Consumer Insurance (Disclosure and Representations) Act 2012

The Consumer Insurance (Disclosure and Representations) Act 2012 reformed pre-contractual disclosure in UK consumer insurance, replacing the duty of disclosure derived from the Marine Insurance Act 1906 with a duty to take reasonable care not to make a misrepresentation.

Definition §

The Consumer Insurance (Disclosure and Representations) Act 2012 ("CIDRA 2012" or "the 2012 Act") is the statute that governs pre-contractual duties in UK consumer insurance. It received Royal Assent on 8 March 2012 and came into force on 6 April 2013, applying to all consumer insurance contracts entered into, varied or renewed on or after that date.^[1]

The 2012 Act was the precursor to the Insurance Act 2015 and shared the same Law Commission origin. Its principal effect was to abolish the consumer's duty of disclosure, replacing it with a duty to take reasonable care not to make a misrepresentation to the insurer when entering into a consumer insurance contract. The reform recognised that consumers were typically unable to identify what information might be material to a prudent insurer, and that the pre-existing duty produced disproportionate outcomes when consumers failed to volunteer information they did not know was relevant.^[2]

The 2012 Act applies only to consumer insurance contracts. A consumer insurance contract is defined as a contract of insurance between an individual who enters into the contract wholly or mainly for purposes unrelated to the individual's trade, business or profession and a person who carries on the business of insurance. Non-consumer (commercial) insurance is governed by the Insurance Act 2015.^[3]

Legal / Regulatory basis §

CIDRA 2012 contains the following principal provisions:

• Section 1: definitions, including "consumer" and "consumer insurance contract"
• Section 2: the duty to take reasonable care not to make a misrepresentation
• Section 3: the standard for assessing reasonable care
• Section 4: qualifying misrepresentations and the categories of careless, deliberate and reckless conduct
• Section 5: the bar on contracting out to the consumer's detriment
• Section 6: basis-of-contract clauses (which are made of no effect in consumer insurance)
• Schedule 1: remedies for breach
• Schedule 2: amendments to the Marine Insurance Act 1906 and other consequential changes

Section 2 imposes on the consumer the duty to take reasonable care not to make a misrepresentation to the insurer before the contract is entered into or varied. The duty replaces the pre-existing duty under section 18 of the 1906 Act (which had been applied to consumer insurance through utmost good faith). The consumer no longer has any duty to volunteer information, but must answer the insurer's questions with reasonable care.^[4]

Section 3 provides that whether or not a consumer has taken reasonable care is to be determined in the light of all the relevant circumstances, including the type of consumer insurance contract in question and its target market, any relevant explanatory material or publicity produced or authorised by the insurer, how clear and specific the insurer's questions were, and in the case of a failure to respond to the insurer's questions, how obviously relevant the information requested was. The standard is that of the reasonable consumer.^[5]

Section 4 distinguishes between deliberate or reckless qualifying misrepresentations (where the consumer knew the statement was untrue or misleading or did not care) and careless qualifying misrepresentations (where the consumer breached the section 2 duty without being deliberate or reckless). The remedies for each category are set out in Schedule 1.

Schedule 1 establishes proportionate remedies for careless qualifying misrepresentations: the insurer may treat the contract as if it had been entered into on different terms (where it would have written the risk on different terms), reduce the claim payment proportionately (where it would have charged a higher premium), or avoid the contract with return of premium (where it would have declined the risk). For deliberate or reckless misrepresentations, the insurer may avoid the contract, refuse all claims and retain the premium.^[6]

Section 6 makes basis-of-contract clauses ineffective in consumer insurance: a representation made by the consumer in connection with a proposed consumer insurance contract is not capable of being converted into a warranty by means of any provision of the contract or any other contract. The equivalent reform for non-consumer insurance came in section 9 of the Insurance Act 2015 three years later.^[7]

How it works in practice §

In practice, CIDRA 2012 has reshaped consumer insurance application and renewal processes. Insurers can no longer rely on consumers to volunteer information; they must ask specific, clear questions tailored to the cover being offered. Generic "anything else we should know" questions are unlikely to satisfy the requirement of clarity required by section 3.

