§ Mr. Greville Janner (Leicester, West)I appreciate the opportunity to raise on the Adjournment the problems created for consumers by insurance contracts and the steps which I hope that the Government may take to draw to the attention of policy holders the extraordinarily complex and often thoroughly unsatisfactory position in which they stand.
Each of us in the House has a certain interest to declare because we are all policy holders of one kind or another. There are no policies available to Ministers which guarantee them their offices; nor to hon. Members which ensure them their seats. But for many other purposes we hold policies.
The criticisms that I make are not directed at those who insure me. For at least three generations the Guardian Royal Exchange Assurance Group and its predecessors have treated my family with considerable courtesy and, when my late grandfather came here from Lithuania and insurers were loth to insure Jewish immigrants, the Atlas Assurance Company took on the insurance of the family and, in recognition, we have stayed with it ever since. So I am not attacking my company nor any of the great companies, which often stretch the requirements of the law in order that justice may be done. But even the finest of companies may wobble, and the law is totally unsatisfactory.
This debate is not one in which we can recommend changes in the law, but it is right to draw attention to the unsatisfactory state of the law as it stands and to ask the Minister to remind the public, within the powers that he has, of these very serious problems.
When people take out insurance cover, they expect to be buying protection. All too often they do not get it when the grim moment of claim arrives. The reason sometimes is that they have not taken out the protection that they should have done and they have not bought what they should have bought. With insurance, as with most other commodities, the purchaser gets what he pays for. But often it is because of the nature of the contract and of the way that insurance companies administer their contract terms.
Due largely to the strength and power of the insurance lobby, when the Unfair Contract Terms Act was passed by a Government which I supported, unfortunately the insurance industry was exempted. As a result, that protection which is given to people against exclusion clauses which are unfair or unreasonable is not extended to those who avail themselves of the services of insurers. Every insurance contract contained, as it always is, in a policy document includes exclusion clauses, and these are binding, however unreasonable they may be and however unnoticed they may be. The law is that once anyone has signed a document he is, except in the most remote circumstances, taken to have known what was in it, to have understood what was in it and to be bound by whatever is in it. So people require to be warned of this vast danger. The Minister in his reply may be able to say that the danger is to be removed by some action which he—or perhaps the Director General of Fair 1194 Trading—might have in mind. But meanwhile this is a major and vicious trap for all of us who have insurance policies.
There is an archaic rule which the Law Commission, following the trail of many others, has recommended should go. The rule says that one must make disclosure of material facts which might affect the mind of the insurer, even if one is not asked about them. People who, for example, take out travel insurance and are going on holiday, either over this Whitsun period or later, and who think they have covered themselves against all forms of disaster, are not asked whether they have made previous claims against other companies, although any such claim would be directly material to the responsibility of the insurers. Therefore, insurers are entitled, in many cases, to repudiate liability.
The fact that most insurers do not take advantage of the position is a tribute to the excellent way in which the industry is frequently administered. But the fact that the power exists and that it is exercised from time to time—there are many reported cases which show the shambles of the protective devices which should be available to people—is an indication that, particularly as we approach this holiday weekend, it is for the Minister, I suggest, to warn holidaymakers to make sure that they are not excluded from the cover they expect to get.
When any policy holder enters into a contract, he may have to prove that he has a claim and follow some complicated rules laid down in the contract which in practice would cause people very great difficulty. I have been very disturbed at the number of cases which have come to me—through constituents and sometimes from outside—indicating the often wicked way in which people are deprived of their rights, and get them only when a Member of Parliament intervenes.
