The Insurance Disputes Law Review: Ireland
Ireland is a common law jurisdiction, and the law governing insurance disputes is derived from statute and case law. There has been a divergence between Irish and UK insurance law in many areas since the implementation of the UK Insurance Act 2015. The Consumer Insurance Contracts Bill 2017 (the 2017 Bill) contains proposals that, if enacted, will re-align Irish and UK insurance legislation in a number of areas including warranties and the pre-contractual duty of good faith, however. At the time of writing, the 2017 Bill is at the third stage of review before the Irish Parliament and there is no clear timeline for its implementation, with a recent report from the Department of Finance noting that while the 2017 Bill's progression is in the interests of consumers, it would benefit from further stakeholder consultation and a cost–benefit analysis prior to its progression.
Litigation is still the most consistent avenue for pursuing insurance disputes in Ireland, but in recent years there has been an increase in the use of alternative dispute resolution mechanisms such as mediation and arbitration. This is reflected by the introduction of the Mediation Act 2017, which requires solicitors to advise their clients of the availability of mediation and entitles courts to stay proceedings to encourage the parties to mediate.
In recent years there has been an increase in insurance regulation and consumer protection measures as reflected in the introduction of the Consumer Protection Code 2012, the Financial Services and Pensions Ombudsman Act 2018, and the implementation of the Insurance Distribution Directive in October 2018.
There is also an increased use of technology in the insurance industry, as well as by insureds, which presents opportunities and challenges for insurers and insureds. In the next year, we expect to see a continued increase both in Irish companies either taking out cyber cover or increasing the limits of their existing cover, and in related coverage disputes. Cloud computing is gaining prominence within the insurance sector and increasing talent and infrastructure in this area will continue to be a key focus until the end of 2019 and beyond. In the next few years, as reliance on data from connected devices increases in the insurance sector's decision-making processes, we anticipate litigation from insureds challenging the claims decisions made by automated claims-processing systems. Litigation is also expected to increase regarding the interpretation of specific articles of the General Data Protection Regulation, and in particular, those that confer rights on individuals in relation to automated decision-making and claims for non-material loss.
The Insurance (Amendment) Act 2018, which came into force in July 2018, amends and extends the law in Ireland relating to insolvent insurers.
As the likelihood of a 'no-deal' or 'hard' Brexit mounts, it is anticipated that the amount of insurance activity in Ireland will continue to rise. It is of particular note that although the lack of clarity in respect of the UK's position post-Brexit has in the short term inhibited insurance mergers and acquisitions activity in the first half of 2019, we expect the contemplated transactions that have been put on hold will take place in the final quarter of 2019 and into 2020 as the post-Brexit economic position becomes clearer.
The legal framework
i Sources of insurance law and regulation
Ireland is a common law jurisdiction, and the law in relation to insurance disputes is primarily governed by common law principles, the origins of which can be found in case law.
The Marine Insurance Act 1906 remains the most recent codification of the general principles of insurance law applicable in Ireland. There is no Irish equivalent of the UK Insurance Act 2015, and since its introduction there has been a divergence between the United Kingdom and Ireland in certain areas. Although, the 2017 Bill seeks to make a number of reforms to the area of consumer insurance law (discussed below), which are in line with the UK Insurance Act 2015, it remains to be seen whether this Bill we be enacted in its current form.
In general terms, insurers retain significant freedom of contract; however, this has been curtailed in recent years by Ireland's enactment of legislation to comply with EU law. In particular, consumer protection law has undergone a number of changes as a result of the Unfair Terms in Consumer Contracts Directive 1993/13/EC and the Distance Marketing of Financial Services Directive 2002/65/EC.
Insurers must take care to comply with the Central Bank of Ireland Consumer Protection Code 2012 (CPC2012) and the Consumer Protection Act 2007 when dealing with a consumer. The term 'consumer' is defined quite broadly under CPC2012, as including individuals and small businesses with a turnover of less than €3 million (provided that these persons are not a member of a group having a combined turnover greater than €3 million). Insurers must also ensure that insurance contracts are compliant with the terms of the Sale of Goods and Supply of Services Act 1980.
