasonable care was taken is to be judged against what could reasonably be expected of a reasonable consumer
• No duty to volunteer information (s.2(4)) — a consumer insurance contract is not a contract of utmost good faith in the traditional sense; a consumer is not required to volunteer information that was not requested, and any duty of disclosure that might otherwise exist does not apply
• Qualifying misrepresentation (s.4) — a misrepresentation is only a qualifying misrepresentation (giving rise to a remedy) if the insurer shows that it would not have entered the contract on any terms or would have done so only on different terms if the consumer had complied with the duty; the insurer must establish the connection between the misrepresentation and its decision
• Deliberate or reckless misrepresentation (Schedule 1, Part 1) — where the insurer shows the qualifying misrepresentation was deliberate or reckless (the consumer knew it was untrue or misleading or did not care whether it was), the insurer may avoid the contract, refuse all claims, and keep any premiums paid
• Careless misrepresentation (Schedule 1, Part 2) — where the misrepresentation was not deliberate or reckless but was a qualifying misrepresentation, the remedy is proportionate: if the insurer would not have entered the contract on any terms, it may avoid and return premiums; if it would have entered on different terms, it may treat the contract as if those terms applied; if it would have charged a higher premium, it may reduce the claim proportionately
• Innocent misrepresentation — where a consumer took reasonable care and the misrepresentation does not constitute a qualifying misrepresentation, the insurer cannot rely on it; the consumer retains full cover and is entitled to payment of the claim in full
• Consumer definition (s.1) — the Act applies only to consumer insurance contracts: contracts of insurance entered into by an individual wholly or mainly for purposes unrelated to the individual's trade, business, or profession; business insurance is governed by the Insurance Act 2015
• Warranties and representations (s.6) — a statement made by the consumer in connection with a consumer insurance contract may be converted into a warranty only if the consumer clearly agrees that the accuracy of the statement is to be a condition of the contract; the Act restricts the use of 'basis of the contract' clauses which had converted all representations into warranties

Parts & Sections

Amendments History

Frequently asked questions

Do I have to tell my insurer everything I know before buying insurance?

Under the Consumer Insurance (Disclosure and Representations) Act 2012, consumers are not required to volunteer information that the insurer has not specifically asked about. The Act replaced the previous duty of utmost good faith, which required voluntary disclosure of all material facts. Instead, the consumer's obligation is limited to taking reasonable care not to make a misrepresentation to the insurer before the contract is entered into.

Does this law apply to business insurance policies?

The Act applies only to consumer insurance contracts. These are defined as contracts entered into by an individual wholly or mainly for purposes unrelated to their trade, business, or profession. Business insurance is not covered by this specific Act and is instead governed by the Insurance Act 2015, which implements similar proportionate remedy principles for non-consumer contracts.

What happens if I deliberately lie on my insurance application?

If a misrepresentation is found to be deliberate or reckless, the insurer may avoid the contract and refuse all claims. They are generally not required to return premiums paid, unless it would be unfair to the consumer to retain them. This is the most severe remedy available under the Act for such conduct.

Can my insurer reject a claim if I made an honest mistake?

If a consumer took reasonable care and made an innocent misrepresentation, it does not constitute a qualifying misrepresentation. In this scenario, the insurer cannot rely on the error and must meet the claim in full. The consumer retains full cover because they did not act deliberately, recklessly, or carelessly in a way that affected the insurer's decision.

What can an insurer do if I make a careless mistake on my form?

For a careless misrepresentation, the remedy is proportionate. The insurer may avoid the contract and return premiums, treat the contract as if different terms applied, or reduce the claim amount proportionately. The specific remedy depends on what the insurer would have done had it known the truth, such as charging a higher premium or refusing the contract entirely.