§ Motion made, and Question proposed, That this House do now adjourn—[Mr. Sainsbury.]9.39 am
§ Mr. Greville Janner (Leicester, West)
I am grateful for this opportunity to debate the operation of consumer protection legislation regarding insurance contracts and so to draw the House's attention to the state of the law and to how it is working to remove rights from people who take out insurance just when their need for cover is greatest.
I shall discuss the operation of the law in general and then speak of the case of Mr. Tony O'Shea, the young disabled man from Birmingham whose life has been wrecked by Lloyd's, and who is a constituent of the hon. Member for Cannock and Burntwood (Mr. Howarth). This is not a party political matter but one of humanity, justice and decency. The hon. Member for Cannock and Burntwood and I have worked together on this case. The hon. Gentleman is in the Chamber and I hope that he will catch the eye of the Chair.
The law states that every contract may contain exclusion clauses but, thanks to the Supply of Goods (Implied Terms) Act 1973 and the Unfair Contract Terms Act 1977, exclusions that are unreasonable are generally void. The 1973 Act deals with the sale of goods and the 1977 Act covers the supply of services, not least insurance. Thanks to the strength of the insurance lobby, however, insurance contracts are excluded from the purview of the Act, so exclusion clauses in insurance contracts remain as binding and effective as they ever were, however unreasonable, unjust, unfair and unconscionable they may be.
There is an ancient rule that, in insurance contracts as opposed to all others, the person who wants the insurance has a duty to inform the insurers of any facts that they may find material when deciding whether to grant insurance and, if so, on what terms. Thanks to the so-called "doctrine of material non-disclosure", if a person does not disclose what the insurers regard as a material fact, then when a claim is made the insurers can say, "You did not tell us." It is no answer for the insured to say, "I paid my money. You never asked me. There was no question about it." He can be ruined as a result of not answering a question that he was not asked.
That wicked rule, that evil doctrine, has been denounced by a series of commissions, but it remains in force. Reputable, decent and honourable insurers do not in general rely on their rights in exclusion clauses, and still less on the archaic and wicked doctrine of material nondisclosure. I regret to inform the House that Lloyd's, that famous and once so honoured name, has seen fit to rely on such a clause, as I shall detail.
Exclusion clauses in insurance contracts remain valid and effective. It is the Government's duty, and especially that of the Minister for Consumer Affairs, to warn the public of these dangers. When entering an insurance contract, the public should be aware that every clause in it will be effective, irrespective of whether it is fair, reasonable or just. It is irrelevant that the clause might be totally incomprehensible. The fact that it is not possible to get insurance on any other terms is also irrelevant.
If one of my constituents goes on holiday over Christmas and takes out travel insurance, as like as not the travel agent will take out the policy and the insured will 674 not see the form. If there is a claim and the insured has not revealed previous travel claims, however long ago and even though he has not been asked, the insurers are technically entitled to repudiate liability. Of course, decent insurers would generally not do that, but I regret to tell the House that I have had to take up a series of such cases on behalf of constituents.
People have been literally on the verge of destruction as a result of insurers relying on this doctrine, which should have been repealed long ago—the doctrine that an insurer, but nobody else, can rely on an exclusion clause. The insured person is meant to inform the insurer of any material fact, or any fact which the insurer might regard as relevant. In practice, the doctrine is entirely on the side of the provider of insurance. I am surprised that successive Governments have allowed that doctrine to remain effective.
The need for the Government to warn people is made plain by the tragic case of Mr. Tony O'Shea, aged 34, and a sufferer from spina bifida, who built up a small business as a craftsman making jewellery in Birmingham. He had only one blemish on his character—many years ago he was charged with receiving a stolen camera. He was convicted, having pleaded not guilty, and he maintains to this day that he was innocent. In any event, he was not asked about that when he obtained insurance from Lloyd's.
I have a copy of the proposal form with me. There is no question asking, "Have you any previous convictions?" I believe that Mr. O'Shea did not fill in the form but that it was completed by brokers and signed by him. There is one wrap-up sentence which runs:Are there any other circumstances within your knowledge or opinion not already disclosed, affecting or likely to affect the proposed insurance?The answer is "No," because Mr. O'Shea thought that the question was irrelevant—a belief with which I agree.