A number of forms of insurance are compulsory under statute in Ireland, including third-party motor insurance, professional indemnity cover for insurance and reinsurance intermediaries, and professional indemnity cover for certain other professionals (e.g., lawyers and medical practitioners).
ii Key developments
Apart from the changes to Irish law to transpose EU legislation, there have been very few legislative amendments in insurance law in the past year. The most relevant amendments are set out below.
The EU (Insurance Distribution) Regulations 2018
The EU (Insurance Distribution) Regulations 2018 (the IDD Regulations) became law on 27 June 2018, transposing the EU Insurance Distribution Directive (IDD). The implementation of the IDD Regulations was postponed until 1 October 2018 to provide the insurance industry with additional time to put in place the necessary organisational and technical changes required to ensure compliance. Most recently, the EU (Insurance Distribution) (Amendment) Regulations 2018 were introduced, which made minor amendments to the IDD Regulations.
The IDD regulations introduced a number of key changes and concepts in respect of insurance distribution. For example, under the IDD regulations, undertakings and insurance intermediaries (but not ancillary intermediaries) must provide an assessment of suitability when providing advice on certain offerings. They must carry out an appropriateness assessment relating to sales where no advice is given, such as for execution-only sales.
Additionally, the the IDD introduces the requirement to prepare and provide customers with an insurance product information document (IPID). Insurance distributors must, prior to the conclusion of a contract, and irrespective of whether any advice is given and whether the product forms part of a package, provide relevant information about the product in a comprehensive form, aiming to facilitate consumers in making informed decisions about which product is most suitable for them. The European Commission has prescribed detailed requirements relating to the content, design, structure and format of the IPID.
The Central Bank (Amendment) Bill 2019
In June 2019, the Department of Finance received government approval to draft the heads of the Central Bank (Amendment) Bill 2019 (the 2019 Bill) for the proposed Senior Executive Accountability Regime (SEAR). It is proposed that SEAR will be applied to a subset of regulated entities, such as insurance undertakings, where role-related 'prescribed mandatory responsibilities', to be set out by the Central Bank of Ireland (CBI), will be attached to certain executive roles within an organisation. This will be a risk-based approach, effectively making certain key executives responsible for certain risks within the organisation. The purpose of this approach is to make individual executives more accountable for their responsibilities. To achieve the desired effect of the 2019 Bill, each individual carrying out a function whereby they would be responsible for a relevant risk identified by the CBI will be required to complete a 'statement of responsibilities', which clearly sets out the role they are undertaking and their responsibilities within this role. It is expected that the draft heads of the 2019 Bill will be published in the fourth quarter of 2019 and that the Bill will be drafted in close consultation with the Attorney General, before a public consultation process is carried out on the new regime.
The Judicial Council Act 2019
The Judicial Council Act 2019 (the 2019 Act) was signed into law on 23 July 2019, but is yet to commence. The 2019 Act provides for the establishment of the Judicial Council, which will be a body comprised of the entire Irish judiciary, regardless of the court in which they sit. The Council will be responsible for the establishment of the Personal Injuries Guidelines Committee (PIGC), which will carry out certain of the Council's functions. The Council's functions (primarily acting through the PIGC) will be to progress and periodically review guidelines for assessing general damages for personal injuries, to provide education for the judiciary, to review sentencing guidelines and promote public confidence in the judiciary, as well as other matters. The PIGC may also offer guidance on matters such as the range of damages to be considered for a personal injury. The establishment of the PIGC and it carrying out of its functions aim to address the elevated levels of damages awarded in personal injuries cases before the Irish courts in comparison with those in other jurisdictions, an issue that has received significant media attention, particularly in the context of the impact these damages have on insurance premiums in Ireland.
The proposed directive on representative actions for the protection of collective interests of consumers
On 26 March 2019, the European Parliament approved an amended version of the European Commission's proposal for a directive on representative actions for the protection of collective interests of consumers. This amended version aims to address concerns with the original text identified by the European Parliament, including protecting against frivolous litigation and avoiding overlapping claims. The proposed directive will become law once the Council and the European Parliament reach an agreement on the European Commission's proposal.
Should the Council and the European Parliament reach agreement, the directive will require Member States to implement collective redress mechanisms for violations of specifically designated parts of EU consumer protection law. The draft directive aims to enable qualified representative entities protecting the interests of consumer groups to initiate legal action to obtain a remedy (including monetary compensation) for an infringement of EU consumer protection laws by traders, including insurers.
