Written by Senior Regulatory Counsel Michael Mathieson
My dog, still quite young and utterly adorable, is going blind. A minor consolation is that she is covered by pet insurance. However, the protections afforded by the General Insurance Code of Practice do not appear to be making much of a difference to the handling of my claim. And, with the work on the Life Insurance Code of Practice now complete, many will be watching for evidence that the new Code makes a difference.
For now, we are limited to the terms of the Code and thinking about what they mean. The question I will examine today is whether the Code is, in substance, just a code, or does it purport to go further?
The new Code says:
We acknowledge that a contract of insurance is based on the principle of utmost good faith which requires both us and you to act honestly and fairly towards each other, and for us to have due regard for your interests.
This is very interesting. It is, in part, an acknowledgment by a life company that an insured owes the life company a duty of utmost good faith. Now, there is no doubt that an insured does owe a life company a duty of utmost good faith. But it seems a curious thing for the life company, rather than the insured, to acknowledge. A party normally acknowledges something that may operate adversely to it, not something that may operate to its advantage. (The Code diverges from this convention again, when it says: 'We acknowledge that we will not always be able to identify when someone requires additional support at the time of their insurance application'.)
The paragraph extracted above is also, in part, a statement of opinion by a life company as to the meaning of the duty of utmost good faith. Seeking to summarise the effect of the numerous cases concerning the duty of utmost good faith in the second half of a single sentence might be considered bold. And it poses this question – if the duty is, indeed, reciprocal, is the insured required to have due regard to the life company's interests? The Code suggests not – but, if not, why not?
The General Insurance Code of Practice takes an arguably more straightforward approach to this issue, stating:
The objectives of this Code will be pursued having regard to the law, and acknowledging that a contract of insurance is a contract based on the utmost good faith.
The new Code also says:
The Code operates alongside and is subject to existing laws and regulations and in no way limits your rights under such laws and regulations.
On first reading, this might be considered to be an uncontentious description of the true state of affairs – of course a code cannot affect the operation of laws. However, the implication of this statement (lawyers do like to look for implications) gives pause for thought. This concern about implications could be dismissed as legal sophistry, and irrelevant, were it not for other aspects of the Code.
Some of the paragraphs of the Code concerning the assessment of claims refer to what the life company may or may not 'require' their customer to do. Those paragraphs would be all very well if they were contained in a contract of life insurance. However, they are contained in a code of practice. It is possible that the Code purports to confer an entitlement on a life company even where the relevant contract of life insurance does not.
There are other examples in the paragraphs concerning access to information. The Code says that the life company may decline to provide access to, or to disclose, information to their customer where the release of the information may be prejudicial to the life company. Again, this would be all very well if it were contained in a contract of life insurance but, where it is not, questions arise. If this is meant to be a mere description of the life company's pre-existing rights, what are those rights and their sources? If it is not meant to be a mere description, how does it square with the earlier statement about the legal status of the Code?
One argument might be that the Code creates entitlements for insureds and that these paragraphs merely define the limits of those entitlements. The difficulty with this argument is that the Code also says:
The Code is not intended to create legal or other rights between us and any person or entity other than the FSC.
The Code has much to recommend it. The paragraphs concerning policy design are a case in point. However, I suggest that the Code could be improved by making it clear that it is just a code, and nothing more. And now I must get back to working on the claim for my pooch.