Disaster struck. Mr. O'Shea's workshop was opened and cleared out. Some £40,000 of stock was stolen. Not surprisingly, he asked the insurers to pay. I suspect that the House will be disgusted to learn that, relying on the doctrine of material non-disclosure, Lloyd's of Lime street, London EC3M 7HL—that once so honoured name in the insurance world—saw fit to repudiate liability. That act was brought to the attention of the hon. Member for Cannock and Burntwood. I learned of it through the BBC programme "Watchdog" and its Mr. Allan Sharpe, to who I pay tribute. He published the facts, and Lloyd's have seen fit to report him to some BBC committee for so doing. I applaud and salute the programme for bringing these facts to my attention and to that of the public.
I took the normal step in the circumstances and spoke to the top person in the insurance organisation. Almost always, the chairman or managing director says, when such facts are brought to his attention, "OK, we made a mistake. I am sorry. Let's put it right. Legally we may not have to, but morally we do. We will pay ex gratia." In this case, the insurers offered the derisory sum of £10,000—less than 25 per cent. of the actual loss—and said, "Go away." I spoke to the chairman and to the deputy chairman of Lloyd's—Mr. Coleridge. At first, he did not know much about it, but he looked into the matter and said that it was a matter not for him but for the chairman, who was away.
675 I then spoke to the chairman, Mr. Peter Miller, whose name is not now unknown to the House. This morning's debate is not concerned with those major scandals that have been raised in the House in recent weeks, but this individual disaster is just as important and far more poignant that the alleged major frauds. As ancient wisdom has it, "When you save one life, you save the world." Certainly, when you wreck one life, you destroy one world. The person doing so should be held up to hatred, ridicule and contempt. That this hateful, ridiculous and contemptible doctrine has been used by Lloyd's to destroy the life of Tony O'Shea is a nastiness that is not the result of mere bureaucratic bungling, but a carefully contrived, designed and deliberate act of destruction of which Lloyd's and all those connected with it should be deeply ashamed. I hope that, as a result of the debate, Lloyd's may yet change its mind and restore life and hope to Mr. O'Shea.
I have a letter from Mr. Peter Miller, the chairman of Lloyd's, saying that he has now discussed the matter with the junior deputy chairman. Mr. Miller said:Lloyd's has a jealously guarded reputation for its determination and willingness to pay legitimate claims.When I spoke to Mr. Miller, I asked whether he was suggesting that dishonesty was involved in Mr. O'Shea's claim. I am pleased to inform the House that the police are quite satisfied that the robbery that deprived Mr. O'Shea of everything was genuine and that there was no dishonesty by Mr. O'Shea. Lloyd's is not alleging that there was any dishonesty on his part. I told Mr. Miller that if it were alleged, he should say so, and give Mr. O'Shea the opportunity to clear his name and to sue Lloyd's. If Lloyd's does not allege dishonesty, it must pay the claim. Lloyd's may be in the right legally, but morally it is wrong.
Lloyd's is saying that, although it is not alleging dishonesty, it is refusing to pay the claim by relying upon the antique, wicked, evil and ancient doctrine of material non-disclosure. Lloyd's deserves the evil publicity that I hope it will receive for the disgraceful way that it has handled Mr. O'Shea's claim.
In his letter, Mr. Miller attempts to justify non-payment on the ground of material non-disclosure. He refers to the "Watchdog" programme and complains that "Watchdog" did not put Lloyd's side of the case. I do not believe that there is another side to the case. It is simply a matter of Lloyd's saying, "This is a jeweller's claim. This man has a criminal conviction from years and years ago, and although it is nothing whatever to do with this claim, which is an honest and proper claim brought by a disabled young man who has built up his business, we will not pay it."
The underwriters, without in any way admitting liability, made an inadequate offer, and Mr. Miller says that it is a matter for them. If it is, I call from this House on all underwriters in Lloyd's to try to wipe out that blot on the good name of their institution by demanding that the chairman should either change his decision or resign, together with the senior deputy, the junior deputy or any other responsible officer who has been party to this terrible decision.