The draft directive, if enacted, will fundamentally change the landscape of enforcement of European consumer protection law. It is worth noting that several Member States already allow for certain collective redress mechanisms, whereas this is not currently the case in Ireland.
The 2017 Bill
The 2017 Bill seeks to make a number of reforms in the area of consumer insurance law. The 2017 Bill is based on recommendations contained in a report by the Law Reform Commission in its report of Consumer Insurance Contracts 2015. The proposed legislation changes are similar to those enacted in the UK Insurance Act 2015.
The 2017 Bill will apply to consumer insurance contracts only. One of the most significant reforms contained in the 2017 Bill is the recommendation that the existing pre-contractual duty of good faith be abolished and replaced with a statutory duty to answer carefully and honestly specific questions posed by an insurer that identify the material risks and relevant information actually relied on by the insurer.
The 2017 Bill also proposes the abolition of the concept of warranties in insurance contracts and their replacement with suspensive conditions, that is, on breach of the condition, the insurer's liability is suspended for the duration of the breach, but if the breach has been remedied by the time that a loss has occurred, the insurer must (in the absence of any other disclosure) pay any claim made.
Finally, the 2017 Bill introduces proportionate remedies where a consumer's non-disclosure, misrepresentation or other breach of contract is innocent or a result of negligence and will allow the insured to claim damages for late payment of claims by insurers.
As stated above, there is currently no clear timeline for implementation of the Bill.
iii Applicable legal principles
Essential elements of an insurance contract
Irish insurance contracts are governed by common law, contract law and the principle of utmost good faith. There is no statutory definition of an insurance contract in Irish law, and legislation does not specify the essential legal elements of an insurance contract. The courts have considered it on a case-by-case basis, and the common law definition of an insurance contract is of persuasive authority in Ireland (as set out in Prudential Assurance v. Inland Revenue).
The leading Irish case of International Commercial Bank plc v. Insurance Corporation of Ireland plc sets out the main characteristics of an insurance contract, which are as follows:
- the insured must have an insurable interest in the subject matter of the insurance policy;
- there must be payment of a premium;
- in the event of the occurrence of the insured risk, the insurer undertakes to pay the insured party;
- the risk must be clearly specified;
- the insurer will indemnify the insured against any actual loss; and
- the principle of subrogation applies, where appropriate.
One of the most recognisable aspects of insurance law is the concept of insurable interest. The seminal case of Lucena v. Crauford held that an insurable interest was a 'right in the property, or a right derivable out of some contract about the property which in either case may be lost upon some contingency affecting the possession or enjoyment of the property'. While this definition has been widened in recent years, this remains the basic definition. Under Irish law, there is no fixed definition of insurable interest; however, generally speaking, it is accepted that the 'insured must have a relationship of proximity to the risk and must also have an economic interest'. This means that if a policyholder has no such insurable interest, then there is no loss for an insurer to indemnify. The Marine Insurance Act only addresses insurable interest in relation to marine insurance. The Life Assurance Act 1774, which was applied to Ireland by the Life Insurance (Ireland) Act 1866, brought the necessity of insurable interest into life assurance policies.
In the United Kingdom there has been much debate surrounding the ever-changing nature of insurable interest, especially between the 'legal interest' test and the wider 'factual expectation' test. In PJ Carrigan Ltd and Carrigan v. Norwich Union Fire Society Ltd, the Irish High Court expressed its preference for the wider 'factual expectation' test. Almost identically to UK law, Irish insurance law has posited that any insurance contract that resembles a wager or gambling is contrary to public policy and should therefore be illegal.
It is worth noting that Section 5 of the Consumer Insurance Contracts Bill 2017 (which is still draft legislation) provides that an insurer cannot reject an insurance contract with a consumer that would otherwise be valid on the grounds that the insured does not have an insurable interest.
Insurers are entitled to bring subrogated claims on behalf of their insured in cases where the insurer has paid out fully on a claim and seeks to claim these costs back from the true wrongdoer.
Utmost good faith, disclosure and representations
Parties to Irish insurance contracts are subject to a duty of utmost good faith, which imposes a duty on the insured to disclose all material facts before inception or renewal. A material fact is one that would influence the judgment of a prudent underwriter in deciding whether to underwrite the contract, or the terms on which it might do so (e.g., the premium).
