COMMONS AMENDMENTS

HL Deb 23 July 1973 vol 344 cc1592-6

[Nos. 49 to 51] After Clause 42, insert the following new clause:

Statutory notice by insurer in relation to long term policy

".—(1) Subject to subsection (5) below, no insurance company to which the Act of 1958 applies and no member of Lloyd's or of any other association of underwriters approved for the purpose of Part II of the Act of 1967 by the Secretary of State shall enter into a contract of a kind mentioned in section 59(6) of the Act of 1967 (long term insurance contracts) unless that company or member ("the insurer") either—

1. (a) has sent by post to the other party to the contract a statutory notice in relation to that contract; or
2. (b) does so at the time when the contract is entered into.

(2) For the purposes of this section a statutory notice is a notice which—

1. (a) contains such matters (and no others) and is in such form as may be prescribed for the purposes of this section and complies with such requirements (whether as to type, size, colour or disposition of lettering, quality or colour of paper, or otherwise) as may be prescribed for securing that the notice is easily legible; and
2. (b) has annexed to it a form of notice of cancellation of the prescribed description for use under section (Right to withdraw from transaction in respect of long-term policy) below.

(3) Regulations made for the purposes of subsection (2) above may make different provision—

1. (a) in relation to contracts of different classes or descriptions;
2. (b) in relation to cases where the statutory notice is sent before the contract is entered into and in relation to other cases;

and the Secretary of State may, on the application of any insurer, alter the requirements of any regulations made for the purposes of subsection (2)(a) above so as to adapt those requirements to the circumstances of that insurer or to any particular kind of contract proposed to be entered into by that insurer.

(4) Any insurer who contravenes this section shall be guilty of an offence but, without prejudice to section (Right to withdraw from transaction in respect of long-erm policy) (2) below, no contract shall be invalidated by reason of the fact that the insurer has contravened this section in relation to that contract.

(5) Subsection (1) of this section does not apply to any contract the effecting of which by the insurer constitutes the carrying on of industrial assurance business; and regulations may exempt from that subsection contracts of any other class or description.

(6) In sections (Right to withdraw from transaction in respect of long-term policy) and (Service of notice of cancellation) below 'insurer' and 'statutory notice' have the same meaning as in this section." Insert the following new clause:

Right to withdraw from transaction in respect of long term policy

".—(1) A person who has received a statutory notice from an insurer in relation to any contract to which section (Statutory notice by insurer in relation to long-term policy) (1) above applies may before the expiration of—

1. (a) the tenth day after that on which he received the notice; or
2. (b) the earliest day on which he knows both that the contract has been entered into and that the first or only premium has been paid,

whichever is the later, serve a notice of cancellation on the insurer.

(2) A person to whom an insurer ought to have, but has not, sent a statutory notice in relation to any such contract as aforesaid may serve a notice of cancellation on the insurer; but if the insurer sends him a statutory notice in relation to that contract before he has served a notice of cancellation under this subsection, then, without prejudice to his right to serve a notice of cancellation under subsection (1) above, his right to do so under this subsection shall cease.

(3) A notice of cancellation may, but need not, be in the form annexed to the statutory notice and shall have effect if, however expressed, it indicates the intention of the person serving it to withdraw from the transaction in relation to which the statutory notice was or ought to have been sent.

(4) Where a person serves a notice of cancellation, then—

1. (a) if at the time when the notice is served the contract has been entered into, the notice shall operate so as to rescind the contract;
2. (b) in any other case, the service of the notice shall operate as a withdrawal of any offer to enter into the contract which is contained in, or implied by, any proposal made to the insurer by the person serving the notice of cancellation and as notice to the insurer that any such offer is withdrawn.

(5) Where a notice of cancellation operates to rescind a contract or as the withdrawal of an offer to enter into a contract—

1. (a) any sum which the person serving the notice has paid in connection with the contract (whether by way of premium or otherwise and whether to the insurer or to a person who is the agent of the insurer for the purpose of receiving that sum) shall be recoverable from the insurer by the person serving the notice;
2. (b) any sum which the insurer has paid under the contract shall be recoverable by him from the person serving the notice.

