11.3 Consumer Rights and CIDRA 2012

The Consumer Rights Act 2015

The Consumer Rights Act 2015 (CRA 2015) is the principal statute governing consumer contracts in the UK. It consolidates and replaces earlier legislation on unfair contract terms and consumer protection. Two of its provisions are most relevant to insurance.

Unfair Terms

A term in a consumer contract is unfair if, contrary to the requirement of good faith, it causes a significant imbalance between the parties to the detriment of the consumer. An unfair term is not binding on the consumer, although the rest of the contract continues so far as it is capable. The test of fairness takes into account:

• the nature of the subject matter of the term;
• the circumstances existing when the term was agreed; and
• whether the term was individually negotiated or drafted by the business.

In insurance, the unfair terms provisions bite on terms that, for example, exclude cover in surprising ways, allow the insurer unilaterally to vary terms without good reason, or impose disproportionate penalties on the consumer. The CRA 2015 largely excludes the core price and subject matter terms from fairness assessment provided they are transparent and prominent — that is, the consumer can actually see and understand them.

Transparency

The CRA 2015 imposes a transparency requirement: consumer terms must be drafted in plain, intelligible language, and a term that is not transparent cannot benefit from the exclusion for core terms. This dovetails with the FCA's ICOBS product information rules and the Consumer Duty's consumer understanding outcome: an insurance term that is opaque or buried is both a regulatory and a statutory problem.

Exam trap: Insurance contracts are not exempt from the CRA 2015 in the way they are partly exempt from the unfair terms provisions of the Unfair Contract Terms Act 1977. The CRA 2015 is the current statute for consumer insurance terms. Do not conflate the two statutes.

CIDRA 2012 — The Consumer Insurance (Disclosure and Representations) Act

The Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) fundamentally reformed the consumer's pre-contract duties. Before CIDRA, consumers owed the insurer a duty of utmost good faith (uberrimae fidei), including a duty of full disclosure of all material circumstances and a duty not to misrepresent. CIDRA replaced that with a lower, modernised duty for consumers only (business insurance remains governed by the Insurance Act 2015, covered in Chapter 6).

The Consumer's Duty

Under CIDRA, the consumer owes the insurer a duty to take reasonable care not to make a misrepresentation. There is no duty of full disclosure: the consumer does not have to volunteer every material circumstance. The insurer is expected to ask clear questions, and the consumer must answer them honestly and with reasonable care. The standard of "reasonable care" is assessed by reference to all the relevant circumstances, including the type of policy, the clarity of the insurer's questions, the consumer's knowledge and experience, and whether the insurer emphasised the importance of the answer.

Remedies for a Qualifying Misrepresentation

If the consumer has made a qualifying misrepresentation (one that is material — it would have influenced the insurer's decision on whether to take the risk and on what terms), the insurer's remedy depends on the consumer's state of mind. CIDRA distinguishes three categories:

Worked example (careless): A consumer understates their claims history. The insurer proves that, with the true history, it would have charged a premium of £1,200 rather than the £600 charged. The claim is reduced by the premium ratio: the insurer pays £600 / £1,200 = 50% of the otherwise payable claim. If instead the insurer proves it would have declined outright, the claim is paid at 0% (the contract is avoided) and the premium must be returned.

Interaction with Chapter 6

Chapter 6 covers the Insurance Act 2015 and CIDRA from the contract-law perspective (utmost good faith, misrepresentation, non-disclosure and warranties). This chapter focuses on the consumer-protection angle: CIDRA is part of the statutory architecture that protects consumers in insurance contracts, sitting alongside the Consumer Rights Act 2015 and the FCA's conduct rules. The two perspectives are consistent — CIDRA replaces the harsh common-law duty of full disclosure for consumers with a graded, state-of-mind-based regime that prevents insurers from avoiding policies on technicalities for honest mistakes.

The Contracts (Rights of Third Parties) Act 1999

The Contracts (Rights of Third Parties) Act 1999 modified the common-law privity of contract rule, under which only the parties to a contract could enforce it. Under the 1999 Act, a third party may enforce a contract term in its own right if:

• the contract expressly provides that they may; or
• the term purports to confer a benefit on them and, on the proper construction of the contract, the parties intended the term to be enforceable by the third party.

In insurance, this matters most for liability insurance. A liability policy exists to protect the insured against claims by third parties, and the third party (the injured claimant) may in certain circumstances rely on the 1999 Act to enforce the policy directly against the insurer — for example, where the policy expressly permits it. In practice, most commercial liability policies limit or exclude the 1999 Act and rely instead on the separate statutory route in the Third Parties (Rights Against Insurers) Act 2010, which allows a third party who has obtained a judgment against an insured to proceed directly against the insurer once the insured's insolvency is established. The 1999 Act is nonetheless on the list of Acts of Parliament that candidates are expected to know, and is the standard answer where a question asks how a third party beneficiary can enforce an insurance term.

Key Takeaways

• The Consumer Rights Act 2015 governs unfair terms in consumer contracts: a term causing a significant imbalance to the consumer's detriment is unfair and not binding, and terms must be transparent (plain, intelligible language) and prominent.
• CIDRA 2012 replaced the consumer's duty of full disclosure with a duty to take reasonable care not to make a misrepresentation; there is no duty of full disclosure for consumer insurance.
• A deliberate or reckless misrepresentation allows the insurer to treat the contract as if it never existed (avoid) and refuse the claim, with no obligation to return the premium in some cases.
• A careless misrepresentation gives proportionate damages: if the insurer would have declined, the claim is avoided and the premium returned; if it would have charged more, the claim is reduced by the premium ratio.
• The Contracts (Rights of Third Parties) Act 1999 modifies privity so a third party can enforce an insurance term where the contract so provides, important for liability insurance beneficiaries (though most commercial liability policies limit the Act and rely on the 2010 Act).