The duty goes beyond a duty to answer questions on a proposal form correctly; however, the Irish courts have determined the questions on the proposal form will inform the duty. The remedy for breach is avoidance.
Misrepresentation is closely related, and attracts the same remedy. Misrepresentations can be fraudulent, reckless or innocent. The common law position is that a misrepresentation is fraudulent if it is made with knowledge of its falsity, without belief it was true, or with reckless disregard as to whether it was true or false.
In practice, many Irish insurance policies contain 'innocent non-disclosure' clauses that prevent the insurer from avoiding the policy on the basis of innocent non-disclosure or innocent misrepresentation.
The 2017 Bill proposes replacing the duty of disclosure with a duty to answer specific questions honestly and with reasonable care. There would then be no duty to provide additional information on renewal unless specifically requested by the insurer.
The 2017 Bill proposes that for innocent or negligent non-disclosure or misrepresentation, the principal remedy should be to adjust the payment of the claim taking account of the carelessness of the insured and whether the breach in question affected the risk. The Bill retains avoidance as a remedy for fraudulent breaches on public policy grounds.
iv Fora and dispute resolution mechanisms
In Ireland, the jurisdiction in which court proceedings are brought will depend on the monetary value of the claim. The District Court deals with claims up to a monetary value of €15,000, the Circuit Court deals with claims with a monetary value up to €75,000 (€60,000 for personal injury cases) and claims in excess of this are heard by the High Court. The High Court has an unlimited monetary jurisdiction.
The High Court also has a specialist division, the Commercial Court, that deals exclusively with commercial disputes. Insurance and reinsurance disputes can be heard in the Commercial Court if the monetary value of the claim or counterclaim exceeds €1 million and the Court considers that the dispute is inherently commercial in nature. Insurance disputes before the courts in Ireland are heard by a single judge and there is no jury.
Proceedings in the Commercial Court normally move at a much quicker pace as proceedings are case managed. Depending on the time required for the hearing, the length of time from entry to the Commercial Court list to hearing generally takes between one week and six months. Entry to the list is at the discretion of the judge and entry may be refused if there has been any delay. A strong emphasis is placed on alternative dispute resolution and the Commercial Court Rules provide for up to a four-week stay of proceedings to allow the parties to consider mediation.
A new court of appeal was established in 2014 to deal with appeals from the High Court. The court of appeal hears appeals from the High Court except when the Supreme Court believes a case is of such public importance that it should go directly to the highest court in the state.
Alternative dispute resolution
Insurance disputes may also be dealt with by way of alternative dispute resolution (ADR) and it is common for insurance contracts to require disputes to be determined by ADR. Mediation and arbitration are the most common forms of ADR used in Ireland.
Since 1 January 2018, the Mediation Act 2017 has required solicitors in Ireland to advise their clients of the merits of mediation as an ADR mechanism before issuing proceedings in court. The Mediation Act also requires the solicitor to swear a statutory declaration confirming that they have advised their clients on the benefits of mediation. This declaration is in turn filed with the originating document in the relevant court office.
Following the introduction of the Mediation Act, any court may adjourn legal proceedings on application by either party or of its own initiative, to allow the parties to engage in mediation. Failure by either party to engage in ADR following such a direction can result in the party being penalised in relation to costs.
In Ireland, the law on arbitration is codified in the Arbitration Act 2010 (the 2010 Act), which incorporates the UNCITRAL Model Law on International Commercial Arbitration. The arbitrator's decision is binding on the parties and there is no means of appeal. Where parties have entered into a valid arbitration agreement the courts are obliged to stay proceedings. Ireland is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, allowing Irish arbitral awards to be enforced in any of the 157 countries party to the Convention.
Any dispute that arises under any insurance or reinsurance contract that contains an arbitration clause must be referred for arbitration. However, there is an exception for consumers, who are not bound by an arbitration clause in an insurance policy where the claim is less than €5,000 and the relevant policy has not been individually negotiated.
The High Court has powers to grant interim measures of protection and assistance in the taking of evidence, though most interim measures may now also be granted by the arbitral tribunal under the 2010 Act. Once an arbitrator is appointed and the parties agree to refer their dispute for the arbitrator's decision, then the jurisdiction for the dispute effectively passes from the court to the arbitrator.