The chairman said in his letter:it is apparent from a review of the matter that underwriters have behaved both properly and reasonably.Properly in law—probably yes; properly in morality—no; reasonably and fairly—certainly not. He said: 676I do not feel it appropriate to intervene in this mailer.I suggest that it is now for the Government to intervene, that it is for the Minister to intervene, that it is for the underwriters to intervene, that it is for the public to intervene and that this is a scandal of proportions as great as those of the major frauds now being alleged in this House. The fact that it strikes down only one individual in no way reduces the scope of the wickedness involved.
The law stands. I undertake to seek to introduce a Bill to change that law. It may be a long campaign, but I shall introduce that Bill this Session. We cannot call for a change in the law while taking part in an Adjournment debate, but we are entitled to say, "This law is bad, this is what it does, this is how it has destroyed a life, this is how we can ruin the lives and the Christmases of countless honest decent assured people." We call on the Government at least to join in denouncing the way in which Lloyd's has used the law in the case of Mr. Tony O'Shea.
§ Mr. Gerald Howarth (Cannock and Burntwood)
I congratulate the hon. and learned Member for Leicester, West (Mr. Janner) on so ably securing this debate today, and also on his persistence in a matter that I know is close to his heart. I know that he has shown great tenacity when developing his argument over the years.
My constituent, Tony O'Shea, will be grateful not only for the hon. and learned Gentleman having spent sc, much time this morning alerting the public and the House to the circumstances surrounding his case, but also for the way in which the hon. and learned Gentleman has sought to help him.
The key to the case is the 1979 conviction, when Mr. O'Shea was found guilty of handling stolen goods. That sounds a very serious crime, but we should consider what lies behind it. The fact is that a good customer of Mr. O'Shea's came into his shop and said, "Things are a bit hard at the moment and I am trying to raise a bit of dough. I have a camera, which is not very expensive, which you might like to buy." Mr. O'Shea bought the camera for £70 for his own use, and not to sell to anyone else. He was not trying to make a quick profit. He purchased that camera to replace his own Instamatic. He later discovered that he could have purchased the same second-hand camera for £45.
It is upon that conviction that the whole case hangs. It does not hang upon the events surrounding the robbery on the night of 8 March 1984, when £41,000 worth of stock was stolen. Robbers entered Mr. O'Shea's home arid, knowing him to be disabled and therefore unable to defend himself, took his keys from him at knifepoint. Who is to blame him for surrendering the keys? I suspect that many able-bodied Members would have done the same, let alone were they afflicted with Mr. O'Shea's disability.
Yet it is not because of the events surrounding that crime that Lloyd's underwriters are refusing to pay the claim. I emphasise that no charges have been preferred against Mr. O'Shea arising out of the robbery on 8 March. Indeed, the police officer investigating the case has absolved him of any complicity. We therefore return to that conviction in 1979.
When Mr. O'Shea signed the proposal form prepared for him by an apparently competent broker, there was no question on the form asking him whether he had any previous convictions. Instead, Lloyd's underwriters have relied upon the catch-all clause 677Are there any other circumstances within your knowledge or opinion"—this is important—not already discussed affecting or likely to affect the proposed insurance?Mr. O'Shea answered the question—in his opinion, the answer was no. He did not appeal against the conviction because of the costs involved. Anyone involved in litigation knows that there comes a time when one has to consider whether it is better to cut one's losses, and Mr. O'Shea decided to cut his losses and not engage in the expensive business of going to appeal. He said that in his opinion he had denied the accusation, as he denies it to this day, and that it had involved a camera for which he paid £70.
Perhaps Mr. O'Shea was naive and should have realised that that was, in the eyes of the insurer, a material fact. Naive or not, that should not absolve Lloyd's from its responsibilities in this matter. This case reflects no credit on the insurance industry generally. I believe that at the base of it lies the doubt of the underwriters of Mr. O'Shea's innocence and that they are falling back on this catch-all clause to wriggle out of their obligations.
My advice to the underwriters is to put up their evidence or pay up to Mr. O'Shea now, and, to avoid this situation recurring, to ensure that proposal forms include the specific question, "Have you any previous convictions? If so, give details." That is the very least that should be done.
