The Unfair Terms in Consumer Contracts Regulations 1994, as modified in 1999, ("the Regulations") have been enacted for nearly a decade. Despite this, it was not until last year that their application to the terms of insurance contracts was directly considered by the Courts in Bankers Insurance Co. Limited v South (2003).
As a consequence of the Regulations, an†insurer cannot in certain circumstances rely†on "unfair terms" in an insurance contract†issued to an insured consumer i.e. a private†individual rather than a business. This†potentially therefore provides an insured with†an additional argument when faced with the†declinature of a claim by their insurer.
What Is An "Unfair Term"?
The Regulations apply:
"to any term in a contract concluded†between a seller or supplier and a consumer†where the said term has not been†individually negotiated" (i.e. primarily†industry standard or pro forma†wordings) (s.3(1)).
The Regulations are however subject to the†following limitation. More particularly:
"provided a contractual term is in plain,†intelligible language, and defines the main†subject matter of the contract or concerns†the adequacy of the price" then any such†term cannot be assessed for "unfairness"†(s.3(2)).
An "unfair term" is one which contrary to†the requirement of good faith "causes a†significant imbalance in the parties' rights and†obligations under the contract to the detriment†of the consumer" (s.4(1)). Further, when†assessing good faith, regard is to be had to:
"(a) the strength of the bargaining positions of†the parties;
(b) whether the consumer had an†inducement to agree to the term;
(c) whether the goods or services were sold or†supplied to the special order of the†consumer, and
(d) the extent to which the seller or supplier†has dealt fairly and equitably with the†consumer." (Schedule 2)
Bankers Insurance Co. Limited V†South
Mr South purchased holiday insurance for†a trip to Cyprus in July 1997. The policy†(which he apparently did not read)†contained an exclusion for liability for†accidents "involving your ownership or†possession of any Ö motorised waterborne†craft". While driving a jet ski, Mr South†was involved in a collision with a third†party. The third party was seriously injured†and issued proceedings against Mr South.†Mr South did not notify his insurer†(Bankers Insurance) of the claim until 6†months after the proceedings were served,†which was in turn three and a half years†after the accident.