The most startling case concerned a very courageous disabled lady called Mrs. Hyatt, who lives on New Parks Estate in my constituency. Her husband went out to see their daughter in Australia and was drowned. A claim was made under travel insurance from the Bishopsgate Insurance Company Limited. The company first made difficulties even about paying for the ashes to be returned to the United Kingdom, and then declined to pay the £2,000 on the accident insurance because, as it said,
on a strict legal interpretation of the cover in respect of death from drowning it can be argued—and an opinion was taken in this respect—that this is excluded by the fact that death did not result from the person sustaining bodily injury caused by accidental external violent and visible means".When the man concerned went on holiday he took out insurance to cover him in respect of just that risk. He was drowned, without any suggestion that he had a heart attack—so that it could be argued that drowning did not cause the death—yet the company refused to pay. I wrote to the company and suggested that it might like to look into the matter before I took action in this House, and I am delighted to say the that £2,000 was paid at once. Having had correspondence with one of the leading executives of the company, I ventured to hope that it would not do the same again.But that is not the only company acting in such a way. I have a great bundle of complaints from people insured by various companies. The latest of the complaints had nothing to do with holidays. It concerned a woman whose wall was knocked down by a lorry. The company refused to pay because it said that the cause was frost and erosion. 1195 When I wrote to the company suggesting that that was perhaps not the best point in the insurers' book, it paid like a lamb, but the intervention of Members of Parliament should not he required.
On the other hand, the public should know that, if they run into such trouble, they should go to their Members of Parliament, so that we can weigh in on their behalf and see that, even when the law is against them—which often it is not—justice and the law are tempered by mercy, compassion and common sense in an industry which performs such good service and which, no doubt, will wish to continue on the same sort of basis.
I recollect the case of a certain fire insurance company which went into liquidation, leaving many people whistling for their money. As a result of complaints in this House in the very early days of my time here, a fund has been set up, with the creation of an ombudsman, and the company is doing its best to put its house in order, but meanwhile the law is not in order.
Let us assume that a person has a policy that covers him, that there is no material non-disclosure, that no exclusion clauses apply, and that he can prove his case. That is still not the end of the trail. The assured still has to satisfy the company that he is not over-insured or underinsured, and that his case is appropriate. There is a great deal of haggling to be done before people are paid. The process is much too prolonged and much too unfair. I suggest, with respect, that that is another matter that the Minister should look into.
If the worse comes to the ultimate worst, we have the sort of insurance disaster that has overtaken the unfortunate Mr. Bernard Saltman. His business premises caught fire and the insurers duly paid the first instalment under the policy. Then, having paid it, they put on to the trail a gentleman called Dr. Keith Gugan, and managed to spark off a prosecution for arson, resulting in Mr. Saltman's conviction. He is still in prison. Many people—including the right hon. Member for Chesham and Amersham (Sir 1. Gilmour) and myself—believe that the conviction was a travesty of justice. Having seen some of the criticisms made of Dr. Gugan's evidence in other cases—including the Flixborough disaster, the case of White Crescent Trust v. Warren, and the Azru case, and even matters arising out of the fire at Notting Hill—we have been deeply concerned at the way in which the insurance company has sought to preserve its interests by initiating and promoting prosecution.
The matter has been referred to the Home Secretary. Although the right hon. Member for Chesham and Amersham and I are both hopeful that the Home Secretary will see fit to recommend the exercise of the Royal Prerogative in the case, people ought to realise the vast dangers which can arise when an assured person falls foul of an insurance company. People who hear of this debate and have themselves suffered in a similar way, or who have knowledge of evidence given by Dr. Gugan, may see fit to come to the right hon. Member for Chesham and Amersham or to me so that we can attempt, perhaps more successfully, to plead with the Home Secretary to achieve the release of Mr. Saltman. Mr. Saltman's case is an example to us all of the ultimate misery which can emerge from trouble with insurers.
I do not expect the Minister to deal with Mr. Saltman's case—I fully understand that it is not within the scope of his Department—but I am sure that he will note that when the right hon. Member for Chesham and Amersham and 1196 I agree on a matter, there must be something in it, because we hardly ever come together on other issues. It is a measure of the concern, the discontent and the worry of people that Mr. Saltman is still in prison, albeit in an open prison.
The whole of this area of law requires change and the Law Commission recommends it. In this sort of debate we cannot recommend a change, although we can invite the Minister to say what is in the pipeline between him and the Director General of Fair Trading. If there is nothing, we can ask why. We can say to the Minister that, in view of the clear and justified criticisms of the present system made by the Law Commission—scarcely a militant Left-wing organisation—the Consumers Association, consumer organisations and those who suffer, people should be warned about the problems.
I have introduced a private Member's Bill on this subject which comes up for its Second Reading in July. Being a Ten-Minute Bill it has precious little prospect of success other than to start a campaign.