I pay tribute to Mr. O'Shea who, throughout this terrible personal ordeal, has shown great fortitude and a sense of reasonableness. He has not been totally consumed by it and has maintained at all times a balanced and reasonable approach. I hope that, as a result of this debate, a remedy will be found for him.
§ 10.2 am
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard)
I congratulate the hon. and learned Member for Leicester, West (Mr. Janner) on raising an important general matter and on relating it to the way in which one individual has been affected; and my hon. Friend the Member for Cannock and Burntwood (Mr. Howarth), who has associated himself with the case.
I begin by dealing with the general points to which the subject gives rise, and I shall comment later on the case to which reference has been made. On the generality of the matter in relation to insurance contracts, there is a good deal of common ground between the hon. and learned Gentleman, who has taken a close interest in this subject for a long time, and the Government. We would not dispute that steps need to be taken so that the balance of interest between the insurer and the consumer provided by the common law of insurance contract is altered, although there may be something between us as to the best remedy to be adopted in pursuit of that objective.
In October 1980, the Law Commission published a report on insurance contract law. That report identified two main areas where, in the opinion of the commission, the law discriminated unfairly against the consumer. First, there was the common law duty of disclosure, to which the hon. and learned Gentleman referred. Under the present law, the insured is obliged to disclose all facts which a 678 prudent insurer would regard as material, regardless not only of whether he was asked about a particular fact, but of whether he was acting in perfectly good faith in failing to realise its importance.
The second matter identified by the Law Commission was the question of warranty, to which the hon. and learned Gentleman did not refer and to which I shall not refer today.
The Government considered the recommendations of the Law Commission and accepted them. In 1983, the Government announced their intention to introduce legislation to implement them, with the important qualification that the reform of the law should apply to consumer contracts only. That was because there is not the same need for consumer protection in relation to business contracts, where the proposer can be expected to have a knowledge of the law and of his obligations under it, while extension to business contracts of a less strict duty of disclosure could seriously weaken the industry's international competitiveness.
The difficulty which the Government have encountered in endeavouring to deal with the problem by legislation is that a satisfactory definition of what constitutes a consumer as opposed to a business contract has proved singularly elusive. Indeed, a satisfactory definition of a revised duty of disclosure has given rise to similar difficulties.
Those were both areas in which it was important to have legal certainty if the revised law were not to create as many problems as the existing law, and it became clear as the Government considered the matter that such certainty would be extremely difficult to achieve. For that reason my predecessor announced in December of last year that he was embarking on discussions with the insurance industry to see whether changes to its statements of insurance practice might serve as an acceptable substitute for legislation.
Those discussions are well advanced and the Government are considering, in the light of the views that have been put to us by all the parties concerned, whether it is possible to achieve a satisfactory solution of the problem by revised statements of practice as a satisfactory substitute for legislation. If we were to follow that route, the situation would have to be kept carefully under review and the legislation would need to be reconsidered if that solution was found not to be working properly, and I hope to make a statement on that aspect of the matter shortly.
The other general point raised by the hon. and learned Member for Leicester, West related to exclusion clauses and to the fact that insurance contracts were excepted from some of the legislation dealing with exclusion clauses, including the two statutes to which he referred, the most recent of which was the Unfair Contract Terms Act 1977.
Those statutes pose specific and particular difficulties for insurance contracts, which must, by their nature, contain some exclusion clauses, and certainty of interpretation is essential to efficient insurance underwriting. If insurance contracts had been made subject to those statutes, that certainty would have been fundamentally undermined. The consequence of introducing such fundamental uncertainty into insurance contracts would have been an inevitable increase in premiums to all policy holders, as it would follow that there would have been a substantial increase in the number of potential and unforeseen claims which insurers might have been obliged to meet.
679 Thus, there are specific difficulties which those statutes would pose for insurance contracts. The Government have carefully considered whether those difficulties could be met and have reached the conclusion that it would not be right in all the circumstances to make insurance contracts subject to those laws.