While an arbitral award can be set aside by the court under Article 34 of the 2010 Act, the grounds on which this can be done are extremely limited, and the party will need to furnish proof that:
- a party to the arbitration agreement was under some incapacity or the agreement itself was invalid;
- the party making the application was not given proper notice of the appointment of the arbitrator or the arbitral proceedings or was otherwise unable to present his or her case;
- the award deals with a dispute not falling within the ambit of the arbitration agreement;
- the arbitral tribunal was not properly constituted; or
- the award is in conflict with the public policy of the state.
While arbitration will incur additional costs, such as the arbitrator's fees and venue hire, it has the benefit of confidentiality, which may be attractive to the parties to the dispute.
The Financial Services and Pensions Ombudsman
The Financial Services and Pensions Ombudsman (FSPO) is the amalgamation of the Financial Services Ombudsman and the Pensions Ombudsman, pursuant to the Financial Services and Ombudsman Act 2017. Th FSPO is an independent body established for the purposes of resolving disputes between consumers and financial services or pensions providers (including insurers and brokers) either informally through mediation or by way of formal investigation. The FSPO's decisions are legally binding, with a right of appeal to the High Court. If a complaint is upheld, the FSPO can direct the provider to pay compensation of up to €500,000 to the consumer or may direct the provider to rectify or correct the issue. Decisions are published on the FSPO's website on an anonymous basis. The FSPO's 'Overview of Complaints 2018' highlights that some 1,843 complaints received by the FSPO in 2018 related to the insurance sector, the second highest number by sector. Exercising its powers under the Financial Services and Ombudsman Act 2017, the FSPO published 228 binding decisions it had issued during 2018. In respect of the insurance sector, these decisions related to a wide variety of matters and products, including administration of a whole life policy, processing of a motor insurance claim, mobile phone insurance claims and claims relating to automatic renewal of travel insurance.
i Insured's obligation to provide material information on standard forms
In Kirby v. Friends First Life Assurance Company Limited, a case concerning non-disclosure of material facts in the context of an income protection policy, the High Court rejected the argument that the shortness of the application form relieved the insured of the obligation to provide material information and found that the defendant insurance company was entitled to repudiate the policy because the plaintiff had failed to furnish information concerning his medical history.
The High Court considered that from a practical viewpoint, an applicant could provide an additional sheet containing the relevant details or indicate that there are additional details that could be provided upon request. In assessing whether there was, from an objective viewpoint, a non-disclosure of material information, the Court confirmed that the appropriate test was whether the information would have reasonably affected the mind of a prudent insurer in determining whether it would accept the insurance risk and if so, on what conditions. The Court ruled that there was a material non-disclosure that did not fall within any of the exceptional situations referred to in relevant authorities and therefore found in favour of the defendant.
ii The cost of coming off record where cover is declined
Levingstone v. O'Leary & Ors involved an application by a firm of solicitors seeking liberty to come off record for a defendant where its insurers had repudiated cover and the solicitors were instructed by the insurers. Cover was declined in 2018 on the basis of breach of a claims cooperation condition that was a condition precedent to cover and for which the solicitors had repeatedly sought unsuccessfully to engage with the insured on the defence since 2012.
The High Court noted the generally accepted view of the courts that they should not place a solicitor and client into a 'forced form of liaison'. While the Court allowed the firm of solicitors to come off record, the Court found that it should not have taken close to six years for the insurance company to deny coverage, and that this amounted to an excessive delay on the part of the insurer. Consequently the Court directed the insurer to pay the costs of the application and also the costs incurred by the plaintiff after a certain date (linked to the delay the Court determined as excessive) in processing the firm of solicitors' claim against Mr O'Leary.
The international arena
Choice of forum, venue and applicable law clauses in an insurance contract are generally recognised and enforced. However, where the insured resides in an EU Member State, the Brussels I Regulation, Recast Brussels Regulation and Rome I Regulation may limit the application of these clauses.
ii Recognition and enforcement procedures
For judgments that fall under the Brussels I Regulation and the Lugano Convention, it is relatively straightforward to secure recognition and enforcement of foreign judgments, provided that the judgment is not within the recognised grounds for refusal.