When a claim is made and the insurer alleges misrepresentation, the analysis follows three steps. First, was there a misrepresentation? Second, was it a "qualifying" misrepresentation — that is, would the insurer have declined the risk, charged a higher premium or imposed different terms had the true position been disclosed? Third, was the misrepresentation deliberate or reckless, or merely careless?

The Schedule 1 remedies framework is then applied. For careless misrepresentations, the insurer must demonstrate what it would have done with full and accurate information. If it would have refused the risk, it may avoid the contract and return the premium. If it would have charged more, it may reduce the claim payment proportionately. If it would have imposed different terms, the contract is treated as having included those terms. For deliberate or reckless misrepresentations, the insurer may avoid the contract entirely and retain the premium.

The Financial Ombudsman Service applies CIDRA 2012 principles in consumer disputes, often in a more consumer-friendly direction than the strict statutory wording. The FOS considers the consumer's individual circumstances, the clarity of the insurer's questions and the proportionality of the proposed remedy.^[8]

Common variations §

CIDRA 2012 applies uniformly across all classes of consumer insurance — motor, home, travel, life, health, pet and others. However, the practical operation varies by class. In motor insurance, common areas of misrepresentation include declared annual mileage, vehicle modifications, claims history and named drivers. In home insurance, common areas include occupancy, sums insured, security and prior claims. In life and critical illness insurance, medical disclosure is often the central issue.

The Act does not apply to non-consumer insurance, which is governed by the Insurance Act 2015. The distinction between consumer and non-consumer can be important in marginal cases — for example, where an individual buys insurance for a small home-based business. Section 1(2) provides the statutory test based on the purpose of the contract.

For mixed-purpose contracts (where the insurance is partly for consumer and partly for business use), the courts and the FOS apply a "predominant purpose" test, with most case law treating contracts as consumer contracts unless the business purpose is clearly dominant.

Example §

A homeowner applies for buildings insurance online. The proposal form asks "have you made any insurance claims in the last five years?" The homeowner answers "No", having forgotten a £400 burst-pipe claim made three years earlier. A claim arises during the policy period for a major fire loss.

On investigation, the insurer identifies the omitted prior claim. Under section 4, the question is whether this is a qualifying misrepresentation — would the insurer have declined the risk, charged a higher premium or imposed different terms? The insurer's underwriting evidence shows that it would have charged 5 per cent more had the claim been disclosed. The misrepresentation is not deliberate or reckless (the omission was inadvertent), so the careless misrepresentation remedies in Schedule 1 apply. The insurer reduces the fire claim payment proportionately by approximately 5 per cent. It does not have the option to avoid the policy entirely.

If the homeowner had concealed a significant theft claim from the previous year — knowing it would have resulted in a refusal of cover — the analysis would have been different. The insurer could avoid the contract, refuse the fire claim and retain the premium, on the basis of a deliberate or reckless qualifying misrepresentation.

See also §

• /wiki/insurance-act-2015/ — non-consumer counterpart
• /wiki/fair-presentation-of-the-risk/ — analogous non-consumer duty
• /wiki/material-misrepresentation/ — non-consumer framework
• /wiki/warranty-insurance/ — related reform of basis clauses
• /wiki/inducement/ — Pan Atlantic test
• /wiki/marine-insurance-act-1906/ — historical pre-CIDRA framework
• /wiki/material-circumstance/ — non-consumer disclosure equivalent

References §

1. ↑ Consumer Insurance (Disclosure and Representations) Act 2012, https://www.legislation.gov.uk/ukpga/2012/6
2. ↑ Law Commission and Scottish Law Commission reports leading to CIDRA 2012, https://lawcom.gov.uk/
3. ↑ Consumer Insurance (Disclosure and Representations) Act 2012, section 1
4. ↑ Consumer Insurance (Disclosure and Representations) Act 2012, section 2
5. ↑ Consumer Insurance (Disclosure and Representations) Act 2012, section 3
6. ↑ Consumer Insurance (Disclosure and Representations) Act 2012, section 4 and Schedule 1
7. ↑ Consumer Insurance (Disclosure and Representations) Act 2012, section 6; Insurance Act 2015, section 9
8. ↑ Financial Ombudsman Service, published decisions on consumer insurance disputes; FCA Handbook ICOBS