(6) Any sum recoverable under subsection (5) above shall be recoverable as a simple contract debt in any court of competent jurisdiction." Insert the following new clause:

Service of notice of cancellation

".—(1) For the purposes of section (Right to withdraw from transaction in respect of long-term policy) above a notice of cancellation—

1. (a) shall be deemed to be served on the insurer if it is sent by post addressed to any person specified in the statutory notice as a person to whom a notice of cancellation may be sent, and is addressed to that person at an address so specified; and
2. (b) where paragraph (a) above applies, shall be deemed to be served on the insurer at the time when it is posted.

(2) Subsection (1) above shall have effect without prejudice to the service of a notice of cancellation (whether by post or otherwise) in any way in which the notice could be served apart from that subsection, whether the notice is served on the insurer or on a person who is the agent of the insurer for the purpose of receiving such a notice.

(3) A notice of cancellation which is sent by post to a person at his proper address, otherwise than in accordance with subsection (1) above, shall be deemed to be served on him at the time when it is posted.

(4) So much of section 26 of the Interpretation Act 1889 as relates to the time when service is deemed to have been effected shall not apply to a notice of cancellation."

THE EARL OF LIMERICK

My Lords, I beg to move that this House doth agree with the Commons in Amendments No 49, 50 and 51, and with agreement I would propose to speak to No. 62. This group of Amendments stem from the Scott Committee's recommendations for a statutory notice describing the main features of the policy and for a cooling-off period. One of the reasons leading the Scott Committee to make these recommendations was the possibility of "pressure selling". There is no reason to suppose that pressure selling will necessarily be confined to linked life insurance, and we have therefore drafted the powers more widely, to apply to all ordinary long-term insurance business.

Amendment 49 makes it an offence for an insurer to enter into a long-term insurance contract without sending the policy-holder a statutory notice. The contents of that notice will be laid down by regulation after consultation with the industry. The Scott Committee, in paragraph 191 of their Report, suggested a list of the points that might be covered in the case of policies linked to an internal fund. In all cases the statutory notice will include a statement of the policyholder's right to a cooling-off period. Subsection (3) of the new clause gives the Secretary of State the power to adapt the regulations to suit the particular circumstances of a particular insurer or of a particular kind of policy. Linked life insurance is still a rapidly changing sector of the insurance industry, and we think this extra degree of flexibility is desirable in order to make the statutory notice as helpful and as informative as possible to policyholders.

We recognise that the statutory notice and the cooling-off period may not be appropriate for certain types of policy, notably short-term life assurances, where it is important that the cover should come into effect at once. Subsection (5) enables us to exempt such policies from these provisions.

Amendment 50 deals with the cooling-off period. The basic procedure is that, under Amendment 49, the insurer sends the policyholder a statutory notice which will include a statement of his right to a cooling-off period. Under subsection (1) of Amendment 50, having received that statutory notice, the policyholder is entitled to serve a notice of cancellation on the insurer within a specified period of time. If he chooses to serve that notice, the policyholder is then entitled, under subsection (5), to a full refund of his premiums. The minimum cooling-off period is ten days from the date of receipt of the statutory notice. There is a complication. The Scott Committee suggested that the insurer should be able to issue the statutory notice before the contract comes into force, and this option is open to the insurer under subsection (1) of Amendment 49. If the insurer exercises this option, it is possible for the cooling-off period to expire before the contract comes into force. However, as part of the normal law of contract, the prospective policyholder is entitled to withdraw at any time until the policy comes into force. But he will find out that the policy has come into force only a little after the event, when so informed by the insurer. In these circumstances, in order that the policyholder should know where he stands and that it should be practical for the statutory notice to inform him of his full rights to withdraw, it seems to us that the best solution is to provide that the cooling-off period should continue until the policyholder knows that there is a contract, and this is achieved by subsection (1)(b).

Subsection 2 deals with the situation where the insurer does not issue a statutory notice as required by Amendment 49. In this situation the policyholder will not have benefited from the safeguards in the way intended, and it is right that he should be able to withdraw from the contract at any time until the omission is rectified, whereupon he will be entitled to the "normal" cooling off period. Amendment 51 is consequential. It provides that the notice of cancellation shall be deemed to be served on the insurer at the time of posting. Amendment No. 62 to Clause 51 is also consequential. It provides that Amendments 49, 50 and 51 shall not take effect until the first regulations under subsection (5) of Amendment 49 have come into operation.

Moved, That this House cloth agree with the Commons in the said Amendments.—(The Earl of Limerick.)