For judgments to be enforced at common law (i.e., not one subject to the Brussels Regime or the Lugano Convention), the courts have discretion whether to recognise such a foreign judgment. However, as a general principle, and on the basis of respect and comity between international courts, the approach of the Irish courts to proceedings seeking recognition and enforcement is generally positive, provided the judgment is for a definite sum, is final and conclusive, and has been given by a court of competent jurisdiction (albeit there are other criteria, by reference to which recognition and enforcement may be challenged).
Trends and outlook
It is not possible to comment on trends and the outlook for 2020 without mentioning Brexit. The triggering of Article 50 by the UK government confirmed that the United Kingdom will leave the European Union. It was intended that this exit would take place in March 2019; however, following an extension to the original time frame, it is now due to take place in October 2019. Because of the continued uncertainty surrounding the United Kingdom's trading conditions with the EU post-Brexit, a number of financial services companies are establishing subsidiaries or even headquarters in one of the remaining 27 EU Member States. Loss of access to the single market or EU passporting rights would be highly undesirable for these companies. Ireland, with its well-known prudential regulation, highly educated English-speaking workforce, common law jurisdiction (with a fast-track Commercial Court) and its proximity to the United Kingdom is regarded as somewhat of a hub for the insurance industry. As the likelihood of a 'no-deal' or 'hard' Brexit mounts, it is anticipated that the amount of insurance work passing through this jurisdiction will continue to rise.
It is of significant relevance for UK firms and branches of UK entities considering re-establishing themselves in Ireland in anticipation of Brexit that authorisation and ongoing supervision of such entities (and certain of their key executives) will be carried out by the CBI. Where such entities are seeking to establish themselves in Ireland, they must comply with, inter alia, the Corporate Governance Requirements for Insurance Undertakings 2015, the Corporate Governance Requirements for Captive Insurance and Reinsurance Undertakings 2015, the Consumer Protection Code 2012 and the Minimum Competency Code 2012.
ii Cyber, General Data Protection Regulation and related data issues
The introduction of the General Data Protection Regulation (GDPR), which came into force on 25 May 2018, has raised data protection to a board-level issue, as companies now face potentially vast fines in the event of an infringement of the GDPR. This level of focus has also led to an increase in the take-up of cyber insurance policies and it is anticipated that this market will continue to grow. Data protection and processing in Ireland is governed primarily by the Data Protection Acts 1988 to 2018, the GDPR (which has enhanced data subject rights and transparency, provided for greater penalties for breach of relevant obligations, and extraterritorial effect in certain circumstances) and by guidance issued by the Irish Data Protection Commission (DPC).
The administrative penalties regime provided for by the GDPR allows for the imposition of very significant fines and, given the large global turnover of entities falling within the DPC's remit, it is only a matter of time before large fines are imposed by the DPC. Certain insurance policies exclude fines and penalties from cover, but other policies cover fines and penalties imposed 'to the extent insurable by law'. The 2018 Act is silent on this point and the question of whether GDPR fines are insurable in Ireland remains uncertain. The GDPR provides that fines must be effective and proportionate, as well as dissuasive (i.e., designed to 'dissuade' companies from infringing their data protection obligations). The doctrine of ex turpi causa prevents a claimant from pursuing legal remedies to recover or benefit from their own illegal acts. Public policy would be undermined if one could simply take out insurance against the imposition of all fines intended to be dissuasive and to act as a deterrent against breaching one's legal obligations. Recent English case law on this doctrine suggests that some level of moral turpitude is required and consequently there could be a sliding scale of insurability, with criminal or quasi-criminal fines likely to be uninsurable. The issue of insurability will be an important one to be considered by the Irish courts in the future.
Article 82(1) of the GDPR also provides a new remedy for a person who has suffered material or non-material damage as a result of an infringement of the GDPR, including a right to compensation, and it can be expected there will be an increase in claims for non-material damage in the future.
iii Warranty and indemnity insurance
Warranty and indemnity insurance protects against losses incurred as a result of a breach of warranties or indemnities and is becoming increasingly popular as a risk transfer mechanism in merger and acquisition transactions. These bespoke policies can be designed to indemnify either the seller or buyer, depending on who seeks to benefit from the policy, but buy-side policies tend to be more common, providing protection for the buyer and facilitating a seller's desire for a clean exit. We anticipate continued growth in this area in 2020.