The law is left in the hands of the courts to administer. The final and ultimate injustice for most people is when they find that they cannot exercise their rights because they cannot afford to go to court. Justice is available to those with no money who can get legal aid and to those with plenty of money who do not need legal aid. Most of the population cannot fight the big battalions. One hopes that the principle of strict liability over accidents at work, on the road and elsewhere will be introduced.
I hope that the Minister will regard my approach as constructive and that the start of the holiday season is the right time to make it and that he will give a constructive and helpful reply such as we have come to expect from him since his transmogrification from the Department of Health and Social Security.
§ The Minister for Consumer Affairs (Dr. Gerard Vaughan)The hon. and learned Member for Leicester, West (Mr. Janner) has raised an extremely important subject. I appreciate his interest in the protection of people-taking out insurance cover. He presented the problem clearly and constructively. If I cannot cover all the actions that he would like, I shall look at the matter just as constructively.
It is important for the policy holder to know where he stands and for customers of all kinds to know what they are paying for and getting. The policy holder should have the peace of mind of knowing that when he has taken out a policy he is properly insured and has covered all the matters that he thinks are covered. Most insurance companies are well run. I frequently hear extremely pleasant and sometimes highly surprised comments about how fully, promptly and fairly insurance claims are dealt with. It is a matter of pride that our insurance industry is not only a great national asset but that it is admired and used internationally. It is an important part of our commercial activities.
I welcome the recent establishment of the insurance ombudsman bureau which has been set up by the insurance industry to deal with policy holders' complaints. It is a good example of an industry not always turning to the Government for regulation and direction but setting up its own body to see that the industry's codes of practice are 1197 carried out effectively. Policy holders who find themselves confused as to their rights can go to the bureau, obtain advice and have the matter sorted out.
I hope that more information will be given about the bureau so that more people know of its existence. No one would claim that there are no problems and no room for improvement. I am conscious of the complaints that are made. I deal with a few of them mainly in correspondence from hon. Members. The experience of my Department is that many of the complaints arise from misunderstanding. There are certain features about insurance that are liable to lead to a higher level of complaints. Problems arise from under-insurance where policy holders expect full compensation in exchange for paying premiums which only pay for partial cover. There are difficulties in informing people that they must extend their insurance cover that so that they do not find themselves underinsured for their requirements.
The hon. and learned Gentleman has rightly said that insurance is a complicated subject. It was for that reason that the Law Commission was asked to examine it. I should like to add my appreciation to that already voiced by my predecessor of the work done by the Law Commission in its report "Insurance Law: Non-disclosure and Breach of Warranty". It is a complicated part of a complicated subject. I was interested that the hon. and learned Gentleman referred to the problems over the nondisclosure of information that arise from the requirement to disclose information that is relevant even if one is not asked about it. That leads to confusion and uncertainty.
The related questions of non-disclosure and breach of warranty are important in the relationship between the insurer and his customer. When issuing a policy it is necessary that the insurer should be aware of all the facts material to the contract. It is equally important that the policy holder should be required only to disclose those matters which he can be reasonably expected to consider relevant. We are all seeking a balance between the interests of the insurer and the policy holder, so that the insurer has the information needed to draw up a proper contract and the policy holder has given the information that will not lead to confusion and misunderstanding later. It is whether that balance is satisfactory and whether it should be improved that has been so controversial.
I pay a tribute to the hon. and learned Member for Leicester, West. He has been active in drawing attention to the problem and the need to do something about it. It was because of some anxiety over the position and the state of the law that the Lord Chancellor of the day asked the Law Commission to look into the matter. It published its findings in October 1980. It is a complicated area legally that affects the fundamental interests of many people.
It is not surprising that the report has aroused strong feelings and disagreement. The hon. and learned Gentleman said that the insurance companies should not have been excluded from the Unfair Contract Terms Act 1977. The principal reason for such an exclusion which was advanced when the measure was being considered was that extending the Bill to insurance would handicap the industry in international competition and that it would result in excessive costs being paid by the consumer without any advantages. Insurance contracts are distinctive and the purpose of exemption clauses in insurance contracts is to define the extent of the risk and the 1198 circumstances in which the insurer would be obliged to pay. But the arguments advanced in 1977 for the exclusion of insurance should continue to hold good. If the hon. and learned Gentleman wishes to bring other aspects to my attention I shall be glad to look into them.