Those are my observations on the generality of the points raised by the hon. and learned Gentleman. I come now to the case which he and my hon. Friend the Member for Cannock and Burntwood mentioned, that involving Mr. O'Shea. I say at once that, from the facts that have been disclosed to the House by hon. Members, it is difficult not to approach the case with a good deal of sympathy for the personal circumstances of Mr. O'Shea. I appreciate the reasons which have led the hon. and learned Gentleman and my hon. Friend to take up the matter, I understand the difficulties under which Mr. O'Shea labours and I understand and share the natural sympathy which they have expresssed for the predicament in which Mr. O'Shea finds himself.
Having said that, it is necessary to give careful consideration to the circumstances of the case, to the nondisclosure which occurred in that case and to consider to what extent, if at all, the facts of the case would have been affected by the recommendation of the Law Commission.
Before discussing the detailed circumstances of the case, I wish to place on record, lest it be thought that I had any kind of interest in the matter, that, although I was a member of Lloyd's, I ceased all underwriting in all the syndicates in which I had previously participated in Lloyd's when I assumed ministerial office in September of this year, fully in accordance with the Government's guidelines for the conduct of Ministers.
§ Mr. Janner
Does the Minister not consider that in the interest of manifest integrity, and to distance himself and presumably the Government from Lloyd's in the present and other unsavoury circumstances, he should relinquish his membership of that body so that it is abundantly clear that he has no interest in it or any part of what is happening to its bad name in these circumstances and in the allegations of fraud and other misconduct which have been referred to in the House recently?
§ Mr. Howard
I have made my position clear elsewhere. It is not possible, for good reasons resulting from continuing obligations and the right of Lloyd's to impose discipline on members where necessary, for a member normally to resign membership immediately. It is not possible normally, according to the rules of Lloyd's, for any resignation to take effect for a period of at least 30 months. In those circumstances, I have done what was proper for me to do, which was to terminate my underwriting and resign from all syndicates.
I wish to deal with the facts of the case——
§ Mr. Deputy Speaker (Mr. Ernest Armstrong)
Order. The hon. and learned Gentleman must not widen the debate.
§ Mr. Janner
On a point of order, Mr. Deputy Speaker. Is it in order for a Minister to reveal an interest in Lloyd's without saying whether he has given the 30-months notice to resign his membership from the organisation?
§ Mr. Deputy Speaker
I understand that the Minister explained his position the other night. In any event, it is not a matter for me.
§ Mr. Howard
I wish to deal with the facts of the case in the four minutes that remain to me. The Law Commission's report and recommendation can be summarised in this way:the duty of disclosure should be retained but it should be modified … A fact should be disclosed to the insurer by an applicant if … it is material in the sense that it would influence a prudent insurer in deciding whether to offer cover against the proposed risk and, if so, at what premium and on what terms; and it is … known to the applicant … and … it is one which a reasonable man in the position of the applicant would disclose to his insurers having regard to the nature and extent of the insurers cover which is sought and the circumstances in which it is sought".As we have heard, Mr. O'Shea was a jeweller. He was seeking cover not for his house or personal possessions but for his business. I express no personal view, far less a view on behalf of the Government, as it would not be proper to do so in the circumstances. However, it is at least open to argument that the knowledge that Mr. O'Shea had a previous conviction for receiving stolen goods was a material fact likely at least to influence the premium and the terms which an insurer would be prepared to offer, if not an insurer's willingness to provide cover in the first place.
We have listened with great care to what has been said about the circumstances of Mr. O'Shea's conviction, but conviction it was and as a conviction it remains on the record. In the circumstances, the very fact that the Law Commission's recommendation would not necessarily cover the case may cause some to doubt—I express no personal or governmental view on the matter—whether the extreme language used by the hon. and learned Member for Leicester, West was justified. Those are the circumstances, and it is open to argument whether the Law Commission's recommendation would have covered the case. It is open to argument whether it is reasonable for an insurer to take the view that the disclosure was material and might have affected the premium required.
The hon. and learned Member for Leicester, West asked me to intervene, and he asked the Government to intervene. He must know that neither I nor the Government have any statutory locus to intervene in such matters. Although I share the views expressed by the hon. and learned Gentleman on the need to improve this area of our law, and although I share the sympathy expressed by him and my hon. Friend the Member for Cannock and Burntwood for Mr. O'Shea's personal predicament, I cannot provide the intervention or Government assistance for which they ask in resolving the facts of a sad and unhappy case.