Redefining the role of the intermediary?

In their ongoing review of insurance contract law, the Scottish and English Law Commissions have now turned their attention to the role of intermediaries and pre-contract information, publishing their proposals at the end of March in their third Issues Paper.

One of their overriding concerns is that the role of the intermediary is not clear to consumers. What happens, for example, if an intermediary gives bad advice, or acts fraudulently, leading to a misrepresentation or non-disclosure? Against whom does the customer then have a right of recourse?

To alleviate the confusion, the Law Commissions have suggested that intermediaries, at least in the fields of consumer and "small business" insurance, should be deemed to be the agents of the insurer.

Then, in the event of a misrepresentation or non-disclosure that was the intermediary's fault, the insurer would be responsible, rather than leaving their policyholder to bring a professional negligence action against the intermediary.

The Commissions have made clear that the proposals are aimed at those intermediaries who are effectively "tied" to one or more insurers and only offer products from this limited range of providers.

Intermediaries who genuinely perform an analysis of the entire market when placing business will not be covered by these proposals.

One of the most controversial elements in the proposals is the suggestion that an insured's signature on a proposal form should not be binding, where the intermediary has completed it on the insured's behalf but made negligent or fraudulent mistakes.

This seems both dangerous, and to flout the cornerstone of general contract law, where the parol evidence rule presumes that the written contract embodies the complete agreement between the parties.

If the proposal is introduced into insurance contract law alone, it is sure to spread into general contract law with potentially grave consequences for all contracting parties.

While seeking to address the perceived problems with the role of intermediaries, it must be asked whether the area would not be better dealt with through regulation of defined roles of intermediaries rather than legal reform.

The Law Commissions will be releasing their first Consultation Paper, which will summarise their final recommendations drawn from responses to the first three Issues Papers, this Summer.

- Richard Evans, partner, and Tom Watkinson, solicitor, Policy coverage unit, Beachcroft LLP.