§ Mr. Greville JannerIs the Minister accepting any—if so, what part—of the Law Commission's report?
§ Dr. VaughanFollowing the report, my Department issued a consultation document. We stated that we found the arguments for reform of the law convincing, but we have not yet reached final conclusions about what should be done. The replies that we have had are divergent. There are still clear differences of opinion. It is clear from reading the report—it has become even clearer after the consultations—that there are extreme divergences of view. We hesitate to move from a situation that we accept is unsatisfactory without looking carefully into the implications of possible changes.
There is then the question of timing. A draft EEC directive is before the Council of Ministers. It also deals with insurance contract law. It would be unwise to ignore that. There is a strong case for not hurrying ahead with changes until we have a clearer idea of the trend of recommendations from the European Commission.
It has been put to us strongly that it would create not only confusion but unacceptable upheaval if we made a change and shortly after found it necessary to make another. Although we want to get on, it would be unwise to go ahead without knowing the outcome of the discussions.
There is confusion. Consumer organisations and the Law Commission strongly submit that there is an urgent need for change, but the insurers argue that, as in practice they do not take advantage of their full legal rights and have issued statements of practice more favourable to customers than the present law, we should not hurry to legislate before the problems have been properly worked out. I see the merits on both sides. It is important to get reforms right and avoid repeatedly tinkering with the law.
Those in the industry will be aware that their arguments, relying on statements of practice, can hold good only as long as they honour them. On the other hand, it is not vital to deal with all the problems at once. We must also consider the fact of the European discussions. But we should not wait indefinitely while discussions go on in Europe. If we can reach agreement here over the changes I would sympathetically consider getting on with them, despite the caveat that I gave.
Another problem area has emerged in the consultations—the scope of the reforms—whether changes should be applied to all insurance contracts or whether a distinction should be made between the different types of policy holder. Should there be a distinction between private consumers and business policy holders or between different types of policy? I should be glad to hear the hon. and learned Gentleman on that.
Most legal opinion supports my Department's initial view. Reform should apply equally to all contracts, regardless of the nature of the policy holder or the risk covered. I see that the hon. and learned Gentleman supports me. But the insurance industry feels strongly that if there is a need for reform it should be applied only to private consumer contracts. Here again is a difference of view.
1199 The Law Commission drew a distinction between types of contract, but that was within the realm of business contracts—for example, between marine, aviation and transport insurance on the one hand and other business risks on the other. Reform of the law on consumer contracts may be much simpler and more easily carried out than one applying more widely.
That comes back to what I said earlier. We may need to consider implementing some reforms while still discussing other necessary changes. We do not have to hold everything up in order to change everything in one sweep.
One of the most difficult areas involves warranties. A large part of our discussions has been devoted to that area. Here again the hon. and learned Gentleman will not be surprised that the views expressed are varied and do not point to clear conclusions. Under the law a breach of warranty in a contract of insurance automatically entitles the insurer to repudiate the policy. The Law Commission recommended limiting the extent to which the insurers can so repudiate. The insurers argue that the unambiguous sanctions applicable under the existing law help to make the policy holder aware of the need for strict compliance and to ensure legal continuity. But we need to consult further on those difficult issues.
The role and legal position of insurance intermediaries, who are a vital link between insurers and policy holders, require further thought. Even in the short time that I have held this responsibility a number of views have been put to me.
The hon. and learned Gentleman has raised an important subject. Discussions are going on. I congratulate him on his clear and constructive presentation. If he wishes to bring other aspects to our attention, we shall welcome them.
§ Mr. Greville JannerWhen does the Minister expect the discussions to end and when does he expect to be taking some action on anything? He agrees with almost everything that I say and accepts that the insurers will not like the change much, but there is no sign of movement from his Department. I hope that I am wrong.
§ Dr. VaughanWith so many divergent views being put to us, I cannot at this stage give the hon. and learned Gentleman a clear date.
I am conscious of the problems and the need to, take action. A good deal of uncertainty has resulted from the Law Commission's report, the consultation paper and the replies. I am aware of the damage that can be caused by drift. We shall not delay.
The hon. and learned Gentleman mentioned the case of Mr. Saltman. He appreciated the fact that the Home Secretary is considering the matter, although I note what he says.