Scottish Law Commission joint reports
An important part of the work of the Scottish Law Commission involves close co-operation with the Law Commission in England and Wales. The Commissions have recently published joint reports on consumer insurance and Consumer Insurance Law: Pre-contract Disclosure and Misrepresentation (Scot Law Com no 219); and Consumer Remedies for Faulty Goods (Scot law Com no 216).
The latter was prepared in response to a reference from the Department for Business, Innovation and Skills (formerly the Department for Business, Enterprise and Regulatory Reform) which asked both Commissions to look at simplifying the remedies which are available to consumers when they purchase goods which do not conform to contract, against the background of a proposed new consumer rights diorective from the European Commission published in Ocober 2008. The current law is in two spearate regimes. Under traditional domestic law, consumers are entitled to reject the goods and receive a full refund ("the right to reject"), provided they act within "a reasonable time". This has been supplemented by the European 1999 Consumer Sales Directive, which states that consumers are entitled to a repair or replacement (or if the retailer is unable to repair or replace the goods in a reasonable time or without significant inconvenience the consumer may seek rescission of the contract or a reduction in price.
The joint Report makes recommendations on consumer remedies, in the light of the proposed directive summarised by the SLC as follows,
"recommend the retention of the right to reject; a normal period of 30 days for the right to reject to last; an entitlement to ask for a refund or price reduction after one failed repair or one failed replacement; retention of the protection for consumers who purchase goods with minor defects; the abolition of deduction for use in relation to rescission; and that the time limits for bringing claims should continue to be those which apply to general contractual claims."
The Commissions' joint work on insurance is a substantial undertaking – and the report on pre-contractual issues in consumer insurance published on 15th December is the first of a planned series of reports. The current law requires consumers to volunteer information about everything which a prudent insurer would consider relevant. A failure to do so allows the insurer to avoid the insurance contract refusing any claims under the policy.
The SLC summarises the reports as follows :
"The Commissions recommend that the consumer’s duty to volunteer information to the insurer should be abolished. Instead, insurers should be required to ask questions about the things they want to know. Consumers would then have a duty to take reasonable care to answer those questions fully and accurately. If consumers provide information which was not asked for, they must take reasonable care to ensure that it is not misleading.
"Where an insurer has been induced by a misrepresentation to enter into an insurance contract, the insurer’s remedy will depend on the nature of the misrepresentation:
"1.If the misrepresentation was honest and reasonable, the insurer must pay the claim. The consumer is expected to exercise the standard of care of a reasonable consumer, taking into account a range of factors including the type of insurance policy and the clarity of the insurer’s question.
"2.If the misrepresentation was careless, the insurer has a compensatory remedy based upon what the insurer would have done had the consumer taken care to answer the question accurately. If the insurer would have excluded a certain illness, for example, the insurer need not pay claims which would fall within the exclusion but must pay all other claims. If the insurer would have charged more for the policy, it must pay a proportion of the claim.
"3.If the misrepresentation was deliberate or reckless, the insurer may treat the policy as if it never existed and may decline all claims. It would also be entitled to retain the premiums, unless there was a good reason why they should be returned.
"The Commissions’ recommendations reflect the approach already taken by the Financial Ombudsman Service (FOS) and generally accepted good practice within the insurance industry. However, the draft Bill would enshrine this good practice in law. It would make the law simpler and clearer. Insurers would be less likely to turn down claims unfairly and consumers would have greater confidence in the insurance industry."