FSR GPS: Misleading or deceptive conduct - Disclaimer antidotes in insurance

We previously published an article on how prominent and appropriately balanced disclaimers (which we call 'checking disclaimers') can be used to help mitigate the risk of an inaccuracy in a customer-facing document, which would otherwise result in misleading or deceptive conduct.

In this edition of FSR GPS, we explore this antidote specifically in an insurance context.

In the wake of recent court decisions, insurers would be well-positioned to explore the benefits and limitations of including a prominent and appropriately balanced checking disclaimer in customer-facing communications, if they do not already utilise this mechanism.

Unintentional errors in insurance documents

It is inevitable that, on occasion, an inadvertent inaccuracy will slip into a customer-facing insurance document, such as a renewal notice, a quote, or a confirmation of transaction.

In some instances, this can arise from an isolated human error. In other cases, an error can arise from an unanticipated system glitch, even where reasonable care has been taken to ensure the integrity of systems and processes. The hard reality is that inaccurate premium quotes, benefit figures and even descriptions of key terms, such as scope of cover and exclusions, can be affected by an inadvertent inaccuracy.

In many cases, an inaccuracy can give rise to misleading or deceptive conduct, even where the inaccuracy may be favourable to the customer. As we know, there is no legal requirement that misleading or deceptive conduct result in an adverse impact on a customer. For example, misleading or deceptive conduct can arise even where confirmation of a claim payout understates the amount that has actually been paid to the customer.

The effect of a 'checking disclaimer' in insurance documents

What then is the potential for a prominent and appropriately balanced 'checking disclaimer' to have a curing or neutralising effect on misleading or deceptive conduct? It seems to the authors that the recent case law decisions provide some helpful scope and guidance for such a disclaimer to play a potentially important role in this respect.

At one end of the spectrum, as we discussed previously, some inaccuracies will be harder to cure or neutralise through a checking disclaimer. For example, where a statement of cover contains a significant inaccuracy that is likely to be readily accepted and believed by a customer, the inclusion of a checking disclaimer is less likely to prevent a customer from being led into error by the misstatement.

On the other hand, a prominent and appropriately balanced disclaimer may be effective at reducing the tendency for a customer to be led into error, in circumstances where (for example):

• the inaccuracy is so obvious and significant that a reasonable person would be unlikely to believe it (e.g. a dollar figure that is incorrect by two decimal places);
• it would be relatively easy for the customer to notice and verify the inaccuracy; for example, personal information about the customer that has been captured incorrectly in a certificate of insurance. Ultimately, the efficacy of a checking disclaimer will significantly turn on the potential for a customer to unearth and become aware of the inaccuracy; or
• the misstatement is unlikely to be believed by the customer, on the basis that the customer has previously received (and continues to rely on) a statement which contains the correct information.

All these factors, when combined with the inclusion of a checking disclaimer, will be relevant to the threshold question of whether misleading or deceptive conduct has arisen in the first place. We have previously published an article about factors that could reduce the likelihood of an incorrect representation amounting to misleading or deceptive conduct.

Prominence of the disclaimer

The use of a checking disclaimer could be seen to invoke a key principle articulated in numerous judicial decisions, specifically that any misrepresentation must be viewed within the context of its dominant message, or (more frequently) within the context of the communication as a whole. As courts have repeatedly observed:^[1]

'...it would be wrong to select particular words or acts which although misleading in isolation do not have that character when viewed in context.'

In this regard, more prominent positioning and drawing attention to a checking disclaimer could help set the tone of the communication as a whole, by emphasising to customers that information in the communication may not always be completely correct, and that customers should check the information before relying on it.

To some extent, we consider that the placement, clarity, believability and prominence of a checking disclaimer can improve its efficacy at mitigating the risk of misleading or deceptive conduct.

Prior correct statements combined with a disclaimer

In an insurance context, a checking disclaimer can in some circumstances increase the tendency for a customer to withhold acceptance of an inaccuracy, and to instead validate that inaccuracy against an earlier document which contains the correct information. For example, a checking disclaimer on an annual statement could prompt a customer to query a peculiar premium figure in their annual statement and to check their prior bank statements to confirm if the premium summary shown in their annual statement is, in fact, correct.

By way of another example, a checking disclaimer could prompt a customer to check an unusual statement in a promotional or summary document against correct information contained in a policy document which is publicly accessible online.

In these situations, where a customer is likely to be prompted by the checking disclaimer to withhold their belief of an inaccuracy, it could be concluded that there is no real prospect of the customer falling into error, i.e. misleading or deceptive conduct.

Efficiently, honestly and fairly and the duty of utmost good faith?

How does the use of a checking disclaimer align with the obligation on licensees to do all things necessary to ensure that financial services are provided efficiently, honestly and fairly (EHF Obligation) and the duty of utmost good faith? These duties will still apply even where a checking disclaimer is used.

This issue is untested, as there has been limited case law on the use of a checking disclaimer. However, on first principles, our view is that the use of a checking disclaimer can be entirely consistent with the licensee's EHF Obligation and its duty of utmost good faith. We note that:

Conclusion

It seems to the authors that a checking disclaimer mechanism can and will play an increasingly significant and important role in customer-facing insurance communications.