CASE STUDY

Primary Authority advice for property insurance claims

Introduction

MA Assist set up a Primary Authority partnership with Northamptonshire County Council in 2015 to consider the implications for the insurance industry in relation to the new consumer rights regulations. This advice sets the framework for Trading Standards Authorities all over the UK for consumer complaints in relation to property insurance claims. In this paper we present the key points that arise from the advice.

Primary authority – what is it?

Primary Authority is a statutory scheme, established by the Regulatory Enforcement and Sanctions Act 2008 (the RES Act). It allows an eligible business to form a legally recognised partnership with a single local authority in relation to regulatory compliance. This local authority is then known as its ‘Primary Authority’, and any guidance or ruling that it provides is applicable across the whole of the UK.

The Primary Authority scheme is designed to achieve better regulation at local level, promoting consistency across council boundaries, encouraging a new relationship between local authority regulators and giving businesses the confidence to invest and grow. The scheme is designed to drive efficient, effective and consistent regulation across the system for the benefit of all. It prevents inconsistent interpretation of regulations and applies regardless of where stores, factories or offices are based or products are sold.

MA Assist entered into a Primary Authority partnership with Northamptonshire County Council to understand the regulatory issues surrounding the surveyor-led model and cash settlements.

The advice

Below is a summary of the Primary Authority guidance issued to MA Assist. The two key pieces of legislation that are addressed are The Consumer Rights Act 2015 (from 1st October 2015) and The Consumer Protection from Unfair Trading Regulations 2008.

An omission of information or misleading statements given to consumers can be a criminal offence if they cause the consumer to take a transactional decision he would not otherwise have taken. When information is given to a consumer it should be sufficient for the average consumer to take an informed transactional decision. Specifically, a criminal offence could exist if:

• a consumer is not made aware that a cash settlement is discounted so that it will be difficult for the consumer to get the repairs done for the cash offered, or
• the consumer is not made aware of the risks of using their own builder or one approved by the insurer, or
• a misleading or incomplete description of works is prepared by a surveyor who is not given sufficient time on site to carry out the survey to a reasonable standard.

It is not sufficient to assume that a consumer is aware of all of the facts and information that has been provided to them, e,g, the details of a policy document, particularly in relation to vulnerable groups. A misleading omission can occur if a consumer is not “average” and is unable to make an informed transactional decision with the information provided to them at the time of the survey and/or cash settlement.

To effectively force a consumer to accept a cash settlement, particularly where the insurance contract allows for other remedies, could be considered an aggressive practice which is a criminal offence.

A breach of the Consumer Rights Act 2015 could occur when a surveyor is not given sufficient time on site to ensure that the work is carried out with reasonable skill and care and within the terms of the insurance contract. Where the consumer suffers a loss as a result (e.g. an under-valued cash settlement and/or inadequate repair works) and a suitable remedy is not provided by the insurer, damages can be awarded through the Courts.

The insurer is liable for any breach of these regulations unless it can demonstrate that it was not aware of its suppliers’ practices and/or it had in place reasonable due diligence processes and precautions. The test for reasonable due diligence processes and precautions for a large insurer will be commensurate with the resources available to the insurer, and so would be quite onerous.

Consumer Rights Act 2015

• The insurer is contractually liable for any infringements of consumers’ rights, so the insurer must ensure that any work carried out by a surveyor, loss adjuster or builder on behalf of the insurer is in line with the contract terms and is done with reasonable skill and care.
• Consumers who have suffered a breach of the Consumer Rights Act 2015 that has not be adequately remedied have recourse to the Courts.
• The definition of reasonable skill and care is only defined in case law, and it can be argued that a loss adjuster or surveyor must be given sufficient time on site to ensure that the work is carried out with reasonable skill and care.

The Consumer Protection from Unfair Trading Regulations 2008

• The insurer is liable unless it can demonstrate that it took all reasonable steps to avoid the breach.
• A commercial practice is unfair if it contravenes the requirements of professional due diligence and it materially distorts, or is likely to materially distort, the economic behaviour of the average consumer. It is illegal to carry out misleading actions or misleading omissions.
• A breach of this legislation is a criminal offence, even if unintended.
• A misleading action is one that contains false information and is therefore untrue, and includes the price or the manner in which the price is calculated, the existence of a specific price advantage or deceitful presentation, and that causes the consumer to make a transactional decision that he would not have taken otherwise.
• A misleading omission is one that omits or hides material information, provides material information in an unclear, ambiguous or unintelligible way or that fails to make clear its commercial intent, and that causes the consumer to make a transactional decision that he would not have taken.
• The consumer must be given sufficient information to take an informed transactional decision. So if a surveyor or loss adjuster is aware that a cash settlement is discounted to such an extent that the consumer is unlikely to be able to get the repairs done satisfactorily, the consumer should be made aware of this – a misleading omission. It can also be argued that restricting the time for a reasonable survey could lead to a misleading description of works required, which would adversely affect the transactional decision of the consumer.
• Where an insurer does not set out for consumers the implications and risks of using their own builder or one approved by the insurer, there could be a misleading omission.
• To effectively force a consumer to accept a cash settlement, particularly where the insurance contract allows for other remedies, could be considered an aggressive practice which is a criminal offence.

To read the full advice from Northamptonshire County Council Trading Standards please CLICK HERE.